Avon 2012 Annual Report Download - page 11

PART I
A Representative contacts customers directly, selling primarily through our brochure, which highlights new products and special promotions
for each sales campaign. In this sense, the Representative, together with the brochure, are the “store” through which our products are sold.
A brochure introducing a new sales campaign is usually generated every two weeks in the U.S. and every two to four weeks for most
markets outside the U.S. Generally, the Representative forwards an order for a campaign to us using the Internet, mail, telephone, or fax.
This order is processed and the products are assembled at a distribution center and delivered to the Representative usually through a
combination of local and national delivery companies. Generally, the Representative then delivers the merchandise and collects payment
from the customer for his or her own account. A Representative generally receives a refund of the price the Representative paid for a
product if the Representative chooses to return it.
We employ certain web enabled systems to increase Representative support, which allow a Representative to run her or his business more
efficiently and also allow us to improve our order-processing accuracy. For example, in many countries, Representatives can utilize the
Internet to manage their business electronically, including order submission, order tracking, payment and two-way communications with us.
In addition, in the U.S., Representatives can further build their own business through personalized web pages provided by us, enabling them
to sell a complete line of our products online. Self-paced online training also is available in certain markets.
In some markets, we use decentralized branches, satellite stores and independent retail operations to serve Representatives and other
customers. Representatives come to a branch to place and pick up product orders for their customers. The branches also create visibility for
us with consumers and help reinforce our beauty image. In certain markets, we provide opportunities to license our beauty centers and
other retail-oriented and direct-to-consumer opportunities to reach new customers in complementary ways to direct selling. In the U.S. and
certain other markets, we also market our products through consumer websites (e.g. www.avon.com in the U.S.).
The recruiting or appointing and training of Representatives are the primary responsibilities of district sales managers, zone managers, and
independent leaders. Depending on the market and the responsibilities of the role, some of these individuals are our employees and some
are independent contractors. Those who are employees are paid a salary and an incentive based primarily on the achievement of a sales
objective in their district. Those who are independent contractors are rewarded primarily based on total sales achieved in their zones or
downlines. Personal contacts, including recommendations from current Representatives (including the Leadership program), and local market
advertising constitute the primary means of obtaining new Representatives. The Leadership program is a multi-level compensation program
which gives Representatives, known as independent leaders, the opportunity to earn discounts on their own sales of our products, as well as
commissions based on the net sales made by Representatives they have recruited and trained. This program generally limits the number of
levels on which commissions can be earned to three. The primary responsibilities of independent leaders are the prospecting, appointing,
training and development of their downline Representatives while maintaining a certain level of their own sales. Development of the
Leadership program throughout the world is one part of our long-term growth strategy. As described above, the Representative is the
“store” through which we primarily sell our products and, given the high rate of turnover among Representatives (a common characteristic
of direct selling), it is critical that we recruit, retain and service Representatives on a continuing basis in order to maintain and grow our
business.
From time to time, local governments and others question the legal status of Representatives or impose burdens inconsistent with their
status as independent contractors, often in regard to possible coverage under social benefit laws that would require us (and, in most
instances, the Representatives) to make regular contributions to government social benefit funds. Although we have generally been able to
address these questions in a satisfactory manner, these questions can be raised again following regulatory changes in a jurisdiction or can be
raised in other jurisdictions. If there should be a final determination adverse to us in a country, the cost for future, and possibly past,
contributions could be so substantial in the context of the volume and profitability of our business in that country that we would consider
discontinuing operations in that country.
Promotion and Marketing
Sales promotion and sales development activities are directed at assisting Representatives, through sales aids such as brochures, product
samples and demonstration products. In order to support the efforts of Representatives to reach new customers, specially designed sales
aids, promotional pieces, customer flyers, television advertising and print advertising are used. In addition, we seek to motivate our
Representatives through the use of special incentive programs that reward superior sales performance. Periodic sales meetings with
Representatives are conducted by the district sales or zone managers. The meetings are designed to keep Representatives abreast of product
line changes, explain sales techniques and provide recognition for sales performance.