Avon 2012 Annual Report Download - page 12

A number of merchandising techniques are used, including the introduction of new products, the use of combination offers, the use of trial
sizes and samples, and the promotion of products packaged as gift items. In general, for each sales campaign, a distinctive brochure is
published, in which new products are introduced and selected items are offered as special promotions or are given particular prominence in
the brochure. A key current priority for our merchandising is to continue the use of pricing and promotional models and tools to enable a
deeper, fact-based understanding of the role and impact of pricing within our product portfolio.
From time to time, various regulations or laws have been proposed or adopted that would, in general, restrict the frequency, duration or
volume of sales resulting from new product introductions, special promotions or other special price offers. We expect our pricing flexibility
and broad product lines to mitigate the effect of these regulations.
Competitive Conditions
We face competition from various products and product lines both domestically and internationally. The beauty and beauty-related products
industry is highly competitive and the number of competitors and degree of competition that we face in this industry varies widely from
country to country. Worldwide, we compete against products sold to consumers by other direct-selling and direct-sales companies and
through the Internet, and against products sold through the mass market and prestige retail channels.
Specifically, due to the nature of the direct-selling channel, we compete on a regional, often country-by-country basis, with our direct-selling
competitors. Unlike most other beauty companies, we compete within a distinct business model where providing a compelling earnings
opportunity for our Representatives is as critical as developing and marketing new and innovative products. As a result, in contrast to a
typical CPG company which operates within a broad-based consumer pool, we must first compete for a limited pool of Representatives
before we reach the ultimate consumer.
Within the broader CPG industry, we principally compete against large and well-known cosmetics, fragrances, skin care and personal care
companies that manufacture and sell broad product lines through various types of retail establishments. In addition, we compete against
many other companies that manufacture and sell more narrow beauty product lines sold through retail establishments and other channels.
We also have many competitors in the jewelry, accessories, apparel, housewares, and gift and decorative products industries globally,
including retail establishments, principally department stores, gift shops and specialty retailers, mass merchandisers, and direct-sales
companies specializing in these products.
We believe that the personalized customer service offered by our Representatives; the amount and type of field incentives we offer our
Representatives on a market-by-market basis; the high quality, attractive designs and prices of our products; the high level of new and
innovative products; our easily recognized brand name and our guarantee of product satisfaction are significant factors in helping to
establish and maintain our competitive position.
International Operations
Our international operations are conducted primarily through subsidiaries in 64 countries and territories outside of the U.S. In addition to
these countries and territories, our products are distributed in 43 other countries and territories.
Our international operations are subject to risks inherent in conducting business abroad, including, but not limited to, the risk of adverse
currency fluctuations, currency remittance restrictions and unfavorable social, economic and political conditions.
See the sections “Risk Factors – Our ability to conduct business, particularly in international markets, may be affected by political, legal, tax
and regulatory risks” and “Risk Factors – We are subject to financial risks related to our international operations, including exposure to
foreign currency fluctuations” in Item 1A on pages 7 through 18 of our 2012 Annual Report for further information.
Manufacturing
We manufacture and package the majority of our Beauty products. Raw materials, consisting chiefly of essential oils, chemicals, containers
and packaging components, are purchased for our Beauty products from various suppliers. Most of our Fashion and Home products are
purchased from various third-party suppliers. Additionally, we design the brochures that are used by the Representatives to sell our products.
The loss of any one supplier would not have a material impact on our ability to source raw materials for our Beauty products or source
products for our Fashion and Home categories or paper for the brochures.
A V O N 2012 5