Avon 2008 Annual Report Download - page 13

collects payment from the customer for his or her own account.
A Representative generally receives a refund of the full price the
Representative paid for a product if the Representative chooses
to return it.
We employ certain electronic order systems to increase Repre-
sentative 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, Rep-
resentatives can utilize the Internet to manage their business
electronically, including order submission, order tracking, pay-
ment and two-way communications with Avon. In addition, in
the U.S., Representatives can further build their own Avon busi-
ness 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, as well as
up-to-the-minute news about Avon.
In the U.S. and selected other markets, we also market our prod-
ucts through consumer websites (www.avon.com in the U.S.).
These sites provide a purchasing opportunity to consumers who
choose not to purchase through a Representative.
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 Avon with consumers and help reinforce our
beauty image. In certain markets, we provide opportunities to
license Avon beauty centers and other retail-oriented oppor-
tunities to reach new customers in complementary ways to
direct selling.
The recruiting or appointing and training of Representatives are
the primary responsibilities of District Sales or Zone Managers
and Sales Leadership Representatives. In most markets, District
Sales or Zone Managers are employees of Avon and are paid a
salary and an incentive based primarily on the achievement of a
sales objective by Representatives in their district, while in other
markets, those responsibilities are handled by independent
contractors. Personal contacts, including recommendations from
current Representatives (including the Sales Leadership program),
and local market advertising constitute the primary means of
obtaining new Representatives. The Sales Leadership program is
a multi-level compensation program which gives Representatives,
known as Sales Leadership Representatives, the opportunity to
earn bonuses based on the net sales made by Representatives
they have recruited and trained in addition to discounts earned
on their own sales of Avon products. This program limits the
number of levels on which commissions can be earned to three
and continues to focus on individual product sales by Sales
Leadership Representatives. The primary responsibilities of Sales
Leadership Representatives are the prospecting, appointing,
training and development of their down-line Representatives
while maintaining a certain level of their own sales. Develop-
ment of the Sales 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.
As part of our multi-year turnaround plan, we have initiatives
underway to standardize global processes for prospecting,
appointing, training and developing Representatives, as well as
training and developing our direct-selling executives.
One of our key strategies to recruit and retain Representatives is
to invest in the direct-selling channel to improve the reward and
effort equation for our Representatives (Representative Value
Proposition or “RVP”). We have allocated significant incremental
investment to grow our Representative base, to increase the
frequency with which the Representatives order and the size of
the order and have undertaken extensive research to determine
the pay back on specific advertising and field tools and actions
and the optimal balance of these tools and actions in key
markets. In addition to a research and marketing intelligence
staff, we have employed both internal and external statisticians
to develop proprietary fact-based regression analyses using
Avon’s vast product and sales history.
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 satis-
factory manner, these questions can be raised again following
regulatory changes in a jurisdiction or can be raised in additional
jurisdictions. If there should be a final determination adverse to
us in a country, the cost for future, and possibly past, contribu-
tions 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 sup-
port the efforts of Representatives to reach new customers, spe-
cially designed sales aids, promotional pieces, customer flyers,
television and print advertising are used. In addition, we seek to
motivate our Representatives through the use of special incentive
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