Avon Begins Operations in China Summary

  • Last updated on November 10, 2022

Avon Products confirmed the widespread appeal of the company’s door-to-door marketing strategies when it successfully began operations in southern China.

Summary of Event

Although many products do not travel well into different markets, Avon Products transplanted its cosmetics and skin-care lines successfully into southern China in the early 1990’s. That the company was able to do so is a function of the history of Avon itself, the traditions of China, and the peculiar economy of southern China. Cosmetics industry Retailing;door-to-door sales[door to door sales] Marketing;door-to-door[door to door] [kw]Avon Begins Operations in China (1990) [kw]China, Avon Begins Operations in (1990) Avon Products Cosmetics industry Retailing;door-to-door sales[door to door sales] Marketing;door-to-door[door to door] [g]East Asia;1990: Avon Begins Operations in China[07570] [g]China;1990: Avon Begins Operations in China[07570] [c]Marketing and advertising;1990: Avon Begins Operations in China[07570] [c]Trade and commerce;1990: Avon Begins Operations in China[07570] Deng Xiaoping McConnell, David Preston, James E.

David McConnell, a Bible salesman working in the post-Civil War United States, gave away perfume samples to gain entrée for a more meaningful message. When he found, to his surprise, that the samples attracted far more interest than the Good Book, he decided to sell another product. In 1886, McConnell established the California Perfume Company in New York City. He enlisted the support of Mrs. P. F. E. Albee of Winchester, New Hampshire, who became the first “Avon lady,” although the company did not take the Avon name until 1946. McConnell’s company was a pioneer in developing flexible work schedules and providing business opportunities for women. By 1990, more than 400,000 Avon ladies in the United States contracted with the company (Avon ladies are not technically Avon employees). Some of the “Avon ladies” were even men. This sales force helped the company become the largest cosmetics purveyor in the world. Avon provided this distribution network with collectible packaging and an exceptionally wide product line.

Avon’s distribution network of mostly female door-to-door salespeople gave it a historical competitive advantage in the U.S. marketplace but posed a weakness for the company beginning in the early 1980’s. During this period, the number of sales representatives declined as increasing numbers of women workers left part-time employment in favor of full-time careers. This dovetailed with the fact that door-to-door salespeople were finding fewer potential customers at home during the day. Avon restructured its pay scale to try to reward productivity and increased training to professionalize the sales force, but the results were the same as for most other cosmetic companies—increased marketing costs and reduced profits. In 1992, for example, the company saw decreases of 2 percent in revenue, 3 percent in profit, and 4 percent in sales personnel. Although Avon continued to be the largest direct seller of beauty aids in the United States, the entrance of Procter & Gamble Procter & Gamble Company[Procter and Gamble Company] into the product category intensified competition from supermarkets and discount drugstores.

Avon therefore sought alternative channels of distribution to increase sales in a maturing domestic marketplace. In the late 1980’s, the company sold many of its unrelated businesses. For a time, Avon had owned Tiffany Jewelers, mailed a fashion catalog, and had a presence in the health care products market. The company went back to concentrating on its core competence—cosmetics— and worked hard to maintain its niche as a direct seller. In what might seem at first glance to be a reversal of its history, Avon launched a cosmetics mail catalog that made the customer a “partial employee.” The company sent a million catalogs to potential customers in 1992, trying to reach the estimated ten million would-be consumers whom Avon thought were unable to contact an Avon sales representative. The target market was also younger and more affluent than the company’s traditional consumer. Avon used the catalog as a supplement to the existing sales force; customers who called in response to the catalog were assigned (or assigned themselves) to a nearby representative, who received about half the normal commission from any catalog sales.

A similar system prevailed for Avon’s television advertisements. New customers were referred to existing salespeople in order to minimize potential resentment on the part of the sales force. A 1993 advertising campaign was designed to stimulate customers to call Avon (whereas “Avon calling” was both a trademark of the company and a source of vaudeville humor) using a toll-free number. Although these measures helped to reassert Avon’s prominence in the United States, they transformed Avon from a door-to-door seller into more of a mainstream consumer-product company.

Avon also sought international growth. As early as 1984, almost 40 percent of the company’s profits came from overseas operations. Avon Japan oversaw the Pacific region (including the Philippines, Taiwan, Thailand, Malaysia, Australia, New Zealand, and Indonesia), which became increasingly important to the company. In its overseas business, the company grew in its traditional way, using direct personal selling rather than becoming a mainstream consumer-product company.

Southern China, particularly Guangzhou (formerly known as Canton), has interacted with and accepted the West more than has any other part of the country. The Manchus made Guangzhou the only acceptable contact point between China and the West; the British government used the Opium War of the 1840’s to open up other treaty ports. Even by the 1990’s, Guangzhou was still the port through which more than 40 percent of China’s exports and imports flowed. Northern China has perceived itself as culturally more “pure,” whereas southern China has experienced Western influences in areas such as fashion. Even in Xian, a city of two million people in northern China that was the home of the first emperor and was never a treaty port, a beauty shop was named for Guangzhou, perhaps as a symbol of the way northern Chinese view southern China. Guangzhou has also left its mark in various Chinese communities around the world as the source of Cantonese foods.

The door-to-door salesperson has a strong past in China, some of it emanating from previous American businesses. Standard Oil of New Jersey Standard Oil of New Jersey provided a dramatic example of marketing an inexpensive product in China as early as the 1880’s. Standard distributed kerosene lamps and then cashed in on the demand created for oil to fuel the lamps. The company bottled and sold, in some cases door-to-door, a low-grade product under attention-getting names such as “Monkey” and “Sylvan Arrow.” By 1920, China represented the largest non-European foreign market for Standard Oil. Traveling salespeople who offered tobacco and cotton products were also common in pre-1949 China; both tobacco and cotton were important American agricultural exports.

Perhaps the most numerous door-to-door “salespersons” in China were connected with the missionary movement. By the early 1920’s, the heyday of American Protestant missionary enterprises, nearly five thousand Americans, representing more than sixty denominations, called China home. About one-third were active evangelists in the classic sense. They also employed a number of Chinese evangelists who gradually assumed the mantle of church leadership after the Chinese revolution of the 1920’s. Thus precedents existed for the “selling” of Western goods and ideas in China, by Chinese people, even before the United States reopened trade with China in 1972.

In 1990, these historical streams merged when Avon entered a joint venture with the Guangzhou Cosmetics Factory Guangzhou Cosmetics Factory to manufacture and sell cosmetics in China. This was a literal venture into new territory for Avon. That southern China was the location of the enterprise was a function not only of the history described above but also of the economic liberalization reforms championed by Communist Party chairman Deng Xiaoping, which reached their peak in Guangzhou. The city and the province profited most from the economic freedom. The special economic zones in Zhuhai and Shenzen, trade with Hong Kong, and the traditional window that southeastern China had provided for Western goods made Guangdong the most prosperous province in China.

Even before Avon signed the joint-venture agreement, the company already had a presence in China, as Chinese manufacturers sold more than $50 million in products to Avon. Furthermore, the company had initially sought permission for a factory in northern China. After five years of futile negotiations in the mid-1980’s, the company, acting on the advice of David Li, Li, David chief executive of Hong Kong’s Bank of East Asia and a member of Avon’s international advisory board, successfully took its negotiations to the more entrepreneurially minded southerners.

Under the terms of the 1990 contract with Guangzhou Cosmetics, the American company provided 60 percent of the capital—about a million dollars—as well as cosmetics formulas, technical expertise, and sales and marketing programs. Avon refurbished an old factory, small and labor-intensive by U.S. standards, to produce a limited range of products: lipsticks, mascaras, skin-care products, tanning lotions, and men’s products such as talc, deodorant, and aftershave. The Chinese operation also repackaged some imported products.

Significance

Early results of the joint venture indicated a successful meshing of Avon’s traditional distribution plans with the burgeoning entrepreneurial activity in Guangzhou. Although Avon technically targeted the entire country of China, the Guangzhou experiment was a beachhead from which to reach the sixty million people living in Guangdong. In the first month of operations, the company surpassed its projections for the first six months. Avon Products

Avon did, however, have to make a few concessions to Chinese customs and the state of the Chinese economy. In the United States, the company delivered merchandise directly to independent contractors; in China, it delivered to branch depots, which the company maintained. These quasi-retail establishments were important in the Chinese operation. They always had some customer service representatives on hand to provide information and thus educate customers about direct selling.

Because the Chinese were not yet comfortable with direct door-to-door sales, much of the training for the sales force consisted of instruction in why customers should buy direct. Although cold-calling techniques arouse suspicion in China, Chinese urban society is centered on the danwei, or work/living unit. This structure permitted sales representatives access into offices, factories, schools, and community centers to conduct beauty-care seminars. These seminars became the primary locations for the selling of Avon items in China.

Avon positioned itself carefully in China as a foreign brand, but one that is price sensitive. The language used on Avon packaging is thus English and the models are Western, but the average cost of an item is only $3. Prices are lower than for imported cosmetics but higher than for other domestically produced goods. Avon’s prior experience elsewhere in Asia was important in identifying trends. For example, Avon knew that Asian customers generally buy relatively more skin-care products than makeup compared with Western customers. There were some surprises, however: The early best seller was a skin whitener that cost the equivalent of about one month’s salary for a Chinese worker.

Although Avon was able to draw top management from its other Asian companies, especially in Taiwan, the unique channel of direct selling was the key to Avon’s efforts in China. Avon had to make few changes in its recruiting of Avon ladies. Within a year, it had an estimated local sales force of twenty-five thousand. It drew particularly well from the elite, as doctors, engineers, and scientists realized they could earn commissions from selling Avon that were more than ten times their business incomes.

The officers of Avon recognized their strengths from the beginning. On signing the joint-venture agreement, James E. Preston, Avon’s chairman and chief executive officer, stated that Avon’s “system of selling, training and providing an earnings opportunity for women will bring a new dimension of business to China.” Boasting of the potential of the market, he predicted that Avon in China would someday have two million representatives, more than half a million more than Avon had throughout the world in 1990. This boast had been nowhere near met a decade and a half later, however; in 2005 the company had only three thousand trained salespeople in China in addition to its company workforce of two thousand.

The company was nonetheless doing very well in 2005, the year the Chinese government introduced four new requirements for all direct-sales enterprises. These requirements included a company record of law-abiding practice, experience with direct sales in foreign countries, registered investment of more than 80 million yuan in China, and a system for information disclosure. Avon already met these requirements, and China allowed the company to conduct pilot door-to-door campaigns in Beijing and Tianjin in 2005.

As the first company involved in direct sales to Chinese consumers, Avon served as an example for other direct sellers, such as Amway and Mary Kay Cosmetics. At a minimum, Avon’s success in China created business opportunities for women there as it had for women in the United States. Avon Products Cosmetics industry Retailing;door-to-door sales[door to door sales] Marketing;door-to-door[door to door]

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Allen, Margaret. Selling Dreams: Inside the Beauty Business. London: J. M. Dent & Sons, 1981. Popular review of a century in cosmetics and skin care pays particular attention to the success of Avon and Mary Kay Cosmetics. Includes photographs and index.
  • citation-type="booksimple"

    xlink:type="simple">Dunton, Loren. How to Sell to Women. New York: McGraw-Hill, 1965. Primer on direct sales points out that selling to women requires skills different from those used in selling to men. Avon is one of the examples cited. Dated, but all the more informative for that reason.
  • citation-type="booksimple"

    xlink:type="simple">Futrell, Charles. Fundamentals of Selling: Customers for Life Through Service. 9th ed. Homewood, Ill.: Irwin, 2005. Widely used textbook focuses primarily on corporate sales positions rather than on direct selling but includes basic information on the process of professional selling: prospecting, qualifying, making sales presentations, handling objections, and closing the sale.
  • citation-type="booksimple"

    xlink:type="simple">Klepacki, Laura. Avon: Building the World’s Premier Company for Women. Hoboken, N.J.: John Wiley & Sons, 2005. Presents the history of Avon and explains the company’s success. Chapter 8 addresses how Avon has prospered around the world and briefly discusses the move into China. Includes index.
  • citation-type="booksimple"

    xlink:type="simple">Tanzer, Andrew. “Ding-Dong, Capitalism Calling.” Forbes, October 14, 1991, 184, 186. Presents an interesting account of the early history of the Avon agreement with Guangzhou Cosmetics.

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