Avon Corporation Case Study

In order to begin to understand the industry in which Avon functions as well as the specifics around the introduction of the new EAS drive, I used the 5Cs analysis to outline the company’s current situation.

Situation Analysis via the 5Cs:

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• Company
• Avon manufactured a number of electrical products
• Sold products to both end users and OEMs
• $6M in sales annually of the AVDC drives, lost sales to EAS drives Collaborators
• Distributors and OEMs ­ Avon could establish many more relationships once they can compete in more than just the AVDC drives, and can address the more price sensitive side of the market Customers
• Three types of adjustable speed drives: MAS, EAS and AVDC, with different applications and price levels
• Some of Avon’s customers required EAS drives for their business and Avon lacked this line Competitors
• 7 companies manufactured MAS drives, with 2 accounting for 50% of sales (gross margins of 20%)
• 5 companies manufactured EAS drives, with 1 major player (gross margins of 50%)
• 4 companies manufactured AVDC drives Context
• Avon’s new EAS design was different but not patentable and could be replicated by a competitor in approximately 2 years
• For many of the MAS and EAS companies, the drives were its major product

Based on this analysis, it is clear that the competitive landscape is going to play a key part in determining initial pricing of the new drive. There are a number of existing players in the space who will want to defend their territory. In order to build a bigger market for the EAS drive, Avon will have to steal customers from both the MAS manufacturers, existing EAS drives in the marketplace as well as potentially cannibalize some of their own AVDC sales. The total market size of all drives was $269M, with the MAS segment accounting for more than 50%. However according to the research performed, if the new EAS drive was introduced at the MAS price of $3750, than the EAS market would grow to $135M. Avon estimated that they could take 50%

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