“This is one of the most strategic markets for Avon globally,” said Ms. Yeh, who is stepping up marketing for the beauty company in China, including the rollout of new products such as Cleawhite.
Avon revitalized the whitening skin care line with a new product formula and brand identity that is more modern, spontaneous and youthful. The revamped product was introduced last month.
“Cleawhite’s technology has been upgraded with more efficacy benefits for whitening needs,” explained Ms. Yeh, to lighten the complexion and even out skin tones, and its packaging conveys “a radiant, sparkly” image.
Whitening products are a “big business” in China, so Avon “wanted to put a solid entry into the ‘masstige’ market,” said Craig Briggs, Hong Kong-based managing director, Asia of Desgrippes-Gobe, the French design company employed by Avon to handle the re-branding exercise. The Shanghai office of Avon’s global roster agency, Soho Square, part of the WPP Group, created Cleawhite advertising.
Earlier this year, Avon rolled out its global “Hello Tomorrow” marketing campaign in the mainland, also created by Soho Square. And the company sponsors the China National Diving Team in a two-year agreement that makes Avon the team's exclusive provider of cosmetics and health foods. The agreement will run through the 2008 Olympic Games in Beijing.
Avon’s ad campaigns, sponsorship and product launches are all part of an umbrella campaign to raise the profile of Avon among women in white-collar jobs who are increasingly conscious of their appearance and health.
China’s middle class consumers “are increasingly willing to trade up for products and services, especially those services that are quite personal, like beauty and skin care,” Mr. Briggs said. At the same time, consumers with increasing access to information “can scrutinize brands more, and want to scrutinize brands more, since there are many disappointments to be found in the China market,” because of fake or poorly-made products.
Avon is taking other steps to expand its operation in China since being allowed to resume direct selling in the mainland. Avon is one of just 14 foreign companies including global giants like Nu Skin, Oriflame, Marykay, Amway and Herbalife, to obtain a license to conduct direct selling in China since December 2005, when new regulations were issued by the Ministry of Commerce. Five local companies were also licensed by the end of May and several dozen more local and foreign companies await approval.
China bammed direct sales in 1998 because pyramid schemes created social unrest due to poor product safety and quality. There was also a political motivation for Beijing to clamp down on direct selling, as the government was not eager to see a rise in the number of grassroots organizations.
New regulations issued one-and-a-half years ago ended the ban on direct selling for a handful of products--cosmetics, healthcare, cleaning and sanitation and kitchenware--sold by companies with a good credit standing and a large-scale business.
Although Beijing has reinstated direct selling rights to companies such as Avon, the first direct sales company granted a license, there are still numerous restrictions on how and where Avon’s representatives can operate.
Commissions are capped at 30%, sellers have to be approved by the government in a screening process that can take several weeks and they are limited to a particular geographic sales zone. The company is also barred from recruiting healthcare professionals, civil servants and students, normally a rich talent pool for Avon and its rivals in other markets. Salespeople are also limited to selling Avon products. They cannot earn income from recruiting other sellers, one of the pillars of Avon’s success in western markets.
Even beyond these restrictions, China remains a tough market, said Ms. Yeh. “It can’t be counted as one country. Consumers are so different from Shanghai to Xi’An to Shenzhen, in the way they use beauty products. In the northeast, consumers are influenced by Korea and Japan in their choice of products and colors, while the southeast is similar to Taiwan.”
“China’s media environment is also a challenge, I’ve never seen a market so complicated, with overlapping channels at the national, provincial and local level,” added Ms. Yeh. A native of Taiwan, she joined Avon in 1990 in Taipei after earning a Master of Business Administration degree in the U.S. at Rutgers, the State University of New Jersey. After a two-year stint in Seoul as general manager of Avon’s business in South Korea, she relocated to Shanghai in her current role in 2003.
Despite these challenges, and fast-growing competition from other global direct marketing firms, Avon’s business in China is sizzling.
Under the old rules, Avon had transformed its model into “ a 100% pure retail channel,” said Ms. Yeh, with 5,000 retail boutiques spread from tier one to tier four cities and 2,000 beauty counters in department stores and hypermarkets.
Over the past year, the boutiques have been converted into direct seller service centers that follow Avon's operating model in other markets, said Ms. Yeh.
Avon has also developed an m-commerce product ordering system, which will allows the company's sales promoters to make orders via mobile phone in China, home to 480 million mobile subscribers at the end of the first quarter of 2007.
At the end of March, Avon had over 507,000 licensed sales promoters registered with the Chinese government, approximately 168,000 of whom fit Avon's definition of an active representative.
Expansion in China has spurred revenue growth by 44% (39% in local currency terms) in the first quarter of 2007. Avon’s operating profit in the mainland reached $3 million in the first three months of this year, compared with an operating loss of $1 million for the same period last year. Avon's direct selling business in the mainland contributed over one-half of total revenues in Asia/Pacific for the first quarter.
“There is no reason to doubt about our future growth opportunities in China,” said Ms. Yeh. “This market is so important to Avon. Our transformation into direct selling is moving fast, and with the economic situation improving, we’re sure consumer spending will continue as well.”
Other people news in Greater China
[shanghai] K.C. Arriwong to exec creative director, China at Leo Burnett Worldwide, in Shanghai. He succeeds Ruth Lee, who resigned as exec creative director for Greater China, Shanghai, last May after nearly a decade with the network to pursue other interests. Most recently, Mr. Arriwong was exec creative director at Publicis Worldwide in Hong Kong.
[guangzhou] OMD has appointed Pauline Tsang as general manager of its Guangzhou office, succeeding Cathy Wen, who is relocating to Canada for personal reasons. Previously, Ms. Tsang was regional business director at Carat, based in Shanghai.