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Avon Case Analysis Essay

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Avon Corporation 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:
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 * …show more content…

This could indicate the presence of two markets, one very price sensitive and a much less price sensitive ­ high end niche but smaller market. After taking the derivative, the P = ½ MC + 3560. However, due to the shape of the graph and its poor fit to the linear regression, I split the data in two portions. According to the market analysis, the more price sensitive (MAS) end of the market is the largest segment and a price of $4400 produces the largest UCM (Exhibit 1.) I repeated the regression again with prices from $3750 to $5000 only. The trend line is now a much closer fit than previously and the new derivative equation is P = ½ MC + 2895.

To calculate optimal pricing I used MC outlined in the case as based on volume of drives produced weekly. Fixed costs of plant and equipment were not included in this analysis although are later evaluated for breakeven time frame.

Quantity >200 units/week 100 units/week 50 units/week 30 units/week

MC $2995 $3594 $4193 $4500

Price $4393 $4692 $4992 $5145

However, it is not clear from the above where the contribution margin is greatest and whether Avon should use the penetration strategy at a price close to the current MAS price, or focus on the niche high end market and price close to the current EAS price. Looking at the UCM analysis which

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