Avon Corp Case Essay

1215 Words Jul 29th, 2013 5 Pages
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 *
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Applying only 7.8% (share of the 5 hp units of all units) to the fixed plant and equipment costs, the breakeven point for the $4400 price is also the quickest of all the options, at 1.08 year. See Exhibit 1 for complete data. Recommendations: I recommend an initial price for the 5hp of $4400/unit. This is the optimal prices based on the UCM calculation as well as through the regressions/derivative method. This is on the lower end of the prices that were discussed in the case, but will enable Avon to capture a larger market share and profit than by going after a higher priced niche segment.There are also considerable economies of scale for Avon when they reach a production of 200 units/month as well as a quicker breakeven point for the factory and equipment investments. The variable cost decreases to $2995/unit and the fixed cost breakeven point drops down to just over a year, comparable to the EAS price point, breakeven is over two in a half years (Exhibit 1.) At a price point of $4400, Avon would undertake a market penetration strategy that would enable them to capture around 45% of the overall market in 5 years. The lower price point, compared to the current standard EAS pricing should enable Avon to achieve fast adoption in the market and could discourage some new players from entering the market, as the margins would be significantly lower than if Avon priced at $7350. Competition

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