From the death of Avon to f2c: Almost all large companies have been defeated by blind loyalty to old rules!

The death of all companies is caused by one reason: they once identified the market and chose the right track, but as time went by, the rules changed, but they died because of their blind loyalty to the old rules.

Three Reasons Why Avon Died

It is an indisputable fact that Avon has fallen!

It is understood that the private equity companies that Avon has negotiated with have bid for Avon's shares by way of private investment in public stocks. The two companies are Cerberus and Platinum Equity, both American private equity companies that are good at handling non-performing assets. Up to now, no institution has expressed interest in taking over Avon, and this century-old man is still "waiting to be married".

Once this news came out, it meant that another century-old giant had fallen. It easily reminds people of Yahoo, Nokia, Kodak, Sony and other old giants that were once famous but eventually disappeared. Whether you don’t understand the trend or look down on it, the fall of every superstar has its own unique reasons!

Avon is no exception. Some people attribute Avon’s demise to its advanced age of 129. We can’t help but ask: How long can a company survive?

Analyzing the essence of the enterprise:

Enterprises are run by humans, and as long as there are continuous influx of innovative talents, the enterprises will continue to exist.

To prove that what I said is true, I have found several representative examples:

• Bushmills, which appeared in the masterpiece "Ulysses", was founded in 1680 and is known as the oldest whiskey distillery on earth, with a history of more than 300 years.
• The predecessor was the Mayinglong Shengji Pharmacy during the Wanli period of the Ming Dynasty (1582 AD), which has a history of more than 400 years;
• The Nishiyama Onsen Keiunkan in Japan's Riyama Prefecture was founded in 705 AD. The official website of this "oldest hotel" also has a QR code. It has a history of more than 1,300 years and is still in operation ...

From this point of view, the death of an enterprise is definitely not caused by age. The enterprise itself has no life. It is people who have life. As long as visionary and innovative talents enter, the enterprise can continue to thrive.

You may think of one person: Jack Ma, who said Alibaba will live for 102 years. Many people said that they had no idea about this number. From a business perspective, what does 102 mean? It means a century!

Jack Ma believes that the Internet will benefit mankind for a century before being replaced by more advanced things, which will change the way people shop. Just as the Internet has disrupted today's traditional retail, there will definitely be more advanced models that will disrupt traditional e-commerce in the future.

102 is just a warning bell sounded by Jack Ma: if Alibaba does not see, appreciate, or understand the potential opportunity of the century, it is very likely to be discovered by an inconspicuous small company and get there first. It is no exaggeration to say that Alibaba's fate will be the same as Avon's today.

Of course, unlike the cause of Avon’s death, Ali’s death had another reason and another scene! The death of all companies is caused by one reason: they once identified the market and chose the right track, but as time went by, the rules changed, but they died because of their blind loyalty to the old rules.

Reason #1 for Avon’s demise: PR issues that had nothing to do with its products

Avon is dead, and that is true!

From 2011 to 2014, Avon China's sales were RMB 1 billion, RMB 700 million, RMB 600 million and RMB 350 million respectively. In December 2014, Avon was exposed for bribing officials in China. The investigation that began in 2008 has resulted in about $340 million in legal and other costs for Avon products, which has also led to Avon's sales performance suffering losses in recent years.

It can be seen that Avon’s first cause of death was a public relations problem that had nothing to do with its products.

Unlike other public relations, Avon's public relations is not open to the public. They must operate behind the scenes and rely on money to buy people's hearts. But people's hearts are not what you want to buy, especially when it comes to the law. Coincidentally, every little move of Avon can be discovered in time because it is too obvious and easily targeted by the media and the law.

Therefore, in the past decade, the entire Avon senior management has been busy not with product issues or strategic issues, but with direct sales licenses and various channel issues that are on the edge of the law.

This means that the Avon brand stopped growing ten years ago. When I was a student, my teacher would say one sentence over and over again:

Learning is like rowing against the current, if you don’t move forward, you will fall behind!

This is especially true for the unpredictable business world. In the years when Avon stopped growing, emerging brands have sprung up like mushrooms after a rain: L'Oréal Paris, Olay, Shiseido Estee Lauder, Lancome, Procter & Gamble, Clinique, Biotherm... They are dividing up the market at lightning speed. What is Avon doing at this time? They are still relying on shady tactics to open up channels - this is the only thing they can do, but will Chinese law allow an American company to do so?

The second reason for Avon’s death: it was blocked by its own sales channels

Rather than saying that this is a matter of fate, it is more accurate to say that Avon was blocked by its own sales channels.

Avon has been involved in these channels intermittently:

1. Counter sales
2. Specialty store sales
3. Online Sales
4. Business model: Specialty store + direct salesperson

They do not adopt a multi-channel coexistence strategy, but a single-channel strategy, for example, they only do retail when doing retail and only do direct sales when doing direct sales. In order to establish a single channel, Avon's senior management showed no mercy to either the specialty stores or the direct salesmen!

According to conventional business logic, a single channel can definitely work. For example, if I only focus on the retail channel, as time goes by and capital costs increase, the company's resources and connections in the retail channel will only increase. But Avon made a big mistake. They switched back and forth between multiple channels, repeatedly going through four transformations in total.

The first transformation: going to the retail channel

In 1990, when Avon first entered China, it adopted a direct sales model. In 1998, Avon China began to open exclusive stores across the country, adopting a retail model.

The "front shop and back yard" style was popular at that time, with cosmetics sold in the front and a beauty salon in the back. By 2006, Avon China had more than 6,300 stores and over 2,000 counters in shopping malls.

But the quality of dealers varies greatly from place to place. In order to achieve sales performance, Avon's branches across China condoned dealers to sell goods at low prices, disrupting market prices. From 1998 to 2005, although sales increased, Avon's brand reputation and vitality were seriously overdrawn. After 2006, Avon China began to decline.

The second transformation: direct selling + retail

In 2004, Amway's direct sales revenue reached 8 billion yuan. Avon China's revenue was 2.4 billion yuan, less than one-third of Amway's. This tragic situation continued until 2006, when Avon obtained China's first direct sales license and began to shift to a mixed model of "specialty stores + direct sales."

The drawback of this model is that it leaves a way out for direct sales personnel. If they fail to sell the products or do not sell them well, they can go to the physical store to apply for a full refund. This not only leads to escalating friction between the direct sales team and physical stores, but also makes the product pricing system more chaotic and the brand image continues to deteriorate.

During the transformation process, Avon China charged high fees to its specialty stores and required them to upgrade to brand image stores, which directly led to a sharp drop in the number of specialty stores.

The third transformation: Return to direct sales

Since specialty stores and direct sales cannot coexist, Avon China wants to do what it does best. At the end of April 2010, Avon China began to transform to a "full direct sales model", weakening the sales function of its specialty stores, transforming them into service outlets, and planning to gradually eliminate the specialty store format.

This harmed the interests of the vast majority of dealers, caused strong dissatisfaction among them, and Avon's reputation continued to be damaged. Many dealers decided to leave Avon and demanded returns and compensation.

The executives who were parachuted in from South America arbitrarily led Avon China to break up with its distributors. This resulted in Avon China having to repurchase large quantities of inventory on the one hand, while on the other hand being helpless in dealing with the decline in performance caused by channel cuts.

The fourth transformation: focusing on the retail market

In 2012, under the leadership of the new President of China, Lin Zhanhong, who "reinvented Avon", Avon began to return to the retail channel. The problem was that when Avon came back again, it found that the track was blocked by competitors of all sizes, both foreign and domestic, and the market had already been divided up. Therefore, Avon, which has returned to the retail market, is just a lamb to be hunted, no, a cheap rib lamb that no one wants!

Through these four transformations, we can clearly see the short-sightedness of Avon's senior management's strategic vision: their short-sightedness is reflected in two aspects. First, they treat tens of thousands of physical store partners without any emotional consideration and abandon them without hesitation with a very firm stance - this is consistent with their ruthless corporate style; second, they are confused about their strategic positioning: should they engage in retail or direct sales? If you keep going back and forth for a long time, you will definitely suffer! This way of death is surprisingly consistent with Yahoo: Yahoo didn't understand until its death whether it was creating content or searching? By the time we realized how to do search, the market was almost monopolized by Google . Ironically, Google's initial user base was attracted by Yahoo itself.

Because there are no visible trends, companies will always be forced to transform! A company that is always in transformation has no future. This is the second reason for Avon’s death.

The third reason for Avon’s demise: It fell into the trap of the direct sales model

Avon was once one of the most popular brands, and as a direct sales company, it had more than 6 million sales representatives worldwide in its heyday. By 1997, Avon had hired as many as 350,000 direct sales people.

However, can direct selling really work? The partnership model between direct selling agencies and direct sellers is essentially unfair: direct sellers suffer huge losses, while some direct selling agencies can still make profits. One of the reasons for this is that as direct selling agencies, they not only slaughter customers across the country, but also the direct sellers themselves! (See the first item below). This pattern design itself is not well-intentioned:

1. Not only can you not make money, you also have to pay money

Ordinary sales people earn a base salary plus commission. Even if their performance is zero, they still receive a base salary. However, most direct sales personnel not only cannot make money from their business, but also have to pay out of their own pockets. Direct sales personnel need to pay joining fees, self-use product fees, training fees, transportation fees, communication fees, market development fees, plus investments in various tool flows... An ordinary person will spend tens of thousands of dollars, and a leader will spend even more.

2. Cutting out the middleman, but the product price is ridiculously high

Logically speaking, direct sales cut out the middle agents, so the prices should be cheaper. However, the opposite is true: direct sales products are much more expensive than those in retail stores! If you question its price, a group of direct sales personnel who are obviously brainwashed and trained will tell you without hesitation: their products are much better than those on the market, so it is reasonable and logical that the price is higher!

The problem is that all your exaggerated words are just empty talk. Most customers have never seen your products, but you just insist that they are better than the famous brands on the market! This goes against the normal psychology of customers.

For example, a stranger suddenly jumps in front of you, holding a mobile phone brand you have never heard of and trying to sell it to you. He demonstrates the functions of the phone from all aspects, and you are confused. Or maybe you are not listening at all. You are just thinking about how to reject him. But he doesn’t care about your feelings at all. He talks passionately for half an hour, and then asks you to charge 9999... What would you do?

Of course unconditionally rejected! At least nine hundred and ninety-nine out of a hundred people will do this. Naturally, in reality, people will do the same when faced with direct sales, even if you feel that "it is hard to refuse such a kind offer." Even if a few people accept a certain product, their long-term consumption capacity will not last too long! This is determined by the poor experience in direct sales scenarios and prices that exceed the value of the product itself.

Therefore, the vast majority of direct sales personnel not only gain nothing after working in the industry for more than a decade, but also lose all their assets.

If this is the case, why are there still so many people engaged in the direct selling industry? There is only one answer: routine! (See Article 3)

3. You go there to make money, but they tell you that making money is not the most important thing.

When a newcomer joins a direct sales company, they will tell you that making money is not important. There are many things in this world that are more important than making money: such as friendship, love, family, responsibility, health, happiness, fraternity, the principles of being a human being, etc. In fact, once such remarks come out, smart people will know that this business will definitely not make money. The reason is simple: the industries that really make money will not sell you these illusory things.

When a startup pitches you a dream, you can probably guess: they didn’t raise money. An organization that has been operating for a long time tells you that there are things more important than money: this only means that there is something wrong with their model itself, and you can be sure that you will definitely not make any money! These can all be deduced by putting yourself in their shoes... However, there are still countless people who lack business thinking but are only interested in making a lot of money!

China has no shortage of such people.

This is indeed the case. Direct selling and pyramid schemes use the same routine. Those who get the license are direct selling, and those who don’t get the license are pyramid schemes. So Avon China has spent a lot of money to open up sales channels, including doing many tricks in secret... This is the only thing they can do, because it has always been a direct selling company in essence. Once it fails to get a license, it will be classified as a pyramid scheme, and then completely lose the meat soup in China.

Although it has more or less involved direct sales, retail, and online sales... just like Tencent's genes are social networking and Alibaba's genes are e-commerce , Avon's genes are direct sales... and have always been...

The problem is that the direct sales bubble has not yet burst, but Avon has already passed away. It is obvious that this centenarian died of internal and external troubles. The internal trouble was that he could not figure out his own strategic positioning, and the external trouble was that the direct sales bubble was gradually bursting.

From the death of Avon to f2c

Heroes cherish their dreams. No matter those working in industry or the Internet, no one wants to see this ending. It’s just that Avon’s internal troubles came earlier than its external troubles. Even if Avon China has been sticking to the direct sales position for the past 30 years, it may not have the last laugh, because the next 30 years will be the time when the traditional direct sales bubble bursts.

During the crisis, a large number of direct sales companies will go bankrupt and transform. Business rules are constantly changing, and change is the only "unchanging thing" in the world. If you adapt, you will succeed; if you don’t, you will perish! Didn’t Yahoo and Nokia die just like that? The news of Avon’s death came out just in the past two days, so never think that death is far away from you!

Regarding direct sales, change is the key: many new ways of playing will emerge in the future.

There are two things that can be believed:

• One is that direct selling no longer appears in real scenarios, that is, people are eliminated, because people themselves are costs.
• Secondly, the direct selling rules must be re-established and unified. This is decentralization, because the essence of business is not to deal with the law. It may not be formal, but it must be mutually beneficial. The business results under the leadership of traditional direct selling companies are: only the direct selling organizations themselves have the possibility of making profits, and direct selling personnel have been losing money (according to authoritative research, less than one in ten thousand people make money through direct selling, which is against the law of business.)

What meets the needs of this scenario is Industry 4.0, which has been advocated internationally. The Chinese say: F2C, which means from factory to individual. If you want to seize the opportunity of the century, I still suggest starting with online retail. After all, the foundation of the Internet of Things is still the Internet. This is an era of e-commerce, and mature f2c is about 30% cheaper than e-commerce.

Because Taobao, JD.com and other e-commerce companies are still platform-based companies. Whether they are self-operated or have tens of thousands of sellers, if they want to make a profit, they must increase the average order value of their products. The essence of e-commerce is just to provide a buying and selling platform. It does not solve the problem of agents. F2C will change this situation. At that time, real direct sales will bring us a high-quality and low-cost shopping experience.

To some extent, if there were no e-commerce, traditional direct sales might be better than it is now; if f2c matures and takes off, the bubble of traditional direct sales will be completely burst, and then we will see another group of "Avons" fall from the altar. Their causes of death are all different, with only one thing in common: they died from blind loyalty to the old rules!

In the business world, change is the key to success! I hope this article can be inspiring to you!