It has been a cold spring on the East Coast, and one afternoon in late April, the temperature drops and the wind picks up. But that doesn't keep Luz Stella Bongiovi from buttoning up her black wool coat and walking three blocks from her office to Knickerbocker Avenue in Bushwick, a working-class section of Brooklyn. Standing in front of a jeans store on this bustling commercial strip, Bongiovi smiles warmly, offering passersby Avon catalogs in Spanish and English. The glossy pamphlets are crammed with cosmetics, but this ritual has become less about racking up sales of lipstick and face cream and more about a hunt for people, specifically future Avon sales representatives.
Bongiovi has a system that starts with the catalogs. Once someone takes one, she offers a free makeover, jots down her name and number, and soon schedules the beauty session. It's there that she has the time to pitch the benefits of selling Avon. Bongiovi has also run an ad in el diario/La Prensa, a New York Spanish-language newspaper. It generated 73 solid leads in six weeks. But no matter how she goes about drumming up interest, she saves the best for last. Bongiovi shows potential recruits photocopies of her own biweekly checks for recruiting and managing other reps. Each one is for about $2,000. And that's before the $5,000 she averages for her own sales. That usually clinches the deal.
Bongiovi is one of 25,000 U.S. reps of Avon Products (AVP) Inc. who are part of a multilevel sales force that Avon refers to as "Leadership." These independent contractors, who are paid a commission not only on their own sales but also on the sales of people they recruit and train, have been the driving force behind a four-year turnaround in Avon's U.S. business.
As Avon CEO Andrea Jung moves the program beyond the U.S. and further into the worldwide markets, which make up almost two-thirds of its business, she's joining a wave of mainline companies that are turning to multi-tiered marketing. Among the household names that have adopted the sales structure in some area of their business: Sara Lee (SLE), Virgin Group, AOL Time Warner (AOL) and Berkshire Hathaway (BRK) In 1990, only 20% of companies in the Direct Selling Assn. had multilevel pay packages, says President Neil H. Offen. Today, it's 80%. The need to keep up with other direct sellers is part of what drove Avon's multilevel effort.
Today's mainstream multilevel marketing is different from earlier, more controversial schemes at other companies that paid people to recruit others and often left the last taker holding expensive and unsellable goods. At legitimate companies, a leader's compensation is based on the group's total sales -- not just the leader's skill at signing up recruits. So not only does Bongiovi make her own sales, but there is also an incentive for her to train her recruits to produce so that everyone prospers. And unlike earlier multilevel selling plans, if an Avon rep does drop out, she can recoup almost all her investment without question. Jung says the company hasn't suffered any taint from scandals elsewhere. "Multilevel done in a controlled way is a very powerful growth engine," she says.
For Avon, multilevel selling has helped reenergize a flagging U.S. sales force. During most of the 1990s, the number of new reps -- who were brought in by company managers rather than Leadership reps -- had stalled. While Avon was growing in Latin America, Eastern Europe, and Asia, by 1999 the number of Avon ladies in the U.S. had fallen by 1% from the year before.
That was the year Jung got the top job and set about reversing Avon's slide. She focused on reinvigorating the brand -- which had an aging-grandmother feel to it -- with new products, new packaging, and a new ad campaign. She also instituted beauty-advisory training for certain reps and pushed to expand Avon's online sales. The fourth leg of her strategy, however, was to make the rep job more attractive to ambitious women. To do that, she expanded the multilevel sales program. It had taken root, under a different name, in the early '90s, primarily in California, but Avon had put few resources into it.
The results have been stellar. The number of U.S. sales reps is climbing -- up 3% in both 2001 and 2002 -- and sales, which last year totaled $6.2 billion globally, are growing by 4% a year. Profits climbed 20%, to $534 million last year. The stock, in turn, has spurted ahead 99% since Jung was appointed chief executive, to 58 a share. That compares with a 33% drop for the Standard & Poor's 500-stock index. Goldman, Sachs & Co. analyst Amy Low Chasen says the Leadership program is revolutionizing Avon's sales force. Chasen's long-term sales-growth estimates are 10% a year. "Leadership is a game-changer for Avon," says Jung.
The benefits for Avon go way beyond a rejuvenated sales force. The company has also begun to cut costs, reducing the number of district sales managers -- the salaried people who had traditionally been solely responsible for recruitment and training -- from 1,750 to 1,500. Women like Bongiovi have picked up a lot of their recruiting duties, so district managers can now oversee more salespeople. Michael Sanchez, Bongiovi's district sales manager, now manages 450 Avon reps, up from 300 five years ago. The change has contributed to U.S. profit growth of 11.2% a year for the past two years, almost twice the historical average, while operating margins climbed from 17.9% to 19.4%.
The big problem now is hanging on to new recruits. The turnover rate, always high in direct selling, is even higher in Avon's multilevel plan. In their first year, two out of three new sales reps leave. In Bongiovi's district, one rep got 44 recruits in two weeks, but lost 38. Bongiovi estimates she has a turnover of about 50% -- lower than average. To lessen turnover, Avon is investing $20 million in programs, including nationwide training seminars to help leaders boost recruits' sales.
Jung has to listen to these big independent producers, the best of whom control millions of dollars of Avon's revenue. She and other top managers sit in full-day meetings with them, picking their brains and listening to their problems. That's how Bongiovi asked for -- and got -- Leadership pamphlets in Spanish and makeup shades that match olive skin better. "They treat us like managers," says Bongiovi, proudly. And she's got the paycheck to match. By Nanette Byrnes in New York