CALIFORNIA STATE UNIVERSITY, HAYWARD

COLLEGE OF BUSINESS AND ECONOMICS

MANAGERIAL ECONOMICS

GUIDELINES FOR CASE ANALYSIS

Avon Corporation

I. MAIN ISSUES

1. Avon's Position in the Market:

(i) What are the different drives in the market; what are the prices for 5 H.P. drives; what are their 1956 sales values; what are the number of manufacturer's for each type; and what is Avon's market share?

(ii) What are the reasons and advantages of Avon entering the EAS market?

(iii) How does Avon's new EAS compare with other drives in the market (product positioning)?

(iv) What are the steps that Avon has used and that you would suggest in the EAS drive pricing analysis?

2. Simple Static Analysis of Pricing:

(i) What are the price level alternatives for Avon's EAS drive vis a vis the competition?

(ii) What are Avon's corrected/standardized manufacturing costs for the 5 H.P. model for different production volumes? (You may want to deal with the ROI inclusion issue by considering depreciation figures in footnote 1, but this is not really necessary; you may also want to deal with the issue of the investment in plant, equipment and inventory at risk for Avon)

(iii) What are the sales estimates for the basic price levels assumed by Avon (Ex. 3) and suggest your corrections, if any?

(iv) What are the estimates of MR and MC at different volumes and can they be optimized with some rule to determine maximum profits (use Ex. 5 to develop a table of estimated unit sales, TR, MR and Mfg. Cost for Avon's 5 H.P. EAS drive; you could also use the interpolation technique using data in Ex. 2 and 5)

3. Dynamic Considerations and Strategy Issues:

(i) Discuss Limit Entry pricing versus Skimming and competitors' likely reactions, especially in sub-segments (the market structure is critical here)

II. ALTERNATIVES

1. Limit Entry Pricing Strategy

2. Market Penetration Pricing Strategy

3. Matching Price Strategy

4. Skimming Price Strategy

Please use the data in the case to support your arguments on these issues and look at the questions at the end of the case.