Viral Marketing to Create a Beauty Empire: Avon Case Study
Throughout this semester, we have come to understand how networks are structured and what the implications are of the existence of ties between certain nodes. We went from learning about the differences between strength and direction of nodes to understanding how this impacts the overall structure of a network and the spread of information.
Multi-Level Marketing Scheme
As an AEM major, I am constantly thinking of whether or not (and how effectively) companies are employing these network concepts. One idea that stood out to me was ‘viral marketing.’ When we learned about cascades and the thresholds which determine whether or not they lead to complete adoption of a product, the application to markets became apparent. If nodes that are the initial (or early) adopters are selected properly, a product can successfully penetrate an entire network. As we learned earlier in the semester, nearly all nodes in the developed world are connected by only a few degrees of separation. This means that the ability to effectively market a product and take advantage of the principles of viral marketing can lead to a good penetration of all markets.
Every year for Christmas, my grandmother used to give each cousin a gift bag full of Avon products. I always wondered what her allegiance to a seemingly mediocre beauty brand could be. A few days ago, I learned that it was because my aunt sold Avon products. This is just one edge in a complex network of Avon sellers and customers. Avon Representatives earn a percentage of commission which is determined by the total annual sales value. If they make sales below $5,000 it’s 25%, over $5,000 it’s 30%, over $10,000 it’s 40% and so on. Attached is the leadership pay structure.
Avon’s Viral Marketing Techniques
Avon has put a lot of work into establishing this structure, for good reason. It is a prime example of effective viral marketing. To further identify why viral marketing is beneficial to product penetration, we can discuss the concepts learned in class. There is a certain threshold that needs to be met for adoption to occur, and the density of the cluster each node is in determines whether or not that threshold is met. With a threshold for q nodes in a network to adopt A, if the network contains a cluster of a density less than 1-q, the set of initial adopters will cause a complete cascade.
In this case, the choice is A (switch to an Avon product) or B (continuing using other beauty products). If at least a q fraction of neighboring nodes follow behavior A, so should you. As such, in Avon’s case, it is most beneficial to have Avon Representatives who are each in a separate cluster. These Representatives are the initial adopters, and they first get in touch with their strong edges and persuade them to make a purchase. After that, the threshold within each smaller cluster is eventually met; this is what leads to the switch from B to A.
Avon also uses a campaign structure, shown in the image below, where they estimate the number of nodes reached with each campaign. Graphics like this, which are distributed to Representatives, help determine targets for cluster size and further incentivize the expansion of their sales.
When it comes to determining product uptake, the quality can be altered (improved quality lowers the threshold for adoption by increasing the payoff) or the initial adopters can be improved (to be those who are in the position able to cause a cascade). Avon’s network effectively achieves the latter, with initial adopters converting whole clusters of consumers into Avon product users.
Why it Works
This is a more overt system than other word-of-mouth viral marketing because each seller has a financial incentive to promote the product within their cluster. As such, even though it’s more difficult to identify good Representatives there is a guarantee that they will share the product with their network which increases the efficiency of the multi-level marketing overall. Additionally, each Representative learns about Avon from someone else who is a Representative but would not have any value if they were to approach the same cluster of customers. As such, because of this dis-incentivization and the fact that it is a commission based role, the Representatives spread into other clusters they are affiliated with.
Avon is just one example of how valuable it is to understand clustering and the viral marketing technique. Their multi-level marketing campaigns, which have proven successful as their initial adopters have led to cascades of conversion to the behavior of buying Avon products, are a significant contributor to the company’s overall success.
Sources:
https://arxiv.org/vc/math/papers/0606/0606278v1.pdf
https://www.cs.umd.edu/class/spring2014/cmsc287/Ch19.pdf
https://www.gailsreps.co.uk/avon-mlm
https://www.marketingtutor.net/network-marketing-mlm/#Avon