Eureka Forbes: The Direct Marketing Pioneer

The promise was clear: To create a company that wouldn't be about bricks, mortar or sales graphs, but driven by something far more potent. Something that would stand the test of time: Relationships.

- www.eurekaforbes.com, on the company's direct marketing model.

No more direct marketing?

In 1999, Eureka Forbes Ltd. (Eureka Forbes), the leading vacuum cleaner and water/air purifier equipment company, announced a major policy change that came as a surprise to the Indian corporate world. The company, regarded as the pioneer of direct marketing in India, was planning to focus more on the retailing business in the future. Commenting on this decision, S Goklaney, Managing Director, Eureka Forbes, said, "Direct sales permits us to exploit only the top end of the market."

This move was in accordance with the company's plans to increase the visibility of its products. The company planned to make its products available in retail outlets through its dealer network, spread across 2,600 dealers. With this move, Eureka Forbes also planned to increase the sales revenue generated by the retail division. Eureka Forbes' Senior Vice-President, Sales and Marketing, Palekar, explained, "While the dealer channel contributes 10% to the overall sales turnover of the company, the direct sales route contributes 75%."

The same year, in another major departure from the business practices adopted since it began business in India, Eureka Forbes announced its decision to enter the bottled water market. The company wanted to position itself as a one-stop shop for products related to providing pure water. Industry watchers questioned this decision, observing that most manufacturers of bottled water were regional players and very few brands had an all-India presence. Parle's Bisleri mineral water brand, the only national level player at that point of time, was expected to pose stiff competition to Eureka Forbes.

The fact that these developments came at a time when the partners in the Eureka Forbes joint venture, Forbes Gokak Ltd. (FGL) and Electrolux AB (Electrolux), were engaged in a bitter boardroom battle, added to the air of uncertainty surrounding the company. The tiff had started in early 1999, when Electrolux announced its decision to walk out of the direct sales business world over and, consequently, sell off its 40% stake in Eureka Forbes.

Company observers stated that Eureka Forbes could find it difficult to succeed in the retail business without Electrolux's financial support and marketing expertise. The decisions to shift from direct selling to retailing and to enter the bottled water segment were being eyed with suspicion by analysts. Commenting on these decisions, analysts said that since Eureka Forbes was a relatively new player in the retail business and did not have much experience, it could have a tough future ahead.

Background note

Fred Wardell, a well-known businessman of Detroit, Michigan, launched vacuum cleaners under the Eureka brand name in 1909. Eureka's vacuum cleaners were sleek, versatile and lightweight, while most of the vacuum cleaners manufactured those days were clumsy and difficult to use. Within a few years, the company became well-known for its innovative product range. In 1913, Eureka launched vacuum cleaners in six different models and offered various add-ons for cleaning floors (bare/carpeted), walls, upholstery, and crevices. The company adopted the direct marketing route from the very beginning and its sales personnel delivered personalized services to customers.

As vacuum cleaners became increasingly popular in the early 1900s, Eureka employed around 5000 salesmen and opened over 400 branches to cater to growing customer demand. Within a decade, Eureka had established itself as the market leader in the Vacuum Cleaner industry. The company acquired reputation for high quality products and excellent customer/dealer relations. In 1915, Eureka received the highest award for vacuum cleaners in those days, the `Grand Prize', by a jury of electrical experts at the San Francisco International Exposition.

By 1919, Eureka was manufacturing around 2,000 vacuum cleaners per day at its factory (spread over 3.5 acres in downtown Detroit). Over the next decade, the company went on to become the number one vacuum cleaner company in the US. By 1927, the company manufactured one-third of all vacuum cleaners purchased in the US. During World War II, Eureka had to stop production and its business suffered to a great extent for a couple of years.

In 1945, the company moved its headquarters from Detroit to Bloomington, Illinois. During the same year, it merged with leading heating and air-conditioning equipment manufacturer, Williams Oil-O-Matic Heating Company, and was renamed as Eureka-Williams. Over the next few years, the company diversified into the manufacture of oil burners and government defense equipment. In 1960, Eureka-Williams merged with electronic goods manufacturer National Union Electric. The company even manufactured a battery-operated automobile named Henney Kilowatt. But it did not stay long in all these businesses and soon decided to focus only on its original business of manufacturing vacuum cleaners and various other home appliances.

In 1974, Electrolux1 of Sweden, the world's largest producer of home appliances, purchased Eureka-Williams and changed its name back to Eureka. Electrolux expanded Eureka's manufacturing base manifold by opening factories at various places in USA. In 1974, a manufacturing and warehousing facility was opened in Normal, Illinois (closed down later on). In 1981, a manufacturing plant for the production of parts (of vacuum cleaners) was opened in Juarez, Mexico and another was opened in El Paso in 1983, which was later expanded in 1997. The El Paso unit was the world's largest vacuum cleaner manufacturing facility.

Electrolux brought the Eureka brand to India in 1981 through Eureka Forbes, a joint venture with FGL. While Electrolux held 40% of the stake, the rest 60% was held by FGL. FGL was a 60:40 joint venture between the construction major Shapoorji Pallonji Group and one of India's largest business houses, the Tata Group of companies. Eureka Forbes launched its first range of vacuum cleaners, `Euroclean', in 1982, and established its direct sales division in the same year. The company's subsidiary for manufacturing water purifiers, Aquamall Water Solutions Ltd., was also established in 1982.

The company began operations from a single office in Delhi, with just 10 field representatives. Two years later, it launched the Aquaguard range of water purifiers. As business started picking up, Eureka Forbes established its dealer sales division in 1985, its industrial sales division in 1986, and its exports division in 1989. During the mid-1990s, the company diversified into products like mixers and irons. However, as the quality of these products was reportedly very poor, Eureka Forbes had to discontinue them. In 1994, the company entered the air purifiers segment. In 1995, Eureka Forbes launched the `Tornado' range of vacuum cleaners and the `Aquaflo' range of water purifiers, exclusively for marketing through the dealer route.

In 1997, Eureka Forbes diversified into electronic security solutions under the brand name `Eurovigil'. The company established manufacturing facilities at Bhimtal (Uttar Pradesh, now Uttaranchal), Hyderabad (Andhra Pradesh) and Banglore (Karnataka). Eureka Forbes also had a Research and Development center at Bangalore.

Eureka Forbes - Starting from scratch

Eureka Forbes followed the globally `tried and tested' direct selling route for marketing its products in India, thus becoming one of the first direct selling companies in India. Vacuum cleaners and water purifiers were rather new concepts for Indian consumers, who had till then followed only the traditional methods of cleaning and filtering. Therefore, Eureka Forbes had to first establish the concept of vacuum cleaners and water purifiers in India before it could sell `Eureka' as a brand.

The company believed that its core strength was its people. It employed dynamic, highly motivated individuals, called `Eurochamps', who projected the image of `The friendly man from Eureka Forbes'. Thus, for the average Indian consumer, Eureka Forbes became synonymous with the smartly dressed salesman who came to their houses and cleaned up things in a jiffy or showed how air/water purifiers were indispensable. Eurochamps initially targeted the metros but soon began visiting smaller cities and towns also.

Though the company posted profits initially, it suffered a setback in 1992-93, when profits declined by 50% in comparison to the previous year. The following year, the company even had to post its first-ever loss of Rs. 42.5 mn. However, gradually the company's products gained acceptance in Indian markets and company sales picked up. The company began advertising across various media primarily to familiarize its target segment, housewives, with its products and introduce it to its salesforce. These advertisements showed helpful salespersons who solved the problems of housewives.

Television commercials typically featured models who appeared `friendly' and trustworthy. The company also used actors from popular Hindi TV serials, such as Nitish Bhardwaj and Amar Upadhyay, to enhance the friendly and trustworthy image of its salespersons.

The company's direct marketing thrust did not end with the conversion of orders into sales. Eureka Forbes started a customer care network that took care of after-sales services offered by the company. The company's customer service network comprised over 400 CRC (Customer Response Centers), covering over 98 towns with more than 4000 sales personnel working under it. These centers offered a plethora of options to its customers in order to enhance their satisfaction with their purchases. Some of these options were:

• An `Annual Maintenance Contract', which the customer could enter into after the warranty period was over.

• Free maintenance for its equipment at medical establishments on a yearly basis—This scheme was called `Operation Red Zone'.

• A mobile service van facility for New Delhi and Mumbai customers.

• `Water Labs' for customers who wanted to reassure themselves about the quality of water purified by Aquaguard. Representatives from these labs visited customer premises, collected water samples, and provided test reports to the concerned customer. This service was available in Mumbai, New Delhi, Kolkata Chennai, Bangalore and Ahmedabad.

• The `Euroclean home contest' gave owners of Euroclean vacuum cleaners the opportunity to entertain celebrities in their homes, on the basis of a cleanliness contest conducted by the company. The `Gift a Smile' scheme was introduced to encourage sales personnel to keep in constant touch with the customers.

• In an attempt to forge closer ties with its customers and push its new products, Eureka Forbes launched a scheme that gave existing customers the option of getting a new water purifier against their old model at a discounted price.

• Customers in New Delhi, Chennai and Bangalore could access the central CRC round-the-clock. Service call-back was guaranteed within 48 hours, since most service personnel were accessible through pagers.

The company believed that `A relationship does not end with a sale. It actually begins.' Eureka Forbes gave a lot of importance to Customer Relationship Management (CRM) and tried to maintain high level of post-sale customer contact. As after-sales service formed a crucial element of its marketing mix, the company set up a 24 hour-365 day virtual call center. The call center's software built into it tracked a complaint back to the nearest sales office or franchisee on the basis of the complainant's telephone number or

PIN code. Updates were arranged at an interval of every 30 minutes. Over the years, the number of call centers was increased to six.2

Exhibit IEureka Forbes – Product Profile*

Category Exclusive to

Direct Marketing

Price (Rs.)

Exclusive to Retail Marketing

Price (Rs.)

Vacuum Cleaners Euroclean Swift

  Tornado Zen  4,750

 Euroclean Bullet

  Tornado Trendy 5,495

  Euroclean Jet  Tornado All Around

6,750

 Euroclean Swift

2,800    

 Euroclean Bullet

6,390    

  Euroclean Jet 6,490    

 Euroclean Jet WD

7,590    

  Euroclean WD9,200    

Water Purifiers Aqua Power 2,990Forbes 3-in-1 Water Purifier

2,495

 Aquaguard Classic

6,490Forbes Aquaflow Water  Purifier

5,250

 Aquaguard Classic

6,590Pureguard (200) (PG200)

–

 Compact Cartrigde

 Pureguard Cooler Cum Purifier

–

 Aquaguard Classic

7,240Pureguard Industrial Water Purifier

–

  Pump Model  Forbes Duocheck Dual Stage Filter

–

 Aquaguard Nova

7,590Forbes Megaflow Extra Large Filter

–

 Aquaguard Royale

7,250Forbes Ironil-Iron Remover

–

 Aquaguard I-Nova

7,690Clearline Standard Filter

–

  Aquaguard 8,490 Purasoft-Water –

Hi-Flow Softner

 Aquaguard Reviva

20,000Electrolux UV160 Continuous Flow (Export)

–

                                 –  

                                 –  

Air Purifiers Euroair 6,400    

Security SolutionsIntrusion Alarm System

     

 Access Control System

     

 Fire Alarm System

     

 Surveillance System

     

 Control Monitoring System

     

Industrial Solutions

   Industrial Water Purifier

 

     Commercial Vacuum Cleaners

 

     Industrial Vacuum Cleaners

 

     Hard Floor Cleaning and Maintenance

 

     High Pressure Cleaners Industrial Water Purifier

 

     Commercial Vacuum Cleaners

 

     Industrial Vacuum Cleaners

 

     Hard Floor Cleaning and Maintenance

 

     High Pressure Cleaners

 

To enhance the efficiency of its direct marketing efforts, Eureka Forbes implemented various e-biz strategies called B2E (Business to Employee) exercises. Vikas Gadre, Vice-President, IT said, "When we started looking at the Internet, the thinking was that whatever IT initiatives we take, they should touch the lives of our Eurochamps." Traditionally, the company received sales information every 45 days. It was being sent on a monthly basis, it took another 15 days to be processed.

Therefore, to reduce the time between the occurrence of an event and the receipt of information regarding that event, Eureka Forbes asked its salespeople to report sales levels to the head office on a weekly instead of a monthly basis. On the basis of this information, the head office was able to reduce inventories accordingly. To further fine-tune its salesforce's performance, the company began ranking salesmen according to their performance. This information was put on the Internet for other sales representatives to see and improve their own performances.

Eureka Forbes regularly provided its suppliers with information that helped them better plan their production. The company also provided suppliers with their own e-mail identities. An online model was built through which Eureka Forbes could directly interact with customers over the Internet. In addition, the company utilized the Internet to enable its six water-testing labs across the country to be in touch with each other. To reduce the costs associated with training new sales representatives, the company's product managers held online training sessions. These managers conducted chat sessions with new sales representatives over the company's network. The transcripts of the chat were also made available in a printed form later on.

Exhibit II

Eureka Forbes Company Trends: 1995-96 to 2000-01

 1995-

961996-

971997-

981998-

991999-2000

2000-2001

Production (in Nos.)

7011 10672 12222 14750 24005 8218

Sales (Rs. mn)

549.50 639.80 661.00 729.40 979.20 1028.70

Market Sh 65.30 65.00 65.25 62.15 68.50 66.75

Source:Industry Market Size and Shares, Center for Monitoring Indian Economy, August 2002.

As a result of its focused approach and innovative products, the company was able to record an operating income of Rs. 1.59 bn and a net profit of Rs. 56 mn in 1995-96. In 1997-98, these figures reached Rs. 2.29 bn and Rs. 104 mn respectively. However, Eureka Forbes was not satisfied with the growth of the vacuum cleaner market. Though many Indian households bought vacuum cleaners, the product's usage was very limited. This was because many housewives found the product bulky and cumbersome to use in comparison to the broom and cloth duster that were traditionally used. Moreover, since domestic help was easily available, the need for vacuum cleaners was not felt. Thus, not

only was the penetration limited, product upgrades were also low due to the infrequent usage.

To rejuvenate the vacuum cleaner market, Eureka Forbes changed its advertising strategy in November 1999. Instead of focusing on the `friendly salesman' theme, the company released an advertisement campaign featuring a maidservant using the vacuum cleaner. This shift was made after examining certain facts about end-users and vacuum cleaners usage patterns in the Indian market. Marzin Shroff, Vice-President of Eureka Forbes' advertising agency, Triton Communications, said, "Market studies and research carried out by us in the past few years indicated that owners of vacuum cleaners use the product very sparingly. A majority of the Indian consumers allow their servants to operate their washing machines but not the vacuum cleaner, hence the frequency of product usage is reduced considerably."

The company also launched a consumer training drive to support the new campaign. Sales personnel trained domestic help regarding product usage and upkeep. Palekar said, "Our direct sales team keeps contact with the consumers on an ongoing basis. We intend to use this as an occasion to demonstrate the product to the household help." The new campaign aimed at establishing the fact that vacuum cleaners were easy to use and that even maidservants could be trusted with the product. The company also publicized a pager number along with the advertisement so that customers could request product demonstration and training by a salesperson. Eureka Forbes expected to register a 20% increase in sales volume from this Rs. 15 mn ad campaign.

To boost its image of an environment-friendly and hygiene-oriented company, Eureka Forbes established the `Eureka Forbes Institute of Environment'. This move was aimed at spreading awareness about pollution and its effects, and the importance of protecting the environment. Through the institute, the company undertook various initiatives for environment protection, including daily measurement of air pollution in eight metropolitan cities. This was done in association with TV media company NDTV, and was aired through a weather bulletin on the satellite TV channel `Star News'. It was also published on the websites www.ndtv.com, and www.webhealthcare.com. The company held free pollution control camps in 10 metropolitan cities on World Environment Day on June 5, 2000, in association with TV channel National Geographic and the United Nation's body UNICEF. In addition, the company conducted lectures and cleanliness drives in various parts of the country.

As a result of the above initiatives, Eureka Forbes built a customer base of 2.5 million by 1999 and recorded a turnover of Rs. 3.08 bn for 1999-2000. Besides the household segment, its client list included leading hotels such as The Taj, The Oberoi, The Hyatt, The Centaur, Four Seasons, Orchid International and Leela Kempenski; and corporates such as Mahindra & Mahindra, TCS, Bajaj Auto, HPCL, Wipro Fluid, Du Pont and Telco.

The company's announcements of its decision to focus on the retail business and enter into the bottled water business at this stage prompted many analysts to say that Eureka

Forbes seemed all set to jeopardize its well-established hold over the Indian vacuum cleaner and water purifier markets. Electrolux's decision to sell-off its stake had cast a shadow on the company's future; attempts were made to understand the rationale behind the company's moves.

Future prospects

Commenting on the decision to diversify into bottled water, company sources said that it was only to strengthen the core products by capitalizing on their brand image. Goklaney said, "In the water category, I will conduct activities which strengthen my core products. How I do that and what I do is a matter of strategy." According to company sources, Eureka Forbes not only had the financial strength, but also a strong network of sales executives to push its new products into the market.

The company's decision to enter the retail business was primarily the result of its launch of `Tornado' vacuum cleaners and `Aquaflo' water purifiers in 1995. Eureka Forbes had utilized the retail route for this range, mainly to cater to the industrial segment. Over the years, the retail business assumed greater significance and by 1999, around 5% of the company's sales came from the 2500-strong dealer network. Eureka Forbes saw a lot of potential in the retail business and thus decided to work towards expanding its dealer network further and double its revenues from this segment. In 2001, the dealer market was growing at the rate of 25% annually, and the company expected its dealer network to grow further by 25% by the end of 2002.

In 2001, with a customer base of 3 million, Eureka Forbes sales turnover stood at Rs. 3.68 bn, 32% of which came from vacuum cleaners and 45% from water purifiers. By 2002, the company was the undisputed market leader in the vacuum cleaner segment with 75% market share and water purifier segment with 85% market share. It was the market leader in the air purification and electronic security solutions segments as well.

Meanwhile, in April 2002, after a long period of negotiations, FGL signed a deal to buyout Eureka Forbes from Electrolux for Rs. 317.7 mn. FGL agreed to pay an annual royalty to Electrolux to use the Eureka Forbes brand name. However, the two partners could not reach an agreement over the issues of brand rights transfer. Since, as per the joint venture agreement, Electrolux owned the Eureka, Aquaguard, EuroClean and EuroAir brands, it was necessary that the two parties agreed over the use of these brands in future by Eureka Forbes. However, the matter remained unresolved in July 2002.

Refuting allegations that Electrolux's departure would have any kind of negative impact on its performance, company sources pointed out that the Swedish partner never had management control of the company, and that its inputs were only in the form of technology transfer. And even on the technology front, Eureka Forbes did not seem to be worried. Palekar said, "Technology is a non-issue. It used to be a competitive advantage 15 years ago, but not today. In fact, with research and development costs escalating and product lives becoming shorter, everybody in the consumer durables business licenses out technology today."

Over the years many players had entered the segments Eureka Forbes was operating in3 , but none of them had been able to make a significant impact. That the `going was strong' despite the upheavals it was going through, indicated that direct marketing or retail, with or without Electrolux, Eureka Forbes planned to retain its distinction of being the largest direct sales organization in Asia.

Discussion Questions:

Q1. Comment on the merits and demerits of direct selling, especially for new

products/concepts.

Q2. Comment on the product range & diversification strategy of the company.

Q3. How do you rate Eureka Forbes decision to enter bottled water and retail business?