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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 ElectroluxAB (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.



  

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 ShapoorjiPallonji 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.

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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
NitishBhardwaj 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 basis²This 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

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Vacuum
Euroclean Swift Tornado Zen 4,750
Cleaners
Tornado
Euroclean Bullet 5,495
Trendy
Tornado All
Euroclean Jet 6,750
Around
 Euroclean Swift 2,800
Euroclean Bullet 6,390
Euroclean Jet 6,490
Euroclean Jet
7,590
WD
Euroclean WD 9,200
Forbes 3-in-1
Water Purifiers Aqua Power 2,990 2,495
Water Purifier
Forbes
Aquaguard
6,490 Aquaflow 5,250
Classic
Water Purifier
Aquaguard Pureguard
6,590 ±
Classic (200) (PG200)
Pureguard
Compact
Cooler Cum ±
Cartrigde
Purifier
Pureguard
Aquaguard
7,240 Industrial ±
Classic
Water Purifier
Forbes
Pump Model Duocheck Dual ±
Stage Filter
Forbes
Megaflow
Aquaguard Nova 7,590 ±
Extra Large
Filter
Aquaguard Forbes Ironil-
7,250 ±
Royale Iron Remover
Aquaguard I- Clearline
7,690 ±
Nova Standard Filter
Aquaguard Hi- Purasoft-Water
8,490 ±
Flow Softner
Electrolux
UV160
AquaguardReviva 20,000 ±
Continuous
Flow (Export)

±
Air Purifiers Euroair 6,400
 Security Intrusion Alarm
Solutions System
Access Control
System
Fire Alarm
System
Surveillance
System
Control
Monitoring
System
Industrial Industrial
Solutions 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. VikasGadre, 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.

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Production
7011 10672 12222 14750 24005 8218
(in Nos.)
Sales (Rs.
549.50 639.80 661.00 729.40 979.20 1028.70
mn)
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. MarzinShroff, 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 LeelaKempenski; 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.

 
%
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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.