Channel Strategies: Dell and Eureka Forbes

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Similar to Dell's strategy of moving beyond the direct selling model, in 1999, Eureka Forbes Ltd. (Eureka Forbes), a direct marketing pioneer and the leading vacuum cleaner and water/air purifier company in India, announced plans to focus more on the retailing business. This was a bid to increase the visibility of its products and increase its sales by selling through the retail division. While some analysts welcomed Dell's decision to move beyond its direct selling model, others felt that the company was taking a huge risk by straying from what had made it so successful in the PC industry. They felt that Dell faced some significant challenges, considering that it was undergoing change at the fundamental level and that many VARs deeply distrusted the company.

Similar doubts were raised by analysts when Eureka Forbes shifted its focus from direct selling. They opined that Eureka Forbes was a new player in retail business and could face tough times ahead. Though Dell's new channel strategy helped it increase its sales, it continued to lose market share to HP. However, Dell remained confident about its growth since the company recorded a 16 percent increase in revenues for the FY 2011. The company reported revenues of US$ 61.5 billion for fiscal 2011 compared to revenues of US$ 52.9 in fiscal 2010.⁹ On the other hand, after facing a few initial hitches due to its shift from direct marketing and its entry into water purifiers, Eureka Forbes continued to retain its market leadership position in the vacuum cleaner and water purifier markets.

In May 1984, Michael Dell (Michael), a student at the University of Texas, Austin, incorporated PC Ltd. with an investment of less than US$ 1000.¹⁰ The company focused on building IBM¹¹ compatible computers from stock components and selling them at low prices. The gross revenues of PC Ltd. amounted to US$ 6 million in the first year of its business.¹² In 1985, the company's gross revenues reached US$ 40 million.¹³ In 1987, the company started its first international operations in the UK. In 1988, the company's name was changed to Dell Computer Corporation. The rapid increase in revenues at the company prompted Michael to recruit professionals from several domains. By 1990, the company had international operations in 12 countries. In 1992, Fortune¹⁴ listed Dell in its Fortune 500 list of largest companies in the world. In the early 1990s, Dell ventured into the markets through other distribution channels, like retail arrangements with leading retailers but did not find any better distribution network than direct selling. Since its profits were growing at a healthy rate, the company concentrated only on the direct selling model. It found that to be the biggest profit-making channel. By the end of 1995, Dell's sales revenues had crossed the US$ 3.5 billion mark and by this time, its customers had begun to place orders through mails, toll-free calls, etc.¹⁵..

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9] "Dell Delivers Record Results in Fiscal-Year 2011 Fourth Quarter and Full Year," http://content.dell.com, February 15, 2011.
10] "Michael Dell," http://investhunt.com, 2011.
11] IBM or International Business Machines Corporation is a multinational computer technology and consulting corporation headquartered in Armonk, New York, USA. It is an information technology company which manufactures and sells computer hardware and software, and offers services in infrastructure, hosting, and consulting areas.
12] "Michael Dell Articles," www.evancarmichael.com.
13] "Dell Inc. - Company Profile, Information, Business Description, History, Background Information on Dell Inc.," www.referenceforbusiness.com.
14] Fortune Magazine is a bi-weekly global business magazine published by Time Inc. The magazine regularly publishes researches and ranks lists such as the “Fortune 500," which rank the world's companies by gross revenue, and the "Best Companies to Work For," both of which have become industry benchmarks.
15] Thomas Meredith, "Performance Measurement & Risk Management at Dell," www.performance-measurement.net, September 1, 1998.

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