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Ingersoll-Rand is a leading firm in the Stationary Air Compressor Industry with a

market share of 30% of a $660 million market. I-R operates within multiple
distributional channels namely

Direct sales force


Independent distributors
Company owned distributors i.e. the air centers
Manufacturers representatives.

The objective of the analysis is to understand and evaluate the presence of the
multiple distribution channels of I-R and to suggest a viable marketing channel for
CENTAC-200.
I-Rs Multiple Channels
I-R uses distinct distribution channels for each of its products such that each
channel maximizes the sales of the product through that channel.
Direct Sales Force is used to sell all centrifugal compressors, rotary compressors
above 450 hp and reciprocating compressors above 250 hp. Through this channels
the sales representatives were paid commissions of 1% to 3% on sales of the
products. Direct sales force has a cost of 11% of sales. This distribution channel
serves large companies and hence it demands a sales force with high technical
expertise and hence is awarded a high commission.
Independent distributors are used for selling rotary compressors below 450 hp and
reciprocating compressors below 250 hp. There are 80 independent distributors and
the cost to company is about 21% of the sales. Through this channel the company
earns 10-15% gross margin on compressors and 30-35% on spare parts.
Air centers are used for the distribution of rotary compressors below 450 hp and
reciprocating compressors below 250 hp. There are 19 air centers and these are
used to sell only I-Rs products. Although the cost to company is 19% of the sales,
the centralized order entry system and inventory transfer facility enables better
management of the distribution. Air centers were originally introduced due to the
unavailability of independent distributors in some places.
Manufacturers representatives majorly sell the Do-It-Yourself products mainly
reciprocating compressors less than 5 hp. In all the 5 MRs sell to retail chain stores
and catalogue houses. The MRs are paid a commission of 3% on sales as they are
assumed to have extensive market contacts and long experience in selling.
The logical reason behind having multiple channels for distribution are:
Market Penetration: different distribution channels have the ability to cover more
area and penetrate the market to a larger extent.
Cost-effectiveness: having multiple distribution channels is also economic as
selling a machine less than $5000 is not economical for a direct sales approach and
hence other distribution channels are needed in such cases.

Different Buying Behavior: different distribution channels are used to service


different needs of several customers.
Technical Expertise: Since I-R operates in a highly technical market with multiple
product lines and hence for effective sales of such products the sales
representatives are required to have technical expertise. Product line requiring low
technical expertise such as stationary air compressors are highly price competitive
and can be reached out to customers through retail outlets channels.
Was I-R right in its move in transferring products regularly to its
distribution channels?
The I-Rs move in transferring products regularly to its distribution channels showed
that they were evolving with respect to type of reseller organizations, according to
market changes and buying behavior of consumers. This allowed them to capture
larger market share and make their presence felt in all the category.
The distribution process followed a logical transferring process:
Earlier, during the 1960s the distribution channels were fixed. All recips above 50 hp
were sold by the direct sales team, all the recips below 50 hp were sold by the
distributors and certain distributors were selling up to 125 hp recips. Later, larger
than 500 hp compressors with centrifugal technology were also sold by direct sales
team. After 1971, due to customers changing demand for larger machines and
distributors ability to better service the larger units all recips upto 150hp were made
distributor class products.
Another major transfer was done due to failure of distributors during recession in
1971-1973 when they were overextending their working capital and were going
bankrupt. Air-centers were being established wherever distributors were failing and
when no other suitable replacements were found.
So, after 1970s distribution channel structure has changed. All rotary compressors
upto 300 hp and recips upto 200 hp were put in distributor class products. The
direct sales retained the responsibility for all recips above 200 hp, all rotaries above
300 hp and all centrifugal compressors. Also, air centers were evolving where
suitable distributors could not be found. A major change also took place when
separate sales organisations were established for direct, distributor and air center
sales respectively in contrast to earlier wher each sales rep was responsible for
direct sales as well as distribution sales.
The regular transfer of products was also catering to the differences in buying
behavior of their several types of customers. There were sophisticated customers in
the high end category who were handled by direct sales force channel as they
required technical expertise and coordinated sales effort. The small customers had
the convenience of locally available spare parts and service. Small contractors,
plumbers shopped at hardware stores and retail outlets and they were approached
by MRs who had extensive market contacts and experience in selling to retail
outlets.

I-R was right because due to these changes the market share for the distributor
class products increased from 17 to 30%, for direct sales it remained constant at
45%. Even, during recession air centres reported increase in sales revenues.

CENTAC-200
The advantages and disadvantages of the various distribution channels are:
Direct Sales Force: Direct Sales Force are used moreover for large orders and are
perceived as being elephant hunters. With CENTAC-200 being on the lower end of
the line there runs a risk of sales reps ignoring CENTAC-200. Although this option
consists of well-established service capabilities and is a good addition to the
shrinking line. But this is the least possible option as along with high risk the
commission incurred is high.
Air Centers: Air centers are useful in areas where distributors were not successful.
The centralized order entry system and inventory transfer facility enables better
management of the distribution. Air centers were also introduced due to the
unavailability of independent distributors in some places. The disadvantages are the
high overhead costs and the low penetration in the market as compared to
distributors.
Independent Distributors: they have a well-established network and CENTAC-200
would be a good reward to its loyal distributors. This would also be in line with their
hp assignment. The companies policies favor distributors and when machines are in
short supply they go to the distributors.
Since Centac-20 operated at high speeds and inadequate repair carried the risk of
serious damage. It runs the risk of inadequate technical support the distributors
would provide. Moreover low spare parts requirement is not likely to attract
distributors. Distributor training is also required.
Looking at the advantages and disadvantages we see the disadvantages of air
centers is lesser as compared to the others. The company can also save $450 per
unit through air centers. Air centers also provide better sales opportunities. The cost
to company is lower at 19% with air centers as compared to independent
distributors which is at 21%.