Introduction

Ingersoll-Rand (I-R), is a leading firm in the stationary air compressor industry.I-R had a
30% market share of the estimated $660 Million US market in 1985 . I-R marketed 3
types of compressors: Reciprocating, Rotary Screw and Centrifugal ranging in size from
¾ to 6000 horsepower (hp) through various networks of Direct Sales force,
Independent distributors, Company owned Air Centers and Manufacturers’ Reps. IR has
grown from a single distribution channel in the 1960’s to managing 4 channels in 1985
for a better reach. In 1985, after the launch of their new product, a decision had to be
made regarding its distribution via the 4 available channels.

Ingersoll Rand’s Management of Distribution Policy

Ingersoll Rand had different channels of connection to the market and the demands of
each channel were different hence there seemed to be some difficulty in managing the
distribution network.

● The compressor had 3 different sizes of large, medium and small, which required
different consumer bases and had led to multiple consumer bases and the
strategy for each channel needed to change.

● The large compressor required frequent repairs and spare parts and also there
was delay in the delivery of spare parts which distrurbed the customer service
quality.

● To avoid clashes the company introduced the full partner program, where if a
sales rep referred a lead to a distributor then he got a commission of 1 - 2% and
if the distributor referred to the sales rep they got 2 - 5% .

● There is collusion between the sales rep and the distributor which led the
company having to pay higher money whereas the work was being done by only
one of them and passed off as 2.

● Insider information, unfair and biased policies in terms of sales turnover, supply
and more. Hence, they need to improve their distribution policy to bring down the
disparity between the centres further to reduce the infighting and improve sales.

● We will rate their distribution policy as ‘Good’.

Recommended Distribution Strategy for CENTAC - 200
The advantage of selling through CENTAC-200's direct sales team is that they have
well-established service capabilities, and it would be an excellent addition to the
diminishing direct sales product range. Furthermore, because the Centac 200 operates
at high speeds, improper maintenance could result in significant damage. The service
department for direct sales is well qualified to manage this, but Clabough is unsure
about distributors. Furthermore, the annual spare part demand is as low as 2% to 3% of
the initial cost, and because distributors thrive on spare parts and maintenance
services, such a low amount is unlikely to appeal to them. So even though the hp
assignment for CENTAC 200 falls within the purview of the distributors, it would take
their attention away from the smaller compressors and would require intensive
distributor training plus it would leave the company dependent on a channel they cannot
completely control. Due to all these reasons we believe Ingersoll Rand should distribute
CENTAC 200 through direct salesforce.

How would distributors benefit from Centac-200?

Centac-200 was a 200 hp centrifugal air compressor which falls in the medium range
25-250 HP category.This would also help increase Distributors long term relations with
the company. It would be one of the most lucrative products for the Distributors as
currently no distributor were selling Centrifugal air compressors and also it would help
Distributors expand their product portfolio. The independent distributors drew 50% of
their revenues and profit from Ingersoll Rand lines. The distributors were charged 20%
off the listing price,they set their own resale price and earned a gross margin of 10-15%
on compressors and 30-35% on spare parts and services and it would also help
increase the distributors further increase revenue and profits from the Ingersoll-Rand
product line as Centec - 200 was considered to be a direct competitor to the Atlas-
Copco’s Z series Oil Free rotary compressor.The Full Partner Program would also help
the distributor earn commissions for referring enquiries to the direct sales rep and on
conversion they could earn a 2% commission on a lead and 5% in case of active
involvement in sales.

Below is the Cost of Centac-200

Cost of Centrifugal Compressor per HP $225

Cost of Centac-200 $45000

Installation Cost @ 12% $5400

Spare parts & Maintenance @ 2% $900

4. How would the salesforce benefit from CENTAC-200?
The Direct Sales Force Sales Index has been declining from 100 in 1980 to 75 in 1985,
indicating that the Direct Sales Force isn't performing to expectations.

It's also clear from exhibit 4 that the problem of underperformance isn't limited to any
product category, since across all product versions, sales through this channel are
declining.

In these conditions, a new product like centac-200, which has a high entry barrier but no
competition, might tip the scales in Salesforce's favor.

The Sales force will have the following advantages from Centac-200:

● It can be deduced that only the sales force has prior selling experience of the
centrifugal air compressor.Centac-200, which is a centrifugal air compressor,
belongs to the same category. Only a direct sales force can provide the greatest
service.

● Since of the aspects that go into the performance of the Centac-200, such as
working at fast speeds, technical support is necessary (50000 r.p.m.). As a
result, the individual in charge of sales must have a high level of technical
expertise to deliver superior customer care. Direct sales reps have previously
received technical training. When compared to training the distributors, this will
save time, money, and give faster results.

● As the Centac-200 will be Ingersoll-first Rand's oil-free machine, it makes more

sense to use the sales force channel to provide better service to this new
segment, as it is preferred by industries such as food processing, electronic
assembly, and pharmaceuticals where other channels will be ineffective.