Ingersoll-Rand (A)

Managing Multiple Channels: 1985

Problem Statement
How can James Clabough take a decision of whether CENTAC 200 should be marketed through their
own sales force, or should it be handed over to the distribution network?

Company Background
Ingersoll-Rand dominates the stationary air compressor market with a 30% market share. Ingersoll-
Rand has manufacturing presence in 16 countries and sales office in 40 countries. Three different
types of air compressors were made by the company.

• Reciprocating (RECIPS)
• Rotary Screw (Rotaries)
• Centrifugal

Company was manufacturing these variants in different size and capacity.

Situation Analysis
With 30% share Ingersoll-Rand made $660 million in revenue in 1985, which also includes the $200
million sales of machinery and replacement parts. The industrial recession caused a drop in
compressor market from $500 million in 1980 to $460 million in 1985. Which also hit Ingersoll majorly.
Over 50% of the overall revenue was made up of OEM and current user sales combined. Ingersoll has
developed new centrifugal pump Centac-200 and the management of IR's stationary air compressor
division places a high priority on choosing the right distribution channel for the products. They were
discussing whether to advertise the new product model, the CENTAC-20, through the distributor
network or IR's sales staff.

Joy, Sullair and Atlas-copco are the major competitors with estimated share 10% to 12% share each

Buying Behaviour
Large Compressors > 300 hp
➢ Detailed Specifications
➢ High Technical Expertise
➢ Co-ordinated Sales
➢ Complex Service
requirements
➢ Machine failures are costly
5 hp < Medium Compressors > 300 hp Small Compressors < 5hp
➢ Less Demanding Specification ➢ Used for small jobs
➢ Less Complex behaviour ➢ Retail outlets reachability
➢ High Availability required
➢ High requirement for spare parts
and maintenance
Product Description
Centac - 200 is centrifugal compressor which can be used in Food processing, Electrical and
Pharmaceutical industries

Description Centac -200 Price in Dollars

Centac-200 specification $225/hp
Required Horse power 200
Cost of Centac-200 $ 45,000.00
Installation Cost 12% $ 5,400.00
Spare Part and Maintenance Cost 2% $ 900.00
Gross Margin on compressors 15% $ 6,750.00
Gross Margin on spare parts 30% $ 270.00

Gross Margin per unit $ 1,620.00

Distribution Channel
Company uses 4 different types of distribution channel to sell their compressors

• Direct Sales Force

• Independent Distributors
• Air Centres
• Manufacturers’ Reps (MRs)

1. Direct Sales Force

• Direct Sales force is responsible for selling all type of centrifugal compressors, Rotatory
compressors which are above 450 hp and reciprocator type of compressors which are above
250 hp.
• Sales Force is headed by Direct sales managers and . DSM manages a team of 5 regional
managers and 2 industry managers. Each of five regional members supervised five to seven
salespersons. Total of 26 salesperson in the team.
• All the sales representatives carries technical degree and sound knowledge of the field to
market and sell the product.

2. Independent Distributors

• Independent Distributors basically sells reciprocator type of compressors below 250 hp and
rotatory compressors of capacity which are below 450 hp.
• Independent distributors has no prior experience and knowledge of sales of Centrifugal
compressors.
• 80 Independent Distributors .
 3. Air Centres

• 19 Air Centres are the company flagship stores.

• Maintenance and repairs of pumps is easy as it is maintained by company directly and with
good company trained professionals.

4. Manufacturers’ Reps

• Responsible for the sales of Reciprocating Compressors less than 5 hp.

• IR sold its products through 5MRs to retail chain stores and they were receiving 3%
commission on sale.

Evaluation of Distribution Channels

Air Centres

Advantages

1. Increased Profits and revenue.

2. Better support experience for customers.

Disadvantages

1. Less penetration of market.

2. Technical training expense.
3. Presence is only through 19 Air centres.

Description Centac -200 Price in Dollars

Sales of Air centers 20%
Estimated Selling unit 200
No. of Units 40
Gross Margin for Market $ 64,800.00
Total Sales $ 18,00,000.00
Cost to Company 19% $ 3,42,000.00
Direct Sales Force

Advantages

1. Minimum sales cost as compare to others.

2. No Extra training required.
3. Addition to matured product line.

Disadvantages

1. As same sales force is catering other products so less attention towards Centac-200.
2. Delivery time for customers are more because orders are taken upfront.
3. Loss of sales for other products.

Description Centac -200 Price in Dollars

Sales of Direct Sales Force 30%
Estimated Selling unit 200
No. of Units 60
Gross Margin for Market $ 97,200.00
Total Sales $ 27,00,000.00
Cost to Company 11% $ 2,97,000.00

Independent Distributors

Advantages

1. Increased revenue and profits for distributor so more penetration

2. Well -established network.
3. Easily accessible to customers as I-R holds network of 80 distributors.

Disadvantages

1. Low profit margins for I-R

2. I-R has less control over distribution

Description Centac -200 Price in Dollars

Sales of Distribution network 35%
Estimated Selling unit 200
No. of Units 70
Gross Margin for Market $ 1,13,400.00
Total Sales $ 31,50,000.00
Cost to Company 21% $ 6,61,500.00
Recommendations
Rationales to think upon

1. Better Penetration in market

2. Capturing market share
3. Ease of availability
4. Better after sales service and spare parts availability for customers

Direct Sales should be dodged as there's a possibility that Centac-200 might not be given proper
attention since direct sales are more focused on selling compressors that produce a higher amount of
horsepower

Ingersoll Rand should start distribution through Distributor network and Air centres as both covers
maximum territory to sell the product with option of having shelf capacity to hold the inventory to
fulfil customer’s instant requirement.