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# Ingersoll Rand (A) Managing Multiple Channels:1985

## Section S4, Group 9

The Problem
Which channel should the newly developed 200 hp centrifugal model, Centac-200 should be sold? Ingersoll Rand (I-R) Sales Force The distributor network Air centres

The Situation
Direct Sales Force:
Advantages: Well established service capabilities Good addition to the shrinking line Disadvantages: Sales force tend to become elephant hunters

The Situation
Distributor network:
Advantages: Well established network. Consistent with the hp portfolio. Good reward to the loyal distributors Disadvantages: Attention away from the smaller compressors. Distributor training is required. Channel not completely under control

The Situation
Air Centers:
Advantages: Useful in areas where distributors were not successful. Inventory Transfer Facility. Centralized Order Entry System.

## Disadvantages: High Overheads. Apprehension in the minds of distributors.

Cost Analysis
Cost of Centac- 200 =\$225*200= \$45000 (19 Mill/200 Units=\$45000) Installation Cost = 12% of \$45000 = \$5400 Spare Parts and Maintenance Cost = 2% of \$45000 =\$900 Gross Margin on Compressors = 15% of \$45000 = \$6750 Gross Margin on Spare Parts = 30% of 900 = \$270

Air Centre:
Gross Margin per unit

## Sales of Air Centres

Gross Margin for market (40 units) Sales Total sales Cost to Company

## = \$6750+\$270-\$5400 = \$1620 = 20% of 200 = 40 = 40*\$1620 =\$64800 =200*0.46=92 =92*45000=\$4140000 =0.19*4140000=\$786600

Sales Force:
Gross Margin per unit Sales of direct Sales force Ex Factory price of product (60 units) Sales Total sales Cost to Company = \$6750+\$270-\$5400 = \$1620 = 30% of 200 = 60 = 60*\$1620 =\$97200 = 200*0.22=44 Units = 44*45000=\$1980000 =0.11*1980000=\$217800

Distributor Network:
Gross Margin per unit = \$6750-\$5400 = \$1350 Sales of Distributor Network= 35% of 200 = 70 Gross Margin for market = 70*\$1350 (70 units) =\$94500 Sales = 200*0.32=64 Total sales = 64*45000=\$2880000 Cost to Company =0.21*2880000=\$604800

Recommendations

Distributor Network

Why?
Distributor Networks earn higher profits than air centres. Distribution centres have a better chance of earning profits due to the reach. The distributor network is bigger compared to any of the channels. Distributor centres have better structure than Air Centres and

## Direct Sales Force.

Also the cost to company to maintain a distributor network is less compared to air centre.

Distributors may push the products better than the sales force.