1Group Gp 5

2

Ingersoll Rand

• Deals in Stationary Air Compressors

• Market Share – 30%

• Manufactured

Cost ($ 200-300) Spares/ Maint per Yr

Reciprocating 6%

Rotary 2.5%

Centrifugal 2%

• 200 hp Centrifugal Model – CENTAC 200 introduced

Stationary Air Compressor Market

• Sizes– Small (below 25 hp)– Medium (25 to 300 hp)– Large (above 300 hp)

• Market Size (1985)- $660 Mn • IR leading US Supplier - 30% Mkt ($ 198 Mn)

except small recips for DIY Mkt• Other Players – 10-12% Mkt

– Joy (Centrifugals)– Sullair (Rotary)– Atlas Copco (Stationary)

Distribution System Direct Sales – 26 Territories

• Large Compressors >250 hp Recips & 450 hp Rotaries• All Centrifugals

Independent Distributors and Air Centres• Medium & Small Compressors • < 250 hp Recips & < 450 hp Rotaries• Gross Margins- 10 – 15% on compressors and 30 – 35% on

spare parts/ services• Sales Reps Commission-20% of Gross Margins• 600 Large Distributors (Air Houses) – Med & Small• 5,000 Small Gen Line Dealers - Small

• DIY and Industrial Merchandising Teams. Sales of Recips < 5hp & under

Salient Issues - Distribution System

• Sales Index by Channel of Distribution (1985)

– Direct Sales 30%

– Independent Distr 35%

– Air Centres 20%

– Merchandising Team 15%

• Over 50% of revenues & profits of independent

distributors were derived from I-R lines

• No territorial overlaps between sales force and

distributor network

• Spare parts business was competitive with “pirate parts”

vendors

Buying Behaviour• Direct Sales

– Large Compressors (>300 hp) – purchased by Contractors -custom made

– Quotations contained detailed specifications– High degree - technical expertise & sales effort– Service requirements - complex– Lead time of 6 – 8 weeks

• Distributors & Air Centres– Medium & Small Compressors – less demanding specifications– Spares/ support available locally– Lead time of 1 week to 6-8 weeks

• Merchandising Teams– Small machines (<5 hp) – Plumbers, Small contractors –small jobs

Deductions• Each system's relative ability to develop different types of

selling skills for the manufacturer – often overlooked

• The system in I-R allowed for concentrated attention on one of the other set of selling skills in different channels

• Drawing the line between direct and resale channels by product category conflicted evolution of reseller capabilities and customer purchase criteria

• Multichannel system is a choice concerning kinds of conflicts and channel- management issues a manufacturer will encounter

• The issue is not how to eliminate conflict, but how to manage it productively and profitably

CENTAC 200

• 200 hp centrifugal compressor• Spare parts requirement very low (2 % of

initial cost per yr)• Operates at very high speeds – 50000 rpm• Inadequate repair carried risk of serious

damage

How should Centac 200 be distributed ?

Through Direct Sales or Distributors & Air Centres

Through Direct Sales ?• Advantages

– Established network– Expertise - servicing centrifugals– Availability - Spare parts– Company can closely monitor/ influence induction

• Disadvantages – Sales Force – ‘Elephant hunters’ - prefer large orders– Existing customers – >200 hp (large segment)– Network constraints - Difficult to tap new customer

segment -– Independent Dealers - will feel left out

Through Distributors/ Air Centres ?

• Advantages – Product consistent with hp assigned to distributors– Beat Atlas Copco Z Series Rotary Compressor– Reward for Distributor

• Incentive of capturing oil free market • Make up revenue (spares/ maintenance), through higher sales &

incentives • No need to increase/ decrease number of Air Centres

– Well established Network– Loyalty from dealers - Overcome spurious spares problem– Promotes sound, durable & mutually productive relationship

with IRWillingness to participate subject to understanding product potential

• Disadvantages – – Dealer may have apprehensions to sell Centac 200 – Due to slow initial growth - low profits - dealers

may get demoralised– Intense technical training required– Risk of over- dependence on dealer channel

Through Distributors/ Air Centres ?

We Want to Do What is Right and Best for the Company

• Go ahead with distributors• Provide necessary training• If Distributors fail to give results – Takeover

distribution through own channels • Approach is ethically supported and in line with

company policies/guidelines• Makes Business sense - vast network increased sales