Managing Multiple Channels:1985

Situational Analysis• Ingersoll-Rand (IR) is a leading firm in the Air Compressor

Industry, with a market share of 30% of a 660 million market.• Ingersoll had multiple distribution channels, each with its own

characteristics that made it suitable to various IR products.• Ingersoll has developed a new 200 hp Centrifugal Compressor

and has to decide whether to distribute it through the IR Sales force or through the distributor network.

Ingersoll’s Distribution ChannelsSales Force Distributors Air Centers Manufacturers’ Reps

What do they Sell:• All Centrifugals• Recips 250 hp and

above• Rotaries 450 hp

and aboveBuying behaviour:Products that requires high degree of technical expertise and coordinated sales effort

What do they Sell:• Recips below 250

hp• Rotaries under

450 hp

Buying behaviour:Large customers that had relatively sophisticated buying behaviour.

What do they Sell:• Recips below 250

hp• Rotaries under

450 hp

Buying behaviour:Buyer behaviour is less complex and specifications less demanding.Target: Small and medium machines.

What do they Sell:• Recips 5 hp and

below

Buying behaviour:People who use the compressors for small jobs. (Mainly small contractors and plumbers).Selling mainly DIY Products.

Ingersoll’s Distribution Channels

Sales Force Distributors Air Centres Manufacturers’ Reps

Cost to Company:• 11% of Total Sales• Sales Representatives

were paid a commission of 1-3%

Cost to Company:• 21% of Sales• Invoiced at

20% off list price

Cost to Company:• 19% of Sales• Invoiced at 20%

off list price

Cost to Company:• Paid 3%

Commission on Sales

Centac 200 hp CompressorFactors to be considered when deciding on the distribution of Centac 200:•A medium range product falling in 25-300 hp bracket.•Overall market : 44$ million• Low Spare Part requirement• High Technical Support Requirement

Options: • Distributors/Air centres• Direct Sales force

Description CostCost of Compressor per hp 225Cost of Centac 200 hp 45000Installation Cost at 12% 5400Spare Parts and Maintenance at 2% 900

Evaluation of AlternativesDistributors Sales force

Pros:• Well established Network.• Prior experience with handling HP

Products.• Competitor’s Atlas Copco’s product Z

series is currently being sold through distributors. Placing the product along side the competition will be advantageous.

Cons:• May shift Distributor's focus away

from small compressors.• Low spare part requirement may

reduce the attractiveness of the product.

• Requires intensive distributor training .• Risk of depending on a channel that

cannot be completely controlled.

Pros:• Well established service capabilities• Can serve as an addition to the

shrinking line of direct sales products• Currently only distribution channel

selling a centrifugal compressor.

Cons:• Risk of being ignored by sales force

because it is a lower end product.• Sales through Sales force shows a

declining trend.

Recommendation

Direct sales force option not feasible.• Less penetration.• DSF Performance declining over the years.•Sales of centrifugals has remained constant from 1982.(this segment is catered only by DSF).•May create diversions for sales people as they handle key accounts.

Distribution Network-Optimal SolutionIndependent Distributors• High penetration. (Target Value: 44 million)• Poor service.• Operating cost are very high at 21%.• Cost to Company amounts to 15.8 million• (21% operating cost + 15% on gross margin)

Air centres• Low Penetration• Superior service• Operating Cost is 19%• High Overheads• 20% commission to Sales Rep• Total Cost to Company is around 17.16 millionConclusion• Air Centres should be the distribution channel as the product is new

and service becomes critical.• Air centres can act as a training medium for distributors for a roll out

at a Later stage.