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 lineDisadvantages:• Sales force tend to become ‘elephant hunters’

The SituationDistributor 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 SituationAir 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 AnalysisCost of Centac- 200 =$225*200= $45000

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

Gross Margin per unit = $6750+$270-$5400 = $1620Sales of Air Centres = 20% of 200 = 40Gross Margin for market = 40*$1620 (40 units) =$64800Sales =200*0.46=92Total sales =92*45000=$4140000Cost to Company =0.19*4140000=$786600

Air Centre:

Gross Margin per unit = $6750+$270-$5400 = $1620Sales of direct Sales force = 30% of 200 = 60Ex Factory price of product = 60*$1620 (60 units) =$97200

Sales = 200*0.22=44 UnitsTotal sales = 44*45000=$1980000Cost to Company =0.11*1980000=$217800

Sales Force:

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

Distributor Network:

Distributor Network

Recommendations

• 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.

Why?