2. Stationary Air Compressor Market
Market Classification by Product Segments Total Market
Small
(below 25 hp)
Medium
(25-300 hp)
Large
(above 300 hp)
Products
Parts &
Accessories
$ 175 Million $ 175 Million $ 110 Million $ 460 Million $ 200 Million
Total Stationary Air Compressor Market = $ 660 Million
Market Leaders by Segment, 1984
Market Leaders in each category
Category
Small
(below 25 hp)
Medium
(25-300 hp)
Large
(above 300 hp)
Reciprocating Campbell-Hausfeld Ingersoll-Rand Ingersoll-Rand
Rotary Screw Sullair Ingersoll-Rand Ingersoll-Rand
Centrifugal X X Ingersoll-Rand
3. Stationary Air Compressor Market
Market situation:
Air compressor sales declined from $500 Million in 1980
to $460 Million in 1985
The no. of units sold rose from 600,000 to 900,000
Intense price competition in lower horsepower range (<
25 hp)
4. Ingersoll-Rand
3 Business Groups
Stationary Air Compressor Division : a business unit
of Standard Machinery Group
Performance and Operations:
Company level sales, 1985: $2.6 Billion
Manufacturing: 16 Countries
Sales offices: 40 Countries selling in total to 120 countries
Share of I-R’s Stationary Air Compressor Market:
30%
5. The Distribution System
Direct sales force
26 territories
Responsible for sales of Recips > 250 hp, Rotaries > 450
hp and all centrifugals
Manufacturer’s Representatives (for retails)
Responsible for selling Do-It-Yourself products
5 MRs catering to retail chain stores and catalogue
houses
Paid 3% commissions on sales
6. The Distribution System
Independent Distributors
Responsible for sales of Recips < 250 hp and Rotaries <
450 hp
Responsible for technical and service support as well
Distributed Ingersoll-Rand as well as competitor’s
products
>50% of revenues and profits derived from Ingersand-Roll
products
Air Centers
Responsible for sales of Recips < 250 hp and Rotaries <
450 hp
Distributed Ingersoll-Rand products only
7. Independent Distributors vs. Air Center
Differences
Independent distributors’ network covered same amount
of geography as the air centers but amounted to 70% of
the sales potential
Combined channel performance
Combined sales to end users and OEMs accounted for
55% of SACD sales revenues, 1985.
Invoiced at 20% of the list price
Gross margin of 10-15% on compressors; 30-35% on
spare parts and services
Sales reps paid 20% of Gross Margin on bookings
8. Why multiple sales channels?
Uneconomical to sell machines worth below $5,000
through a direct sales force
Complexity due to the differences between
compression technologies (more spare parts for
Recips vs Rotaries)
Buying behaviour
Large compressors
Medium and Small compressors
Small compressors (< 5 hp)
9. Why multiple sales channels?
Buying behaviour
Large compressors
Detailed specs, high technical expertise, co-ordinated sales
effort
Complex service requirements; Machine failures are costly
Medium and Small compressors
Less demanding specifications, less complex behaviour
Off-the shelf availability a priority to meet tight delivery
deadlines
Locally available spare parts and service for customers without
maintenance teams
Small compressors (< 5 hp)
Used for small jobs
Reached through retail outlets
10. Managing multiple channels
Challenges:
Channels competing with each other at times to complete
a sale
Solution implemented: Full partner program (too early to judge
effectiveness)
Independent distributors and Air centers perceived the
other as receiving favoured treatment
Distributers contended air centers got better prices, information
and service since owned by the company
Air centers contended that the sales territories were exclusive
and air centers had territories with poor potential
11. New product: Centac-200
Product Specifications:
200 hp centrifugal machine (Medium range)
Operated at high speeds (50,000 rpm)
Provides “oil-free” air unlike recips and rotaries
Direct Sales Force
Independent
Distributors
Air Centers
Product Type
Recips > 250 hp,
rotaries > 450 hp & all
centrifugals
Recips < 250 hp &
rotaries < 450 hp
Recips < 250 hp &
rotaries <450 hp
Sales revenue
generated (%)
35% 30% 20%
Cost to company 11% 21% 19%
Experience with
Centrifugals
Highly competent
technical selling
No prior experience with
centrifugals
No prior experience with
centrifugals
Channel Options
12. Comparison of Channels for Centac-200
Direct Sales Force
Independent
Distributors
Air Centers
Advantages
1.Minimal sales cost
2.Better service capability
3.No training required
4.Addition to shrinking
product line
1.Increase in revenue and
profits of distributor
2.Established network
3.Attention to Centac-200
4.Easy accessibility and
serviceability
1.Increased revenues and
profits
2.Higher profit margins for
I-R compared to
independent dist.
3.Attention to Centac-200
Disadvantages
1.Partial attention to
Centac-200
2.Loss of rotary sales
3.More time to deliver and
service
1.Low profit margins for I-
R
2.Intensive technical
training required
3. Lack of attention to
other compressors
4.Less I-R control over
distribution
1.Only 19 air centers
2. Less penetration in
market compared to
independent dist.
3.Intensive technical
training required
13. Product Comparison
Costs
Rotaries Centrifugal
Unit / % Cost Cost for 200 hp Unit / % Cost Cost for 200 hp
Cost of compressor per HP 200 40,000 225 45,000
Estimated Life 5-7 years 10-12 years
Maximum Estimated Life (in years) 7 12
Installation cost as a % of initial
cost
10% 4,000 12% 5,400
Spare parts and maintenance cost
per year
2.5% 1,000 2% 900
Energy costs at 7 cents/KWH and
300 days operation in a year per hp
460 644,000 435 1,044,000
Total Cost of ownership 689,000 1,095,300
Avg. Cost of ownership per year 98,429 91,275
14. Recommendations
Distributed through the distributor network and
air centers.
Better penetration in market considering that ATLAS has already
captured 30% market share
Better ROI for independent distributors
The distribution would be consistent with the hp assignment
Advantageous when range is expanded in lower hp segment as
distributors and air centers can serve low and mid hp range
products better.
One time training costs which will also cater in serviceability for
future product line expansion
