Ingersoll Rand deals in stationary air compressors and has a 30% market share in the US, with their product lines including reciprocating, rotary, and centrifugal compressors. They are looking to introduce a new 200hp centrifugal compressor model called CENTAC 200 and are considering whether to distribute it through their direct sales force or existing independent distributor network. The document analyzes the advantages and disadvantages of both distribution options and concludes that involving the distributors is the best approach if Ingersoll Rand provides them proper training and is willing to take over distribution if they fail to achieve results.

1. Group Gp 5 1

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
2

3. 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)

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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 IR
Willingness to participate subject to understanding product potential

11. Through Distributors/ Air
Centres ?
• 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

12. 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