This document discusses Ingersoll-Rand's distribution channels for air compressors and evaluates which channel to use for its new 200 hp Centac compressor. It analyzes Ingersoll-Rand's sales force, distributors, air centers, and manufacturer's reps distribution channels. It recommends distributing the new Centac compressor through air centers initially for their superior service capabilities that will be important for a new product, and then potentially transitioning to distributors later. Air centers have a lower cost structure than distributing solely through the sales force or distributors.

1. Managing Multiple
Channels:1985

2. 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.

3. Ingersoll’s Distribution
Channels
Sales Force Distributors Air Centers Manufacturers’ Reps
What do they Sell: What do they Sell: What do they Sell: What do they Sell:
• All Centrifugals • Recips below 250 • Recips below 250 • Recips 5 hp and
• Recips 250 hp and hp hp below
above • Rotaries under • Rotaries under
• Rotaries 450 hp 450 hp 450 hp
and above
Buying behaviour: Buying behaviour: Buying behaviour: Buying behaviour:
Products that Large customers that Buyer behaviour is People who use the
requires high degree had relatively less complex and compressors for
of technical expertise sophisticated buying specifications less small jobs. (Mainly
and coordinated behaviour. demanding. small contractors and
sales effort Target: Small and plumbers).
medium machines. Selling mainly DIY
Products.

4. Ingersoll’s Distribution
Channels
Sales Force Distributors Air Centres Manufacturers’ Reps
Cost to Company: Cost to Cost to Company: Cost to Company:
• 11% of Total Sales Company: • 19% of Sales • Paid 3%
• Sales Representatives • 21% of Sales • Invoiced at 20% Commission on
were paid a • Invoiced at off list price Sales
commission of 1-3% 20% off list
price

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

6. Evaluation of Alternatives
Distributors Sales force
Pros: Pros:
• Well established Network. • Well established service capabilities
• Prior experience with handling HP • Can serve as an addition to the
Products. shrinking line of direct sales products
• Competitor’s Atlas Copco’s product Z • Currently only distribution channel
series is currently being sold through selling a centrifugal compressor.
distributors. Placing the product along
side the competition will be
advantageous.
Cons: Cons:
• May shift Distributor's focus away • Risk of being ignored by sales force
from small compressors. because it is a lower end product.
• Low spare part requirement may • Sales through Sales force shows a
reduce the attractiveness of the declining trend.
product.
• Requires intensive distributor training .
• Risk of depending on a channel that
cannot be completely controlled.

7. 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.

8. Distribution Network-Optimal Solution
Independent 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)

9. 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 million
Conclusion
• 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.