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CASE ANALYSIS

-INGERSOLL
RAND

Group AB1
Debpratim Sarkar 15F516
Mounica Jami 15F531
Parth Parikh 15F533
Somsubhro Choudhury
15F551
Vrinda S 15F559

Executive Summary:
Ingersoll Rand (IR), is a global leader in the stationary air compressor industry. It possesses a
30% market share in an industry which is estimated to be at $660mn. IR manufactures
compressors of various sizes varying from 0.75 hp to 6000 hp which are mainly distributed
through 4 distribution channels: Direct Sales force, Independent distributors, Company owned
Air Centers and Manufacturers Reps. IR has grown from a single distribution channel in the
1960s to managing 4 channels in 1985 for a better reach. In 1985, after the launch of their new
product, a decision has to be made regarding its distribution via the 4 available channels.

Case Questions

Q1) What grade would you give Ingersoll-Rand for its management of distribution policy?
There were many difficulties which Ingersoll Rand faced in managing the distribution channel
system because of its multiple channels of reaching the market. There were many reasons for the
difficulties faced like:

Wide variety of products: Different products will obviously be marketed through different
channels depending on its potential. Different products will also have different consumer

base. For example, compressors had a varied consumer base depending on its size.
After Sales Service: The spare part requirements also varied with different products.
Within products they varied with size. The larger compressors required more repairs and
more spare parts. The smaller ones were varied in such requirements. The larger

compressor users were also frustrated with the delay of its spare parts.
Customization: The large compressors required more customization and more interaction
with the customers. This was taken care by the direct sales approach. The small units
were bought by private users for simpler tasks. The customers were distributed in the
country and had to be reached by retail outlets.

Group AB1
Debpratim Sarkar 15F516 II Mounica Jami 15F531 II Parth Parikh 15F533
Somsubhro Choudhury 15F551 II Vrinda S 15F559

The companys multiple channels competed directly with each other by trying to snatch each
others orders. To counter this the company started Full Partner Program.
In this, if the Sales rep referred an inquiry to air center/distributor, he got a commission of 12%. Similarly, if Distributor/air center referred an inquiry to sales rep, he got a commission
of 2-5%. But then there was a loophole in this. The effectiveness of the program was difficult
to guage by the company as Distributors and Salesmen were buddies and could
indiscriminately pass commission to each other. So the company could end up paying more
commission for the same level of sales. Both distributors and air centers perceived the other
as being favoured by the company.
Ingersoll Rand showed equal importance to both partner by giving both dedicated
representatives but the companys policy heavily favoured Distributors.

Different policy for air center and distributor in terms of sales turnover
Distributors favored for supply when supplies are less
Air centers are assumed to have better information and service being company

owned.
Only failed locations are allocated to air centers

Though one move was to bring down the parity between two channels yet different policies,
location preferences and insider information advantage has ended up creating more disparity
among air center and distributors.
Overall, we can say that Ingersoll-Rand needs to improve its distribution policy to satisfy the
interest of both the parties. The current management policies need to be improved to cater to all
parties. Only then the disparity among all will reduce. We can grade Ingersoll-Rand for its
management of distribution policy as Average.
Q2) How should Ingersoll-Rand distribute Centac-200? Why?

Group AB1
Debpratim Sarkar 15F516 II Mounica Jami 15F531 II Parth Parikh 15F533
Somsubhro Choudhury 15F551 II Vrinda S 15F559

Scenario 1: Direct Sales category


Advantages:

Minimum sales cost


Well established service capability
Training is not required
Good addition to shrinking line of products

Disadvantages

Partial attention to Centec 200


Lies in the category of distributors as per policy
Loss of sales in Rotary compressors
Adds to inventory cost

Scenario 2: Independent Distributors


Advantages:

Well established network


Better and quick service
Attention towards Centec 200
Easy accessibility for customers

Disadvantages:

Less attention to smaller compressors


Low profit margin for the company
Training required
Less control over the distribution channel

By looking at the above scenarios, Ingersoll Rand should distribute Centec 200 through the
distributors.

Group AB1
Debpratim Sarkar 15F516 II Mounica Jami 15F531 II Parth Parikh 15F533
Somsubhro Choudhury 15F551 II Vrinda S 15F559

Q3) How would distributors benefit from Centac-200?


Centac-200 was 200 hp centrifugal machine. It falls in the medium range category of 25 hp to
300 hp. Ingersoll Rand had a well-established network which worked in the benefit of the
distributors. The independent distributors drew 50% of their revenues and profit from IngersollRand lines. The distributors were charged 20% off list price and an additional 5% discount on
special cases to meet the competitive prices. They set their own resale price and earned a gross
margin of 10-15% on compressors and 30-35% on spare parts and services. Compressors at the
higher end of the distributor class product range were sold to large customers who were
relatively sophisticated in their buying behavior. Ingersoll Rand preferred to go through
distributors to cater to these customers. On an annual basis spare parts requirements could be as
low as 2% of the initial cost. Hence it would seem unattractive to distributors as they thrived on
it. Presence of inter-channel competition made it too competitive for distributors but post the Full
Partner Program the distributor could earn commissions for referring enquiries to the direct sales
rep and on conversion they could earn a 2% commission on a lead and 5% in case of active
involvement in sales.
Below is the cost for the Centac-200:
Particulars
Cost of compressor per hp
Cost of Centac 200 hp
Installation cost @12%
Spare parts and Maintenance @2%

Cost
$225
45000
5400
900

Hence, it is observed that by catering to customers through the distributors Ingersoll Rand
generated considerable amount of revenue starting from sales to after-sales services.
Q4) How would the salesforce benefit from Centac-200?
The Direct sales force sales index have been decreasing from 100 (1980) to 75 (1985) from
which indicates that Direct sales force isnt working up to the mark. It can also be inferred from
exhibit 4 that the problem with under performance is not specific to any product type because
sales from this channel are falling in all variants of product. Under these circumstances, a new

Group AB1
Debpratim Sarkar 15F516 II Mounica Jami 15F531 II Parth Parikh 15F533
Somsubhro Choudhury 15F551 II Vrinda S 15F559

product like centac-200 which has high entry barrier but low competition can change the
equation for Salesforce.
Benefits from Centac-200: From table C it can be inferred that previously only sales force has the experience of selling
centrifugal type of air compressor and hence Centac-200, which belongs to the same category
can be served best only by direct sales force.
For Centac-200, technical support is a must because of the factors that are included in its
performance i.e., works at high speeds (50000 r.p.m.). Hence the person dealing with sales must
have high technical knowledge to provide better customer service. Direct sales representatives
are already technically trained. This will save time, cost and provide faster results when
compared to training the distributors.
As Centac-200 will be the first oil free machine of Ingersoll-Rand, it makes more sense to use
sales force channel so as to provide better services to this new segment as it is more preferred by
industries like food processing, electronic assembly and pharmaceuticals where other channels
wont be effective.

Q5) Which of the two organizations, fully demarcated or fully integrated, would you
advocate for Ingersoll-Rand? Why?
A fully demarcated organization is one where the responsibilities of each and every employee is
pre-defined and interference of each others work is not appreciated. It has its own advantages
and disadvantages which has been discussed in the next question. On the other hand, an
integrated organization is one where all the departments are interdependent and the system
strives on co-existence.
Though an organization wouldnt be an apt word in the case of Ingersoll, they have two mediums
by which they can distribute their new product Centac-200 which is a 200hp centrifugal air
compressor. As discussed in Q-2, direct sales force is not a viable option and so the distribution
can be done either through Air Centers (company owned) or the independent distributors.

Group AB1
Debpratim Sarkar 15F516 II Mounica Jami 15F531 II Parth Parikh 15F533
Somsubhro Choudhury 15F551 II Vrinda S 15F559

Of the given two options, IR market through the independent distributors. IR has gained its
reputation over the years and the economy is just recovering post the 1982-84 period. So, when a
new product is launched, IR should ensure that the product gets the maximum reach. IR has a
whole lot of long-time independent distributors who have developed good contacts with the big
retailers and other clients over the years. While the Air Center option may also seem viable
initially, but a the fact that it has only 19 Air Centers would restrict the reach of the new product.
This is no competition to the 80 independent distributors. (Exhibit 2) .Apart from that, it will also
serve as a good reward for these distributors apart from being consistent in their hp assignment
category. So, its a trade-off . IR loses a bit of control but gains in terms of coverage.

Q6) What are the advantages and disadvantages of each of those organizations?
The organizations taken in to consideration here are Air Centers and Independent Distributors.
Air Centers, which cell rotary compressors below 450hp and reciprocating compressors below
250hp, is one point of analysis. Through the operation of air centers company incur only 19% of
sales cost, where as other options incur more. It offers better management due to centralized
order entry system and inventory transfer facility. Air centers are completely devoted for
Ingersoll Rand products, so Centac -200 will receive more attention.
Disadvantage of air centers is that only 19 are available in number and hence the reach is less. So
the market penetration is affected when compared to competitors. For Centac-200 inadequate
repair can cause risk of severe damage, so extensive training is required for technical support of
the team.
Independent Distributors, who uses the same hp assignment as that of air centers, is the next
point of analysis. Main advantage of Independent Distributor is that they are very high in
number. Around 80 independent distributors can increase the reach of Centac-200 drastically.
Cost incurred to company is slightly more than air centers, 21% of sales (ex-factory price).For

Group AB1
Debpratim Sarkar 15F516 II Mounica Jami 15F531 II Parth Parikh 15F533
Somsubhro Choudhury 15F551 II Vrinda S 15F559

independent distributor it increases existing medium portfolio. It requires only less spare parts,
since independent distributors doesnt distribute spare parts it is an advantage. Since independent
distributors are not having repair division and inadequate repair has severe damage risk, it can be
considered as a disadvantage.

Management control
No of distributors
Market penetration
Cost
Installation cost
Margin
Cost to company

Air center
Full
19
Low
$45000
900
10-15%
19%

Independent distributor
Partial
80
High
$45000
900
10-15%
21%

Group AB1
Debpratim Sarkar 15F516 II Mounica Jami 15F531 II Parth Parikh 15F533
Somsubhro Choudhury 15F551 II Vrinda S 15F559