Ingersoll-Rand

Managing Multiple Channels

Group - 1
Stationary Air Compressor Market
Total Stationary Air Compressor Market = $ 660 Million

Market Classification by Product Segments Total Market

Small Medium Large Parts &

Products
(below 25 hp) (25-300 hp) (above 300 hp) Accessories

$ 175 Million $ 175 Million $ 110 Million $ 460 Million $ 200 Million

Market Leaders by Segment, 1984

Market Leaders in each category

Small Medium Large
Category
(below 25 hp) (25-300 hp) (above 300 hp)
Reciprocating Campbell-Hausfeld Ingersoll-Rand Ingersoll-Rand

Rotary Screw Sullair Ingersoll-Rand Ingersoll-Rand

Centrifugal X X Ingersoll-Rand
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)
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-Rs Stationary Air Compressor Market: 30%
The Distribution System
Direct sales force
26 territories
Responsible for sales of Recips > 250 hp, Rotaries > 450 hp
and all centrifugals
Manufacturers 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
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 competitors 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
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
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)
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
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
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

Channel Options
Independent
Direct Sales Force Air Centers
Distributors

Recips > 250 hp,

Recips < 250 hp & Recips < 250 hp &
Product Type rotaries > 450 hp & all
rotaries < 450 hp rotaries <450 hp
centrifugals

Sales revenue
35% 30% 20%
generated (%)

Cost to company 11% 21% 19%

Experience with Highly competent technical No prior experience with No prior experience with
Centrifugals selling centrifugals centrifugals
Comparison of Channels for Centac-200
Direct Sales Force
1.Minimal sales cost
2.Better service capability
Advantages 3.No training required
4.Addition to shrinking
product line
1.Partial attention to
Centac-200
Disadvantages 2.Loss of rotary sales
3.More time to deliver and
service
Independent
Air Centers
Distributors
1.Increase in revenue and 1.Increased revenues and
profits of distributor profits
2.Established network 2.Higher profit margins for I-
3.Attention to Centac-200 R compared to independent
4.Easy accessibility and dist.
serviceability 3.Attention to Centac-200
1.Low profit margins for I-R
1.Only 19 air centers
2.Intensive technical training
2. Less penetration in
required
market compared to
3. Lack of attention to other
independent dist.
compressors
3.Intensive technical training
4.Less I-R control over
required
distribution
Product Comparison
Rotaries Centrifugal
Costs
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

2.5% 1,000 2% 900
year

Energy costs at 7 cents/KWH and 300

460 644,000 435 1,044,000
days operation in a year per hp

Total Cost of ownership 689,000 1,095,300

Avg. Cost of ownership per year 98,429 91,275

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