Ingersoll Rand Case Analysis

Ingersoll-Rand Ingersoll-Rand is a leading frm in the Stationary Air Compressor Industry Industry with a market share share o 30% o a $0 million market! I-R operates within multiple distri"utional #hannels namely • • • •

ire#t sales or#e Independent distri"utors distri"utors Company owned distri"utors i!e! the air #enters anua#turer&s representati'es!

 (he o")e#ti'e o o the analysis is to understand understand and e'aluate e'aluate the presen#e presen#e o the multiple distri"ution #hannels o I-R and to suggest a 'ia"le marketing #hannel or C*+(AC-,00!

I-R’s Multiple Channels I-R uses distin#t distri"ution #hannels or ea#h o its produ#ts su#h that ea#h #hannel maimi.es the sales o the produ#t through that #hannel! ire#t Sales /or#e is used to sell all #entriugal #ompressors rotary #ompressors a"o'e 120 hp and re#ipro#ating #ompressors a"o'e ,20 hp! (hrough this #hannels the sales representati'es were paid #ommissions o % to 3% on sales o the produ#ts! ire#t sales or#e has a #ost o % o sales! (his distri"ution #hannel ser'es large #ompanies and hen#e it demands a sales or#e with high te#hni#al epertise and hen#e is awarded a high #ommission! Independent distri"utors are used or selling rotary #ompressors "elow 120 hp and re#ipro#ating #ompressors "elow ,20 hp! (here are 40 independent distri"utors and the #ost to #ompany is a"out ,% o the sales! (hrough this #hannel the #ompany earns 0-2% gross margin on #ompressors and 30-32% on spare parts! Air #enters are used or the distri"ution o rotary #ompressors "elow 120 hp and re#ipro#ating #ompressors "elow ,20 hp! (here are 5 air #enters and these are used to sell only I-R&s produ#ts! Although the #ost to #ompany is 5% o the sales the #entrali.ed order entry system and in'entory transer a#ility ena"les "etter management o the distri"ution! distri"ution! Air #enters were originally introdu#ed due to the una'aila"ility una'aila"ility o independent distri"utors distri"utors in some pla#es! anua#turer&s representati'es ma)orly sell the o-It-6oursel produ#ts mainly re#ipro#ating #ompressors less than 2 hp! In all the 2 Rs sell to retail #hain stores and #atalogue houses! (he Rs are paid a #ommission o 3% on sales as they are assumed to ha'e etensi'e market market #onta#ts and long eperien#e in selling!  (he logi#al reason reason "ehind "ehind ha'ing multiple multiple #hannels or distri"ution distri"ution are7 are7

Market Penetration7 di8erent distri"ution #hannels ha'e the a"ility to #o'er more area and penetrate the market to a larger etent! Cost-efectiveness 7 ha'ing multiple distri"ution #hannels is also e#onomi# as selling a ma#hine less than $2000 is not e#onomi#al or a dire#t sales approa#h approa#h and hen#e other distri"ution #hannels are needed in su#h #ases!

Diferent Buying Behavior7 di8erent distri"ution #hannels are used to ser'i#e di8erent needs o se'eral #ustomers! Technical Expertise 7 Sin#e I-R operates in a highly te#hni#al market with multiple produ#t lines and hen#e or e8e#ti'e sales o su#h produ#ts the sales representati'es are re9uired to ha'e te#hni#al epertise! :rodu#t line re9uiring low te#hni#al epertise su#h as stationary air #ompressors are highly pri#e #ompetiti'e and #an "e rea#hed out to #ustomers through retail outlets #hannels! as I-R right in its !ove in trans"erring pro#ucts regularly to its #istri$ution channels%  (he I-R&s mo'e in in transerring transerring produ#ts produ#ts regularly regularly to its distri"ution #hannels showed showed that they were e'ol'ing with respe#t to type o reseller organi.ations a##ording to market #hanges and "uying "eha'ior o #onsumers! (his allowed them to #apture larger market share and make their presen#e elt in all the #ategory!  (he distri"ution distri"ution pro#ess pro#ess ollowed ollowed a logi#al transerri transerring ng pro#ess7 pro#ess7 *arlier during the 50s the distri"ution #hannels were fed! All re#ips a"o'e 20 hp were sold "y the dire#t sales team all the re#ips "elow 20 hp were sold "y the distri"utors and #ertain distri"utors were selling up to ,2 hp re#ips! ;ater larger than 200 hp #ompressors with #entriugal te#hnology were also sold "y dire#t sales team! Ater 5< due to #ustomers #hanging demand or larger ma#hines and distri"utors a"ility to "etter ser'i#e the larger units all re#ips upto 20hp were made distri"utor #lass produ#ts! Another ma)or transer was done due to ailure o distri"utors during re#ession in 5<-5<3 when they were o'eretending their working #apital and were going "ankrupt! Air-#enters were "eing esta"lished where'er distri"utors were ailing and when no other suita"le repla#ements were ound! So ater 5<0s distri"ution #hannel stru#ture has #hanged! All rotary #ompressors upto 300 hp and re#ips upto ,00 hp were put in distri"utor #lass produ#ts! (he dire#t sales retained the responsi"ility or all re#ips a"o'e ,00 hp all rotaries a"o'e 300 hp and all #entriugal #ompressors! Also air #enters were e'ol'ing where suita"le distri"utors distri"utors #ould not "e ound! A ma)or m a)or #hange also took pla#e when separate sales organisations were esta"lished or dire#t distri"utor and air #enter sales respe#ti'ely in #ontrast to earlier wher ea#h sales rep was responsi"le or dire#t sales as well as distri"ution sales!  (he regular regular transer o produ#ts produ#ts was also also #atering to the the di8eren#es di8eren#es in "uying "uying "eha'ior o their se'eral types o #ustomers! (here were sophisti#ated #ustomers in the high end #ategory who were handled "y dire#t sales or#e #hannel as they re9uired te#hni#al epertise and #oordinated sales e8ort! (he small #ustomers had the #on'enien#e o lo#ally a'aila"le spare parts and ser'i#e! Small #ontra#tors plum"ers shopped at hardware stores and retail outlets and they were approa#hed "y Rs who had etensi'e market #onta#ts and eperien#e in selling to retail outlets!

I-R was right "e#ause due to these #hanges the market share or the distri"utor #lass produ#ts in#reased rom < to 30% or dire#t sales it remained #onstant at 12%! *'en during re#ession air #entres reported in#rease in sales re'enues!

CE&T'C-())  (he ad'antages and disad'antages disad'antages o the 'arious 'arious distri"ution distri"ution #hannels #hannels are7 are7

Direct *ales +orce 7 ire#t Sales /or#e are used moreo'er or large orders and are per#ei'ed as "eing =elephant hunters&! >ith C*+(AC-,00 "eing on the lower end o the line there runs a risk o sales reps ignoring C*+(AC-,00! Although this option #onsists o well-esta"lished ser'i#e #apa"ilities and is a good addition to the shrinking line! ?ut this is the least possi"le option as along with high risk the #ommission in#urred is high! 'ir Centers, Air #enters are useul in areas where distri"utors were not su##essul!  (he #entrali.ed #entrali.ed order entry system and in'entory transer transer a#ility ena"les ena"les "etter management o the distri"ution! Air #enters were also introdu#ed due to the una'aila"ility una'aila"ility o independent distri"utors distri"utors in some pla#es! (he disad'antages are the high o'erhead #osts and the low penetration in the market as #ompared to distri"utors! In#epen#ent In#epen#ent Distri$utors7 they ha'e a well-esta"lished network and C*+(AC-,00 would "e a good reward to its loyal distri"utors! (his would also "e in line with their hp assignment! (he #ompanies& poli#ies a'or distri"utors and when ma#hines are in short supply they go to the distri"utors! Sin#e Centa#-,0 operated at high speeds and inade9uate repair #arried the risk o serious damage! It runs the risk o inade9uate te#hni#al support the distri"utors distri"utors would pro'ide! oreo'er low spare parts re9uirement is not likely to attra#t distri"utors! istri"utor training is also re9uired! ;ooking at the ad'antages and disad'antages we see the disad'antages o air #enters is lesser as #ompared to the others! (he #ompany #an also sa'e $120 per unit through air #enters! Air #enters also pro'ide "etter sales opportunities! (he #ost to #ompany is lower at 5% with air #enters as #ompared to independent distri"utors distri"utors whi#h is at ,%!