1

1. Analyse the case facts in terms of customer, company,

competitor, context and collaborators.
Company:
1) Leading firm in Stationary Air Compressor Industry with a market share of
30%
2) Sales of $2.64 billion in 1985.
3) Manufacturing operations-16 countries
4) Sales offices in 40 countries
5) Distribution in 80 countries
6) Produces three types of compressors, sizes varying from 0.75HP to 6000HP
 Reciprocating
 Rotary screw
 Centrifugal

Customer:
1. The ski industry and government accounts were handled by industry managers.
2. Consumer hobbyists, used compressors for home repair and painting were
handled by retail chains.
3. Industrial customers were handled by industrial developers.
4. Institutional customers who bought below 5 hp compressors were handled by
merchandising team.

Competitor:
1. JOY- Manufacturing petroleum and mining equipment, it started out with air
compressors in 1946, a direct and a strong competitor for IR in centrifugal
compressors, sharing the equal amount of market share.
2. Sullair - pioneered the commercial use of rotary technology in stationary
compressors in 1960s. Manufactures portable and stationary compressors using
rotary technology, shares the same market share as IR in this segment.
3. Atlas-Copco- leader in stationary compressors matching that of IR, has a strong
hold in European operations.

Context:
1. Should the Centac-200 be marketed through IR sales force or distributor
networks
2. Stationary air compressors provide compressed air for 3 reasons:
 Plant air- powering tools and other machinery
 Special machinery- powering and controlling pneumatic systems
 Process air- supplying air for manufacturing
3. Classification of compressors:
 Small- below 25hp
 Medium-25hp to 300hp
2

 Large-above 300hp
4.

Large medium small

large specialist general line
IR sales force
distributors (0.6k) dealers(5k)

5. From 1980-1985, sales of compressors have gone down from $500 million to
$460 million but the number of units sold had increased from 600,000 to
900,000. This is because of the increase in the lower horsepower range
compressors accounting to 850,000, price competition being the main reason for
this occurrence.
6. Small compressors served for DIY and Industrial, DIY market was sold through
retail chains like Grainger, Lowe’s, Grossman’s. Industrial customers were served
through industrial distributors.
7. IR’s share in 1985 was 30% approximately $660 million, followed by joy, Sullair
and Atlas-Copco between 10% to 12%.

Collaborators:
1. Direct sales force (11% of sales) sold reciprocating compressors 250hp and over,
rotary screw compressors 450hp and over, all centrifugal compressors.
2. Independent distributors (21% of sales) sold reciprocating compressors below
250hp and rotary compressor bellow 450 hp, they were handled by independent
distribution manager.
3. Company owned distributors (19% of sales) sold and serviced reciprocating
compressors below 250hp and rotary below 450 hp, they were handled by
National Air centre manager.
4. Small compressors which had less than 5hp were sold by manufacturers’ reps.

2. Describe the buying behaviour in this context?

Buying behaviour can be easily read if we divide customer into 4 Segments based on
power of the compressor available: -
1. Large Compressors above 300 Hp
 Customers are usually large manufacturer and contractor e.g. General Motors.
 Need to provide quotation with detailed customization and pricing details.
 Price Negotiation is important part of the sales.
 Complex service requirements.
 Preferred Channel is Direct sales force channel.

2. Compressors around 300 Hp

 Larger Customer with Sophisticated buying behaviour.
 Lead time of 6-8 week is available for delivery.
 Buying decision is made by Group rather than individual.
3

 Company’s Air Centre and Distributors can facilitate the Sales.

 Company Prefers Distributor channel for these Customers because they are widely
available.
 Price range around 1,00,000 each.

3. Machines under 100 Hp

 Customers are less demanding with less complex buying Behaviour.
 Delivery is expected within the week.
 Off-the-shelf availability is important.
 Individual buying decision by plant owner or Engineer.
 Customer expects spare parts and service to be available locally.

4. Machines under 5 Hp
 Customers include small contractors, plumbers, or moonlighting repair persons.
 Shopped at hardware store or retail outlet.
 Marketing Representatives facilitate these machines to the outlets based on
demand.
 MRs had extensive Market contacts and long experience of selling to retail outlets.

3. What grade would you give Ingersoll for its management of

distribution policy?
 Ingersoll- Rand faced many difficulties in their distribution channels because of its
broad line and multiplicity of channel, the management of I-R’s Stationary Air
Compressor Division (SACD) had been confronted periodically since 1960 with issues
regarding what air compressor types and sizes should be marketed through which
channels. There were many reasons for the difficulties they faced such as:

1. Different types of products

I-R deals with different types of products that are distributed through different
distributions channels according to their requirements. Large compressors were
generally sold by direct sales force, majority of medium and small compressors
were sold by independent distributors. Industry distribution channels consisted of
600 large specialist distributors (called air house), and over 5,000 small general-
line dealers. The products that I-R’s deals with were Recipe, Rotary and
Centrifugal.
2. Technical and Service Support
Different products had various requirement some products needed technical and
service supports that were provided by Air Centres and distributors. The larger
compressor required more repair and spare part. But the case was different for
smaller one. However, users of the larger compressors were frustrated because of
delay in spare parts deliveries and procured parts from “pirate parts” vendors.
3. Customizations
4

The larger compressor required more customization and interaction with customer
than smaller one. This was done by sales force of the company. Customers were
distributed across the country had to be reached by different distributors.

 The areas that were covered by independent distributors and air centres were
almost same geographically while independent had a primary responsibility of
representing 70% potential. Both set their own resale prices. Typically, distributors
and air centres earned a gross margin of 10-15% on compressors, and 30-35% on
spare parts and services.

 Before 1960 I-R used to sell all their products through their sales reps directly to
OEM’s and users. In 1968 the company introduced centrifugal technology in some of
its larger-than-500 hp compressors. These were sold by the direct sales teams. But in
1971 the SACD managers introduced 150 hp recip to distributors and by 1973 these
products were made exclusively distributors class products, since distributors shown
their ability to service the larger units.

 In 1971-93 recession I-R discovered that their major distributors are on the verge of
bankruptcy. There was no replacement of independent distributors but they set up
their first Air Centre. With time Air centre locations evolved from failed private
distributors in an ad hoc fashion.

 To reduce the interchannel competition, I-R mangers introduced the Full partner
Program: if the Sales rep referred an inquiry to air centre/distributor, he got a
commission of 1-2%. Similarly, if Distributor/air centre referred an inquiry to sales
rep, he got a commission of 2-5%. In Full Partner Program, the company paid out
$70,000 in 1984. The effectiveness of the program was too early to judge as the
Salesman and Distributors were buddies, they can pass on their commission to each
other and the company would end up paying more commission for the same level of
work

 The company faced certain problems in channels because of its multiple mode of
reaching the market. Even though the products line were well defined still company
channels at times competed with each other’s. Even though the company has
implemented a sales policy for its different channels. Independent distributors
contented that Air Centres were favoured by the company and provided with better
price, better information and services. On the other hand, Air Centre felt that
distributors were favoured because separate sales territories kept air centres out of
competitions.
Overall, we can say that I-R needs to improve its policies to satisfy the interest of both
parties and should cater all the party. Only then this disparity can be reduced. We can
grade the management distribution between “Below Average – Average”
5

4. How should Ingersoll-Rand distribute Centac-200? Why?

Benefit Analysis

Upsides and Downsides of Direct Sales category

Upsides:

 Direct Sales Category has minimum cost to the company that is 11% of sales when
compared to other categories where Independent Distributors have 21% of the Sales
and Air Centers have 19% of the sales.
 Direct Sales Category has well established service capabilities
 Direct Sales Category is also a good addition to the shrinking line of products
 Training is not required

Downsides:

 Direct Sales Category has major risk of sales reps ignoring the centac-200 as they
tend to be elephant hunters, Centac 200 would be at bottom of their line.
 There are high chances that Centac 200 would get the least attention.
 Direct Sales Category also adds to inventory cost.

Upsides and Downsides of Independent Distributors

Upsides:

 Ingersoll-Rand has well established network of the Independent Distributors.

 Independent Distributors are consistent with hp portfolio
6

 Loyal distributors had good rewards.

 Independent distributors had better and quick service.
 Unlike direct sales, here the attention towards Centac 200 is high.
 This has the major upside of being easily accessible for the customers.

Downsides:

 This might take distributors attention away from the smaller compressors.
 Low profit margin for the company
 The product needs intensive distributor training.
 There is risk of being dependent on the channel on which company would have less
control.

Upsides and Downsides of Air Centres

Upsides:

 Air Centres were established to target the regions where distributors were not
successful.

 Air Centres are company owned, company has more control

 Air Centres had availability of inventory transfer facility and centralized order entry
system.

Downsides:

 Air Centre overheads are generally high.

 Increased number of Air Centres can demoralize the independent distributors

Cost Analysis

Cost Analysis for Centac 200

Parameters Calculation Totals

Cost of Centac 200 $225* 200 $45000
7

Installation Cost 12% * $45000 $5400

Spare parts and 2% * $45000 $900
maintenance cost
Gross Margin on 15% * $45000 $6750
Compressors
Gross Margin on 30% * $900 $270
spare parts

Direct Sales Independent Air Centres

Distributors
Gross Margin Per $6750+$270-$5400= $6750-$5400 $6750+$270-$5400
$1620
Unit
=$1350 =$1620
Sales 30% of 200 35% of 200 20% of 200
=60 =40
=70
Gross Margin Per 60*$1620 70*$13500 40*$16200
= $94500 =$64800
Market
=$97200
Sales 200*0.22 200*0.32 200*0.46
=44 Units =642
=92
Total Sales 44*45000 64*45000 92*45000=
=$1980000 =$2880000 4140000

Cost to the 0.11*1980000 0.21*2880000 0.19*4140000

=$217800 =$786600
Company
=$604800

5. How would distributors benefit from Centac-200?

Facts related to distributors: -

 Centac-200 (200 HP) lies in the category of medium segment of the product category
 Distributors have high market penetration
 Distributors draw 50% of their revenues and profit from Ingersoll-Rand lines
8

 Distributors are invoiced at 20% off list price, in special cases Ingersoll-Rand sales
managers could authorize additional 5% discount off list to meet competitive pricing
 Gross margin on compressors: 10-15%
 Gross margin on spare parts and services: 30-35%
 Distributors had demonstrated their ability to sell and service accounts of large
customers, buyers of product range above 300 HP. Hence, Ingersoll-Rand preferred
to go through distributors for such customers
 To reduce inter-channel competition, Ingersoll-Rand managers initiated the Full
Partner Program:
1) Distributors can earn 2% commission, if their referrals to the direct sales reps are
converted
2) Distributors can earn 5% commission, in case of active assistance in order

Benefits: -

 Higher profits are predicted for distribution networks due to their deep market
penetration
 Also, CTC to company is less for Distribution networks
 Reduction of inter channel competition along with increased opportunity for sales
commission

6. How would the salesforce benefit from Centac-200?

The Direct Sales force Team which is already striving to provide sales up to the mark
has an excellent opportunity to prove its mettle by taking up Centac-200 sales responsibility
which is currently facing high entry barrier but relatively low competition. Also, technically
sound sales force team with prior experience can take this charge without any doubt.

Salesforce Benefit from the Centac-200 are mentioned below: -

 IR launches Centac-200 as its first oil free machine offering and this being new
segment it will be suggested to use sales force channel because this will improve the
chance to provide better services. Also, Industries like food processing, electronic
assembly and pharmaceuticals prefers this channel as more effective as compared to
others.
9

 Centac-200 comes with the need for post sales technical support. Direct sales
representatives are technically trained and with sound technical knowledge they are
most suitable for providing better customer service. Also, this will save time and cost
of training resulting in faster results when compared to training the distributors.

 It is quite evident from Table C that Sales Force team has prior experience in sales of
centrifugal type air compressor and thus it can be assured that best service will be
provided by direct sales force team for sales of Centac-200 as well.