CASE ANALYSIS: INGERSOLL RAND (A)

GROUP 8: PHANTOM

GROUP MEMBERS:

Anurag Shah

Archi Shah

Harsh Shah

Parshwa Shah

Riya Shah

Siddharth Shah

Jay Nathvani

Arpit Mathur

Faculty Guide: Dr. Sujo Thomas

Amrut Mody School of Management

The Problem

Ingersoll Rand has newly developed 200 hp centrifugal model, Centac-200 and James Clabough, Vice
president of Sales and Marketing has to take a decision on how to market through one of the 3
alternatives of selling or through combination of the alternatives, provided there is no conflict of
interest amongst the following selling lines.

The objective of the analysis is to understand and evaluate the presence of the multiple distribution
channels of I-R and to suggest a viable marketing channel for CENTAC-200.

Alternatives are:

1. Direct sales force

2. Distributors
3. Air centers
4. Merchandising team

Overview:

I-R uses distinct distribution channels for each of its products such that each channel maximizes the
sales of the product through that channel. Direct Sales Force is used to sell all centrifugal compressors,
rotary compressors above 450 hp and reciprocating compressors above 250 hp. Through these channels
the sales representatives were paid commissions of 1% to 3% on sales of the products. Direct sales force
has a cost of 11% of sales. This distribution channel serves large companies and hence it demands a
sales force with high technical expertise and hence is awarded a high commission. Independent
distributors are used for selling rotary compressors below 450 hp and reciprocating compressors below
250 hp. There are 80 independent distributors and the cost to company is about 21% of the sales.
Through this channel the company earns 10-15% gross margin on compressors and 30-35% on spare
parts. Air centers are used for the distribution of rotary compressors below 450 hp and reciprocating
compressors below 250 hp. There are 19 air centers and these are used to sell only I-Rs products.
Although the cost to company is 19% of the sales, the centralized order entry system and inventory
transfer facility enables better management of the distribution. Air centers were originally introduced
due to the unavailability of independent distributors in some places. Manufacturers representatives
majorly sell the Do-It-Yourself products mainly reciprocating compressors less than 5 hp. In all the 5 MRs
sell to retail chain stores and catalogue houses. The MRs are paid a commission of 3% on sales as they
are assumed to have extensive market contacts and long experience in selling.
(ANS: 1) Challenges:

Channels competing with each other at times to complete sale

Independent distributors and Air centers perceived the other as receiving favored treatment
Distributers thought that the air centers were getting better prices, information and service
since owned by the company
Air centers thought that the sales territories were exclusive and air centers had territories with
poor potential
The solution implemented of full partner program was too early to judge effectiveness

Ans 2 Sales plan for CENTAC - 200

CENTAC 200 Cost Structure:

Cost of Centac- 200 = $225 per HP* 200 HP= $45000 per unit

Total Revenue from Sales: 200 units * $45000 = $90, 00,000

Installation Cost (A) = 12% of $45000 = $5400 per unit

Spare Parts and Maintenance Cost = 2% of $45000 = $900 per unit

Gross Margin on Compressors (B) = 15% of $45000 = $6750 per unit

Gross Margin on Spare Parts(C) = 30% of 900 = $270 per unit

Cost Analysis for each distribution channel:

1. Air Centers :

Gross Margin per unit = $6750(B) + $270(C) - $5400(A) = $1620

Sales of direct Sales force = 20% of 200 units = 40 units
Total Gross Margin on Sales = 40*$1620 (40 units) =$64800
Total sales = 40*45000 = $1800000
Cost to Company =0.19*1800000 = $342000
 2. Distributor Network :

Gross Margin per unit = $6750(B) + $270(C) - $5400(A) = $1620

Sales of direct Sales force = 35% of 200 units = 70 units
Total Gross Margin on Sales = 70*$1350 (70 units) =$113400
Total sales = 70*45000 = $3150000
Cost to Company =0.21*3150000 = $661500

3. Direct Sales Force :

Gross Margin per unit = $6750(B) - $5400(A) = $1350

Sales of direct Sales force = 30% of 200 units = 60 units
Total Gross Margin on Sales = 60*$1350 (60 units) =$81000
Total sales = 60*45000 = $2700000
Cost to Company =0.11*2700000 = $297000

Direct Sales Independent Air Centers

Force Distributors

Product Type: Recips > 250 hp, Recips < 250 hp & Recips < 250 hp &
rotaries > 450 hp rotaries < 450 hp rotaries <450 hp
& all centrifugal

Sales (%) 35% 30% 20%

Cost to company 11% 21% 19%

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

Conclusion: Use Distribution network and Air centers for sales of CENTAC-200

Well established Distribution network ideal for capturing the $35 million growth of the
product.
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