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Ingersoll Rand (A) Managing Multiple Channels:1985

Section S4, Group 9

The Problem
Which channel should the newly developed 200 hp centrifugal model, Centac-200 should be sold? Ingersoll Rand (I-R) Sales Force The distributor network Air centres

The Situation
Direct Sales Force:
Advantages: Well established service capabilities Good addition to the shrinking line Disadvantages: Sales force tend to become elephant hunters

The Situation
Distributor network:
Advantages: Well established network. Consistent with the hp portfolio. Good reward to the loyal distributors Disadvantages: Attention away from the smaller compressors. Distributor training is required. Channel not completely under control

The Situation
Air Centers:
Advantages: Useful in areas where distributors were not successful. Inventory Transfer Facility. Centralized Order Entry System.

Disadvantages: High Overheads. Apprehension in the minds of distributors.

Cost Analysis
Cost of Centac- 200 =$225*200= $45000 (19 Mill/200 Units=$45000) Installation Cost = 12% of $45000 = $5400 Spare Parts and Maintenance Cost = 2% of $45000 =$900 Gross Margin on Compressors = 15% of $45000 = $6750 Gross Margin on Spare Parts = 30% of 900 = $270

Air Centre:
Gross Margin per unit

Sales of Air Centres


Gross Margin for market (40 units) Sales Total sales Cost to Company

= $6750+$270-$5400 = $1620 = 20% of 200 = 40 = 40*$1620 =$64800 =200*0.46=92 =92*45000=$4140000 =0.19*4140000=$786600

Sales Force:
Gross Margin per unit Sales of direct Sales force Ex Factory price of product (60 units) Sales Total sales Cost to Company = $6750+$270-$5400 = $1620 = 30% of 200 = 60 = 60*$1620 =$97200 = 200*0.22=44 Units = 44*45000=$1980000 =0.11*1980000=$217800

Distributor Network:
Gross Margin per unit = $6750-$5400 = $1350 Sales of Distributor Network= 35% of 200 = 70 Gross Margin for market = 70*$1350 (70 units) =$94500 Sales = 200*0.32=64 Total sales = 64*45000=$2880000 Cost to Company =0.21*2880000=$604800

Recommendations

Distributor Network

Why?
Distributor Networks earn higher profits than air centres. Distribution centres have a better chance of earning profits due to the reach. The distributor network is bigger compared to any of the channels. Distributor centres have better structure than Air Centres and

Direct Sales Force.


Also the cost to company to maintain a distributor network is less compared to air centre.

Distributors may push the products better than the sales force.