MOHNISH SINGH GAURAV SHARMA NEERJA MALIK KISHORE SRIRAM PRITAM KUMARI OBJECTIVES : TO UNDERSTAND MULTIPLE DISTRIBUTION CHANNELS IN INGERSOLL RAND. WHEN ,WHO AND HOW ? VALUATING AND DECIDING THE MARKETING CHANNEL FOR THE 200 HP CENTRIFUGAL COMPRESSOR INGERSOLL RAND: LEADING FIRM IN STATIONARY AIR COMPRESSOR INDUSTRY. MARKET SHARE = 30% OF $660 MILLION MARKET MULTIPLE CHANNEL DISTRIBUTION DIRECT SALES FORCE INDEPENDENT DISTRIBUTORS COMPANY OWNED DISTRIBUTORS AIR CENTERS MANUFACTURERS REPRESENTATIVES BY AND LARGE THERE WERE NO TERRITORIAL OVERLAPS. EVEN THOUGH THE PRODUCT LINES FOR DIFFERENT CHANNELS WERE CLEARLY DEFINED, CHANNELS AT TIMES COMPETED WITH EACH OTHER DIRECT SALES FORCE SELLS ALL CENTRIFUGAL COMPRESSORS ROTARY COMPRESSORS ABOVE 450 HP RECIPROCATING COMPRESSORS ABOVE 250 HP SALES REPRESENTATIVES WERE PAID COMMISSIONS OF 1% TO 3% ON SALES REDUCED TO 26 REPRESENTATIVES FROM 35 DURING THE PERIOD OF 1980-1985 (ECONOMIC CONDITION) MACHINE SOLD FOR LESS THAN $5000 WAS NOT ECONOMICAL FOR DIRECT SALES APPROACH. SERVE LARGE COMPANIES REQUIRING LARGE COMPRESSORS QUOTATIONS, TECHNICAL EXPERTISE AND COORDINATED SALES DEMANDS FOR DIRECT SALES FORCE COST TO COMPANY 11% OF SALES SALES REP COMMISSION IS VERY HIGH (UPTO 70% OF THE TOTAL COMPENSATION). INDEPENDENT DISTRIBUTORS SELLS ROTARY COMPRESSORS BELOW 450 HP RECIPROCATING COMPRESSORS BELOW 250 HP 80 INDEPENDENT DISTRIBUTORS CARRY OTHER COMPANIES PRODUCTS ALSO INVOICED AT 20% OFF LIST PRICE EARN 10-15% GROSS MARGIN ON COMPRESSORS AND 30-35% ON SPARE PARTS COST TO COMPANY 21% OF SALES REVENUE IS REALIZED @ EX-FACTORY PRICE. AIR CENTERS SELLS ROTARY COMPRESSORS BELOW 450 HP RECIPROCATING COMPRESSORS BELOW 250 HP 19 AIR CENTERS ONLY IR COMPANY PRODUCTS INVOICED AT 20% OFF LIST PRICE EARN 10-15% GROSS MARGIN ON COMPRESSORS AND 30-35% ON SPARE PARTS WERE STARTED BECAUSE OF UNAVAILABILITY OF INDEPENDENT DISTRIBUTORS IN SOME PLACES COST TO COMPANY 19% OF SALES CENTRALIZED ORDER ENTRY SYSTEM AND INVENTORY TRANSFER FACILITY BETTER MANAGEMENT PRODUCT INVOICE AFTER SALE TO THE END-CUSTOMER MANUFACTURERS REPRESENTATIVES SELLS DO-IT-YOURSELF (DIY) PRODUCTS, MAINLY RECIPROCATING COMPRESSORS LESS THAN 5 HP. 5 MANUFACTURERS REPRESENTATIVES SELL TO RETAIL CHAIN STORES AND CATALOG HOUSES. PAID 3% COMMISSION ON SALES. HAVE EXTENSIVE MARKET CONTACTS AND LONG EXPERIENCE IN SELLING CENTAC 200 200 HP CENTRIFUGAL COMPRESSOR COSTS COST OF CENTRIFUGAL $225COMPRESSOR PER HP COST OF CENTAC - 200 = 200*225 = $45000 INSTALLATION COST = 12% * 45000 = $5400 COST OF CENTAC 200 WITH = 45000 + 5400 INSTALLATION = $ 50400 SPARE PARTS AND MAINTENANCE = 2% *45000 COST PER YEAR = $900 CENTAC 200 ON DIFFERENT DISTRIBUTION CHANNELS DIRECT SALES FORCE GOOD ADDITION TO A SHRINKING LINE OF DIRECT SALES PRODUCTS DIRECT SALES FORCE RUN AFTER BIG-ORDERS THE CENTAC-200 WOULD BE ON THE LOWER END OF THEIR LINE. HENCE, THERE IS A RISK OF THE SALES REPS IGNORING THE CENTAC-200. INCURS HIGH COMMISSION DISTRIBUTORS AND SALES REP WERE BUDDIES. LEAST POSSIBLE OPTION AIR CENTRES ONLY 19 AIR CENTERS AVAILABLE VERY LESS PENETRATION IN THE MARKET COMPARED TO DISTRIBUTORS. EXTENSIVE TRAINING REQD. FOR THE TECHNICAL SUPPORT TO THE PRODUCT. CENTAC 200 ON DIFFERENT DISTRIBUTION CHANNELS INDEPENDENT DISTRIBUTORS CENTAC-200 WOULD BE A GOOD REWARD TO ITS LOYAL DISTRIBUTORS. INCREASE IN EXISTING MEDIUM RANGE PORTFOLIO FOR THE DISTRIBUTORS. LOW SPARE-PARTS REQUIREMENT IS NOT LIKELY TO ATTRACT DISTRIBUTORS. ANOTHER WAS THAT SINCE THE CENTAC-20 OPERATED AT HIGH SPEEDS (50,000 REVOLUTIONS PER MINUTE), INADEQUATE REPAIR CARRIED THE RISK OF SERIOUS DAMAGE. IT RUNS THE RISK OF INCONSISTENT TECHNICAL SUPPORT THE DISTRIBUTORS WOULD PROVIDE. THERE IS A RISK OF BEING DEPENDENT ON A CHANNEL THAT CANNOT BE COMPLETELY CONTROL EVALUATION
Air Centres Independent Distributor Sales Force
Management Control Full Partial Full
No. of Distributors 19 80 26 Market Penetration Low High Low Cost $45000 $45000 $45000 Margin 6750 6750 6750 Installation Cost 5400 5400 5400 2-3% of 2-3% of Cost for Spare Parts 45000=$1350 2-3% of 45000=$1350 45000=$1350 Effective Margin on Spare 405 405 405 GROSS MARGIN 1755 1350 1305 TOTAL MARGIN ON SALES of 200 Units 70200 94500 78300 RECOMMENDATION INDEPENDENT DISTRIBUTOR CAN BE THE RIGHT OPTION IN TERMS OF HIGH MARGIN AND FUTURE LARGE MARKET .