Ingersoll – Rand

A,B and C
Submitted by : Group-4
 
Adhip Pandita – 190103009
Aditya Sinha – 190103015
Devyani Deora - 190103053
Kartik Laad - 190103067
Prachi Garg - 190101139
Harshita Jain – 190103060
Keshav Garg – 190103071
Mukund Agarwal -  190103082
Air Compressor Market

- Air Compressors provide compressed air for three main purpose:

• Plant air
• Special Machinery
• Process Air

- Compressors were classified based on :

Compression
Horsepower
Technology

- Small (below 25hp)

-Reciprocating
- Medium ( 25hp –
-Rotatory
300hp)
-Centrifugal
- Large ( above 300hp)
Air Compressor Market

Sale of complete compressor in US market declined from $500 million in 1980 to $460 million
in 1985

Units sold had increased from 6,00,000 to 9,00,000 during the same period

Large compressors were sold by manufacturer’s direct sales force

Medium and small compressors were sold through independent distributors

I-R was the leading supplier in US in each category except for the DIY market

I-R share was approximately 30% of the total $660 million market in 1985
 About Ingersoll Rand
COMPETITOR CONTEXT
COMPANY CUSTOMER COLLABORATOR
• Economic:
• Market Share – • Area – North • Upstream- Air • Direct Competitors- • 1982-1983 : Recession
30% America compressor parts • Joy, Sullair, Atlas- occured
• Market Size – • Customer suppliers Copco
$660 million Segments – • Downstream- • Indirect • Social:
• Business Unit – • Retail chains • Retailers Competitors- pirate • Growing number of
parts vendors competitors leading to
Stationary air such as Grainger, • Independent price wars and
compressor Lowe’s and distributors Competition from “pirate
Division Grossman’s • Manufacturers’ parts” suppliers
• Current Products • Ski industry and Representatives
- Stationary air Government • Technological:
compressors agencies • Major change with “oil
• Types of • Do-It-Yourself free” or “Dry” air
compressors
compressors - customers
Reciprocating, • OEMs • Opportunities –
Rotatory and • Customer’s willingness
Centrifugal increased to try new
• Sizes – ¾ hp – products
6000 hp
• Distribution • Threats –
Channels – Direct, • Price wars eating up the
Independent industry profits
• Competition from pirate
distributors, Air parts suppliers
Centers, MRs
Distributor Network

Ingersoll Rand

Direct Sales Independent Air Centers Manufacturer’s

Force Distributors Representatives
Distributor Network
Direct Sales Force:
Products sell –
• All centrifugal compressors
• All rotary compressors
• Reciprocating compressors above 250 hp
Serves 26 territories
Serves large national accounts
Indirectly responsible for sales of parts and services
Independent Distributors
Products Sell –
• Rotary compressors below 450 hp
• Reciprocating compressors below 250 hp
Total 80 distributors
Invoiced at 20% off list price
Earn 10-15% gross margin on compressors and 30-35% on spare parts
Also carries competitors' products
Also Responsible for service and technical support
Distributor Network

Air centres
Products Sell –
• 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

Manufactures Representative
Product sells –
• Large compressors – because of need of coordinate sales efforts and heavy engineering
component of the sale
• Do it yourself products
5 manufacturing representative
Paid 3% commission sales
Rationale Behind Multiple Channels

Complexity due to the

Not economical to sell
differences between
machines below $5000
compressor’s technologies
through direct sales force
(more spare parts for Recips
channel
vs Rotaries)

Differences in buying
behavior and attempts to
service different needs
through different channel
systems
Buying Behaviour
Large Machines (Above 300 hp)
Generally used in custom designed specifications
Requires high degree of technical expertise and coordinated sales effort
Downtime can lead to huge losses thus service requirements are even more complex
Direct sales force with a dedicated account manager is ideal

Medium Machines (25-300 hp)

At the lower end with less than 100 hp, owners or the plant managers take the final decision
• Less technical specifications but want delivery within a week
• No maintenance teams therefore require easily available spart parts for smooth operations
At the higher end with machines closer to 300 hp, a group rather than an individual takes the final call
• Seen an capital investment
• Well planned and thought ahead of
• 6-8 weeks of lead time acceptable

Small Machines (Below 25 hp)

Used my small contractors, plumbers etc using compressed air for small jobs
Typically shop at retail stores and hardware shops
Challenges faced in managing multiple channels

• Interchannel Competition: Company’s channels sometimes competed directly with each other for sale
• To reduce this competition, introduced Full-Partner Programme
• Commissions available to distributors, direct sales reps and air centers for referring inquiries to each other
and active assistance in getting the order
• Independent distributors and Air centers perceived the other as receiving favored treatment
• Distributers contended air centers got better prices, information and service since owned by the company
• Air centers contended that the sales territories were exclusive and air centers had territories with poor
potential
Decision on Centac-200

Problem: To sell the 200 HP centrifugal machine via distributors/air centers or direct sales team

Considerations:
Low spare part requirements for Centac-200 likely to make it less attractive for distributors
Good technical support required with Centac-200 which Clabough believed the service department could
provide but not distributors
Centac-200 is an oil free machine, competing directly with Atlas-Copco’s successful Z series rotary compressor
sold through distributors
Effect of decision on the relationship between direct sales force, distributors, and air centers
 Decision on Centac-200
Options Pros Cons

• Low spare parts requirements (2-3%)

• Well-established network
yearly, might be unattractive
Independent • Good reward for loyal distributor for new
• No experiences with centrifugal
Distributors line of product
• Lack of service technicians
• Consistent with HP assignment
• Lack of control

• Better experience with Centrifugal

• Risk of direct sales reps ignoring
Direct Sales Channel • Good addition to shrinking product line
smaller product like Centac-200
• Low Cost to company

• Only 19 air centers (Difficult market

penetration)
Air Centres • Control on channel by I-R
• No experiences with centrifugal
• Lack of service technicians
Results for Centac - 200

Gave Centac 200 products to selected distributors (independent and captive)

Management considered Centac-200 introduction a success as company achieved 10% market

penetration and was expected to get 25% market share in the coming years

Although Full Partner program was claimed to grew at $200,000, but half of it was achieved by joint
efforts of Sales representative and the area distributor

The distributors did not added any new business, and 30% of the IR business was transferred to
distributors account

Sales representatives stated a problem that distributors had an advantage of providing additional 5%
discount to the customer, whereas they needed to get permission from their bosses

Customers got different quotes from different channels

Unplanned Turnover

Turnover in direct sales force was 5-6 representative per year excluding those who retired or got promoted to
management roles

Size has reduced from 35 to 26 over the last 5 years

Average field sales experience of sales force reduced to 4.5 years with median time in territory of 2 years

Reasons

Sync between Conflicting

Lack of Failure of Trial
multiple signals from
authority Part program
channels head quarter
Resolving the issue (1/2)

Peter Baldwin was appointed as Vice president sales and service

He was given following objective

Grow the Improve the Leverage

business spirit de corps expenses

Meetings were schedules to evaluate alternate channels against the existing ones

Possible sales channel structure was evaluated on the basis of staffing plan and cost of changing from old structure
 Resolving the issue (2/2)

Following structure changes were finalized:-

US market broken into 35 Sales territories with an account manager in charge responsible for direct as well as
distributor sales

Air centers reported directly to own independent Air Center managers at headquarters

Revamping of sales compensation structure (1.5% direct sales, ¾% of sales to distributors, and a part bonus)

All incentives and commissions including the Full Time Program were withdrawn

The direct-distributor classification boundary was set up at 300hp for both reciprocating and rotary compressors

All existing sales personal and distributor sales managers were absorbed as account managers
THANK YOU!