Ingersoll-Rand(A)

Managing Multiple Channels:

1985
CASE ANALYSIS

Que
1:
Identify
all
reasons
forIngersoll-Rand(IR)
performance between the years 1980-1985

impressive

Ingersoll-Rand impressive performance can be attributed to multiple factor

A) Their Distribution System:Ingersoll Rand had multiple channel distribution
system, namely,
1. Direct Sales force
2. Independent Distributors
3. Company Owned Distributors Air Centres
4. Manufacturers representatives (MRs)
Companys sales force sold compressors to Original Equipment Manufacturers
(OEMs) and user customers. Manufacturers representatives (MRs) sold small
compressors (up to 5 hp) to retail chains and catalog houses. In spite of having
multiple channels for product distribution, IR managed to create separate
territory for all channels. By 1984, Sales responsibilities for stationary
compressors by type and size of sales channels were allocated as shown below:
Type of Sales Channel

Size allocated for sale

Direct Sales Force

Reciprocating > 250 hp

Rotaries > 450 hp
All Centrifugal
Reciprocating < 250 hp
Rotaries < 450 hp
Reciprocating < 250 hp
Rotaries < 450 hp

Independent Distributors
Air Centers
Manufacturers representatives (MRs)

Reciprocating < 5 hp

B) R marketed three types of compressors which were divided industrially into

three category :
Type
Recip
Rotary

Centrifugal

Small(below
25hp)
Next to Market
Leaders
*Partially
developed
technology
NA

Medium(25300hp)
Market Leaders

Large(Above
300hp)
Market leaders

Market Leaders

Market leaders

NA

Market leaders

An efficient distribution system allowed IR to capture large market share

and make their presence felt in all the category. From the table we can see
that they were market leaders in all the category. Apart from selling the
compressor they were also into spare parts business which gave them
revenue of around $60 million out of the $198 million total revenue (30%
of market)
C) Lack of Single major successful competitor in all category:
While IR faced competition from Joy (Recip Medium and Large category,
Centrifugal -Large) and Sullair (Rotary Medium- Large) both the company
were not big enough to challenge IR in all categories.
Joy was particularly stronger in Centrifugal compressors Sullair pioneered
the commercial use of rotary technology in stationary compressors.
Atlas-Corpo was worldwide leader in stationary along with Ingersoll and
could have been the closest competitor to IR but their sales and marketing
efforts did not reap expected fruits and hence were not able to replicate
the success of European operations in the USA.
Que 2 : What are the highlights of Ingersoll Rands method of managing
multiple channels?
IR has four different sets of Distribution channels
1. Direct sales force
This channel sells all types of centrifugal compressors, rotary compressors above
450 hp and reciprocating compressors above 250 hp through 26 sales
representatives. This distribution channel serves large companies requiring large
compressor so it demands sales force with high technical expertise that in turn is
highly commission driven (i.e. 70% of total salary). IR bears cost to company of
11 % of sales.
2. Independent Distributers
This channel sells rotary compressors below 450 hp and reciprocating
compressors below 250 hp though 80 independent distributors. They keep
compressors of other brands as well. They earn 10-15 % of gross margin on
compressors and 30-35% on spares parts.IR bears cost to company of 21 % of
sales
3. Company owned distributers
This channel sells rotary compressors below 450 hp and reciprocating
compressors below 250 hp though 80 independent distributors. It has same
margin as Independent Distributers but it has got better system as i.e.
centralized order entry system and inventory transfer policy. IR bears cost to
company of 19 % of sales.
4. Manufacturers Representatives

It sells DIY (Do it yourself) products though 5 Manufacturers representatives. This

channel is paid 3% commission on sales because they have extensive contacts
and long experience in selling.

Que 3: What are the various logical arguments for I-Rs multiple
channels?
1. I-R operates in the market of compressors with multiple product lines
(different types of Compressors) requiring technical expertise ranging from
small to high, capacity ranging from as small as below 5 hp to as high as
above 5000 hp.
2. Product line requiring low technical expertise and lower capacity(<25hp)
such as stationary air compressors are highly price competitive and can be
reached out to customers though retail outlets channels.
3. Technically complex, high capacity and costly compressors require sales
force with sound technical knowledge and high personal benefit pool to
drive sales of complex products. Because it driven by high sales
commission. It is economical for I-R to sell such products (above 250 hp)
only through direct sales force channel.
4. Medium and small capacity compressors, demanding less specifications
requires off the shelf as well as quick delivery and service are easy to
economical to sell though 1- level independent distributors channel since
it is easily accessible, turnaround time for customer is less when product
gets fault.
5. I-R also maintains company owned Air centre distribution channel to
showcase all product lines in the areas where its presence is poor. This
would attract first time customers (through better pricing) and make them
to feel the difference amongst the rest of brands. This would also suffice
the company in adverse conditions when conflict arises with independent
distributors
Que 4 Was Ingersoll right in its move in transferring products
regularly to its distribution channels?
The transferring of products to its distribution channel regularly showed
the flexibility in IRs distribution system and its ability to adopt to the
changing
environment.
The distribution process followed a logical transferring process:
Initially when there was not much of technological advancement the
division was done among the direct sales team (above 50hp) which
handled the large and complex compressor system where expertise is
required and the distributers (below 50hp) called distributor-class
products. From the year 1971 SACD managers decided to offer150hprecip
to distributors as there was demand from distributors customers to trade

up to larger machines and also because distributors have demonstrated

their ability to service larger units.
Another major change in distribution occurred in between 1971-1973
recession when the distributors were on the verge of bankruptcy. The
company decided to set up their own air centres as they thought this was
the best alternative for the failed independent distributors.
With every passing year the distributors ability to handle large machines
and provide services increased and they became efficient which allowed
the IR to channelize larger products through distributors channel.

Buying behaviour of the customer was also an important factor which

suited the transferring process as there were sophisticated customers in
the high end category of distributors class products which the MRs were
handling completely different set of customers which comprised mainly of
plumbers and small contractors who preferred to buy from hardware shops
and hence required good retail networking.
Overall Ingersolls success can also be attributed to the dynamic
distribution system which was designed based on the need of customers
and complexity of product.