How should Ingersoll-Rand distribute Centac-200? Why?

There are three options to bring Centac 200 :

 Direct Salesforce
 Individual Distributors
 Air-centres

The cost of Centac is $ 45,000 approximately

The current estimated increase in the business is expected to be 2%

The projected volume will boost the business by 8%

Description Centrifugal Direct Channel Distributor Air-center

Channel
Estimated life 10-12 years 12 12 12
Cost of $225 $45000 $45000 $45000
Compressor
Installation Cost 12% $5400 $5400 $5400
Spare and 2% $900 $900 $900
maintenance
Sales cost to the Direct -11% $4950 $9450 $8550
company Distributor =21%
Aircenter- 19%

The different channels have the following components to take into consideration:

Experience in Centrifugal Compressor Handling;

Direct- There is experience

Distributor: No Experience

Air Centre: No Experience

Range of hp in operation:

Direct: 300-6000 hp

Distributor: Under 300 hp

Air Centre: Under 300 hp

Sales Network:

Direct: Well Established

Distributor: Moderate

Air Centre: Less Penetration

Service:

Direct: Expertise:

Distributor: Training Required

Air Centre: Training Required

Spare Parts:

Direct: Easy availability

Distributor: More lead time, chances for cheap substitute parts

Air centre: Reduced lead time due to centralized order entry, inventory transfer

Network Strength

Direct: 26 employees

Distributor: 80 distributors

Air Centres: 19 Air-centres

Direct Sales Force  Independent Distributors Air Centers 

Increase in revenue and
Sales Cost is minimal Increase revenues and profits 
profits of distributor 
Pros  Improved service Higher profit margins for IR compared to
Established network 
capability  independent distributions 
Addition to shrinking Easy accessibility and
Attention to Centac-200 
product line  serviceability 
There will be partial
Technical training is
attention to Centac- Only 19 air centres 
required 
Cons 200 
Less IR Control over Less penetration in market compared to
Loss in rotary sales 
distribution  independent distributions 

The business would benefit from using both independent distributors and the air centres route for
distribution.
Independent Distributors:

 The network of Independent Distributors is well-established.

 The Centac-200 will continue to be consistent with the horsepower assignment and will be a
fantastic reward for the devoted distributors.
 Additionally, they are better in terms of use and accessibility. The distributors' 35% increase
in sales for 1985 was likewise unusually significant.
 They must be taught because the Centac-200 is a highly sophisticated product, however
independent distributors would be a suitable option when the training is provided.

Air Centres:
 Air Centres have a higher profit margin when compared to that of independent
distributors for.
 Also, more amount of attention can be given to Centac-200. 

Direct Sales can be avoided because they might not focus on the new product Centac-200
(200hp) and might only aim to sell compressors of higher horsepower. Hence it is advisable to go
with both Independent Distributors and Air Centres

How do you think distributors would benefit from CENTAC-200? 

Independent Distributors:

 Independent distributors have a solid network that would enable clients to readily access
Centac-200.
 Revenue and profit margins will improve for independent distributors.
 The fact that the business can offer distributors technical training for centrifugal
compressors for a year or two demonstrates the business' confidence in them.

Air Centres (Company-owned distributors):  

 Low sales costs would result in higher revenues and profit margins, as distributors often
thrive on low-cost spare component requirements.
 Compared to independent distributors, they will have larger profit margins.

How would the salesforce benefit from Centac-200? 

 Centac-200 would be an excellent addition to the direct sales category's shrinking list of
items since it has well-established service capabilities that would benefit the clients.
 Since they would be selling the Centac-200 to its clients directly, they will only incur modest
sales expenses
 Since the direct sales team is already familiar with the items they sell, no training is
necessary.
Solution:
We must realise that Centac-200 would be employed in the process sector and that a failure would
be bad for company. Mr. Clabough, vice president of marketing and sales, had faith in his technical
support but had doubts about his distributors. One deterrent to direct sales is the possibility that
they would overlook the Centac-200 in favour of just emphasising higher cost items. Due to the fact
that independent distributors and air-centres would not disregard this product and also because
they had 35% sales in 1985, we would thus advise marketing Centac-200 through them. The business
may give the distributors training that will aid them in handling the air compressors' service
component for a period of one to two years.