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market share of 30% of a $660 million market. I-R operates within multiple
distributional channels namely
The objective of the analysis is to understand and evaluate the presence of the
multiple distribution channels of I-R and to suggest a viable marketing channel for
CENTAC-200.
I-Rs Multiple Channels
I-R uses distinct distribution channels for each of its products such that each
channel maximizes the sales of the product through that channel.
Direct Sales Force is used to sell all centrifugal compressors, rotary compressors
above 450 hp and reciprocating compressors above 250 hp. Through this channels
the sales representatives were paid commissions of 1% to 3% on sales of the
products. Direct sales force has a cost of 11% of sales. This distribution channel
serves large companies and hence it demands a sales force with high technical
expertise and hence is awarded a high commission.
Independent distributors are used for selling rotary compressors below 450 hp and
reciprocating compressors below 250 hp. There are 80 independent distributors and
the cost to company is about 21% of the sales. Through this channel the company
earns 10-15% gross margin on compressors and 30-35% on spare parts.
Air centers are used for the distribution of rotary compressors below 450 hp and
reciprocating compressors below 250 hp. There are 19 air centers and these are
used to sell only I-Rs products. Although the cost to company is 19% of the sales,
the centralized order entry system and inventory transfer facility enables better
management of the distribution. Air centers were originally introduced due to the
unavailability of independent distributors in some places.
Manufacturers representatives majorly sell the Do-It-Yourself products mainly
reciprocating compressors less than 5 hp. In all the 5 MRs sell to retail chain stores
and catalogue houses. The MRs are paid a commission of 3% on sales as they are
assumed to have extensive market contacts and long experience in selling.
The logical reason behind having multiple channels for distribution are:
Market Penetration: different distribution channels have the ability to cover more
area and penetrate the market to a larger extent.
Cost-effectiveness: having multiple distribution channels is also economic as
selling a machine less than $5000 is not economical for a direct sales approach and
hence other distribution channels are needed in such cases.
I-R was right because due to these changes the market share for the distributor
class products increased from 17 to 30%, for direct sales it remained constant at
45%. Even, during recession air centres reported increase in sales revenues.
CENTAC-200
The advantages and disadvantages of the various distribution channels are:
Direct Sales Force: Direct Sales Force are used moreover for large orders and are
perceived as being elephant hunters. With CENTAC-200 being on the lower end of
the line there runs a risk of sales reps ignoring CENTAC-200. Although this option
consists of well-established service capabilities and is a good addition to the
shrinking line. But this is the least possible option as along with high risk the
commission incurred is high.
Air Centers: Air centers are useful in areas where distributors were not successful.
The centralized order entry system and inventory transfer facility enables better
management of the distribution. Air centers were also introduced due to the
unavailability of independent distributors in some places. The disadvantages are the
high overhead costs and the low penetration in the market as compared to
distributors.
Independent Distributors: they have a well-established network and CENTAC-200
would be a good reward to its loyal distributors. This would also be in line with their
hp assignment. The companies policies favor distributors and when machines are in
short supply they go to the distributors.
Since Centac-20 operated at high speeds and inadequate repair carried the risk of
serious damage. It runs the risk of inadequate technical support the distributors
would provide. Moreover low spare parts requirement is not likely to attract
distributors. Distributor training is also required.
Looking at the advantages and disadvantages we see the disadvantages of air
centers is lesser as compared to the others. The company can also save $450 per
unit through air centers. Air centers also provide better sales opportunities. The cost
to company is lower at 19% with air centers as compared to independent
distributors which is at 21%.