Atlas Copco

Introduction

 Whatproduct was offered by Atlas Copco?

 Compressor

 What compressor does for the customers?

 It has wide range of applications.
 1. powering tools and machinery (plant air)
 2. powering and controlling pneumatic system in
equipment (machinery air)
 3. supplying air for manufacturing process (process
air)
 Introduction

 How compressors were classified?

 1. Based on size
 Small size (below 25 hp)
 Medium size (25 to 300 hp)
 Large size (above 300 hp)

 2.Based on technology
 Reciprocating compressor
 Rotary compressor
 Centrifugal compressor
 Introduction

 Reciprocating compressor

 Rotary compressor
 Introduction

 Centrifugal compressor
 Introduction

 What was the technological trend/preference in

compressor industry?
 1. Industry was moving towards rotary compressor.
 Why?
 TCO – Lower total (life cycle) costs of the
compressor.
 2. Emerging use of ‘dry air’ compressor – oil free.
 Pulp and paper industry
 Textile industry
 Electronic industry
 Pharmaceutical industry
 Competition

 1. What was the competitive scenario in the industry.

Machine Size
Medium (25-300 hp) Large (above 300 hp)
Recip Ingersoll-Rand Ingersoll-Rand
Joy Joy
Gardner Denver Gardner Denver
Quincy Atlas-Copco
Atlas-Copco
Rotary Ingersoll-Rand Ingersoll-Rand
Sullair Sullair
Atlas-Copco Atlas-Copco
Joy Joy
Gardner Denver
 Competition
 Ingersoll-Rand and Atlas-Copco had an equal share of
the world market.
 Ingersoll-Rand was the market leader in U.S – 30%
share.
 Joy – only sale in US – Second place – 10 to 15%
share.
 Sullair, promoting rotary screw technology, started in
US with company owned distribution system, hold 10
to 15% share.
 Atlas-Copco ranked fourth with 10-12% market share.
 Buying Behavior
 Buying behavior for large compressor (above 300 hp)
◦ Customers have specific requirements and follow the
process formally e.g. ask for quotations.
◦ Sales person need technical expertise to suggest the
solution and for bidding.
◦ Selling cycle – 3 to 6 months
◦ DMU: multiple people are involved e.g. engineers and
purchasing executive.
 Buying behavior for small compressor (below 25 hp)
◦ Purchased based on availability, credit terms, and
maintenance support.
◦ Owners make purchase decision.
◦ Small firms rarely purchase large compressors but big
firms purchase both small and large compressors.
 Distribution
 What was the traditional distribution structure in the
compressor industry?
 1. Brand exclusivity
 Distributors are required to carry the full product line of a
single supplier e.g. Ingersoll-Rand.
 Not allowed to sell competitors’ products.
 Beneficial to manufacturers but not to distributors.
 2. Territorial exclusivity
 Exclusive business rights for a specific geographical area.
 No Intra-brand competition for compressor. (margin: 8 to
10%)
 Spare parts and service business. (margin: 30 to 35%)- for
installed compressors.
 Beneficial to distributors but may be problematic for
manufacturers.
 Distribution
 How Atlas-Copco entered in the U.S. market? – 4
phases of entry strategy.
 Phase 1 (1950-972)
 Atlas developed a broad line of compatible
reciprocating compressor for U.S. market.
 Atlas strength was in design and mfg. of rotary
compressor.
 Atlas wanted to build strong distribution network –
appointed new distributors and streamline existing
ones.
 Focused on pharmaceutical, pulp and paper, and
electronics market.
 Distribution
 Phase 1 (1950-972)
 Result: Total failure – market share below 1%
 Reasons:
 Lack of installed based of reciprocating compressors
 Distributors get 30-35% margin on spare parts and
servicing of installed compressors.
 New compressor sales generate only 8-10% margin.
 Brand exclusivity – distributors were unwilling to
support new company’s (e.g. Atlas) product line and
spoil relationships with existing supplier (e.g.
Ingersoll-Rand).
 Territorial exclusivity – secure spare parts and service
business.
 Distribution
 Phase II (1976-1979)
 Atlas focused on a single, top quality, oil-free product
line – Z series (100 to 2500 hp, rotary compressor).
 Best designed, advanced technology, and lower cost
oil free compressors than competitors.
 Offered higher margin on product sales- 15%
 Distributors do not need to carry entire product line
(no brand exclusivity), and no territory exclusivity.
 Acquired distribution system of Worthington
company.
 Distribution
 Phase II (1976-1979)
 Result: Very successful
 Atlas signed up 100 distributors
 50 distributors came on board due to Z series product.
 Other 50 distributors acquired through Worthington.
 Reasons:
 Higher profit margin on the new sales of Z series.
 Best product in the industry and no brand exclusivity.
 AMC for z series to compensate spare parts business.
 Competitors in this segment directly deal with
customers due to higher level of customization.
 Free space for Atlas and Distributors.
 Resulted in intensive distribution system.
 Distribution
 Phase III (1980-1982)
 Rationalization of distribution network of 100
distributors.
 Attempted to assign exclusive territories to
distributors.
 Organized conferences to highlight the importance of
service, display, and stocking of small compressors.
 Provided intensive distribution training and support.
 Clarified regarding management of direct account by
company and accounts management by distributors.
 Distribution
 Phase III (1980-1982)
 Result: rationalization resulted into 85 distributors
from the earlier network of 100.
 Market share improved to 7% and headed up.
 Reasons:
 Objective: move from intensive to selective
distribution.
 To reduce intra-brand competition and increase
market share.
 To assure spare parts business for distributors
(territorial exclusivity).
 Distributors were reluctant to change.
 Distribution
 Phase IV (1983-1985)
 Performed distribution audit & development program
and classified distributors into A, B, and C class.
 A: 80% , B: 10 TO 80%, C: Rest (% of sales revenue
from compressor, accessories, and service)
 Atlas Copco had 28 A, 8 B, and 39 C distributors.
However, competitors had higher percentage of A and
B types of distributors.
 A and B category distributors encourages to sell full
product line (brand exclusiveness) especially small,
difficult to sell compressors.
 C type of distributors were encourages to allocate
more resources for Atlas Copco products and provided
technical supports to trade up.
 Distribution
 Phase IV (1983-1985)
 Result: Four-level franchising policy (unknown)
 Reasons:
 To build the market share and challenge Ingersoll-
Rand.
 Distributors were not selling entire product line (brand
exclusivity).
 Distributors focused on easy to sell Z series.
 To organized selling efforts.
 Distribution
 What was the new 4 level franchisee policy?
 Basic franchisee
 Can sell only small and medium size compressor (14
to 200 hp)
 They have to maintain inventory of compressors and
spare parts.
 They have to develop in-house service capability.
 Enhanced franchisee
 Can sell medium and large size compressor (100 to
700 hp)
 No need to maintain inventory of compressors but
they have to maintain spare parts inventory.
 They have to develop in-house service capability.
 Distribution
 Agency agreement
 Can sell only large size compressor (450 to 2500 hp)
and Z series.
 No need to maintain inventory of compressors and
spare parts.
 Not responsible for warranty or post-sales service.
 Get direct marketing and technical support from head
office.
 Authorized service center program
 Distributors who are ready to invest in equipment,
training, facilities, and personnel.
 They will provide warranty and post-warranty service,
and spare parts.
 Revenue sharing for service and spare parts.
 Distribution
 What does the new franchisee policy do for the
distributors?
 New policy: each distributor will have to first qualify
by showing performance at the lower end of the
product line (e.g. small size compressors).
 Then they are allowed to trade up large size
compressor and service business.
 So, distributors selling small size compressor
(commodity type) have to develop specialize technical
skills for selling large size compressor – seems to be
difficult.
 Small size compressor purchase criteria – price,
convenience and spare part availability.
 Large size compressor purchase criteria – technical
knowledge, complex, several people involved.
 Distribution
 Company forcing specialize distributors to develop
general skills for selling small size compressor.
 Further, when distributor will trade up, it is expected
that a distributor will be able to sell both- large and
small size compressor.
 What does the new franchisee policy do for the
customers?
 For example, a customer wants to buy both large and
small compressors – it has to contact 2 different
distributors.
 Customer will prefer to buy from the same supplier
due to relationships and after sales service.
 The problem will be intensified when a customer has
to buy large compressor – oil free and regular.
 Distribution
 What does the new franchisee policy do for the
company?
 Several distributors, specifically interested in Z series
may leave the company.
 Distributors may oppose the new policy as specialist
are not interested in small size compressors.
 Not sure that new policy will motivate the distributors
to increase sales of small size compressor.
 Distribution
 Why does company changed the distribution policy?
 Company was doing well and also achieved good
market share – 10%.
 Objective was to challenge Ingersoll and become
market leader - increase market share.
 What was required to increase market share?
 Strong distribution channel
 Building uniform sales across the product lines.
 How to build strong channel and uniform sales across
product line.
 Brand exclusivity
 Territory exclusivity
 Distribution
 Why company did not start with the same policy from
the beginning?
 No distributor was ready to sell the Atlas-Copco’s
entire product line.
 So initially, company provided flexibility to
distributors for building channel network.
 Now company is in a position to determine the
dynamics of the distribution.
 Company is just following the norms of the industry
to become market leader.
Thank You

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