Atlas Copco

4 levels of franchise policy:
1. Basic franchise- compressors below 200 hp

2. Larger compressors- only to distributors who performed on mutually accepted targets on
basic franchise
3. Specialized product lines- distributors at second level based on performance
4. General service franchise- distributors willing to invest in equipment and facilities
Product analysis:
1. Stationary air compressors- compressed air for powering tools and other machinery,
powering and controlling pneumatic systems ( special machinery), manufacturing processes
2. Industry convention- small (below 25hp), medium (250300hp), large (above 300hp)
3. Compression technology- recip, rotary, centrifugal
4. Industry trend- favour rotary compressors
5. Demand for dry air compressors- Atlas copco 1976- Z series- 30 models- 100 to 2500 hp-
higher quality and better designs- above 350 hp sold directly by company sales force, rest
through distributors- margin to distributors is 15% on list price. End user maintenance
contracts for dry air compressors as machine downtime huge loss for these customers
Column1 Recip Rotary Centrifugal

Cost of compressor per hp 300 200 225
Estimated life 10-12yrs 5-7yrs 10-12yrs
Installation cost 60 20 22.5
spare parts and maintenance cost 18 5 4.5
energy costs 400 460 435
Total cost 418 465 439.5
4180 2325 4395
life cost 4540 2545 4642.5
Buying behaviour:
1. Behaviour different in 25hp and 300hp range

2. Higher hp compressors- customers have well defined requirements- technical ability- selling
cucle was longer- 3 to 6 months- multiple decision makers in the process
3. Smaller hp compressors- basis of availability, credit terms and maintenance support-
decision makers less- lesser time to buy
4. Higher end customers bought smaller compressors but not vice versa
5. Different sales force efforts required to pitch to these different set of customers
Competitor analysis:
1. Ingersoll rand- market leader in US- 30% market share

2. Joy- only in US- market share 10-15%
3. Sullair corporation- founded by Joy employee- pioneered rotary screw technology-
replacement of recip technology (25-300hp recips). Company started own distribution
system initially. Market share 10-15%
4. Atlas copco- market share 10-12%
Evolution of distribution strategy for Atlas:

1. Phase 1- US operations started in 1950- products for construction and mining industry. Initial
share of stationary air compressors- less than 1%. Focus on North America- recip
compressors change standards as per America- company strength in rotary screw
technology. Sullair Corporation also focussing on rotary screw technology. Company started
aggressively. Appointed more distributors and streamlined existing distributor operations.
Target markets- pharma, pulp and paper, electronics identified- distributors had to call
customers from target market, company support- technical assistance and field sales.
Failure- clients already had reciprocating type machines installed, did not want to switch
over to rotary machines. Company did not study industry properly. Reciprocating type
needed constant maintenance not needed by rotary type- distributors earned higher
margins of 30-35% on spare parts and maintenance. Distributors had exclusive territories
assigned- copco was into intensive distribution. Distributors not favourable of having
installed machine base of atlas copco.
2. Phase 2- instead of total product line, company focussed on oil-free rotary screw
compressors. 15% margin to distributors. Maintenance contracts. Company field sales force
educated the distributors about products and its superiority and margin structure. No need
of exclusive distributors, no need of selling entire product line- lot of independence to
distributors- acquisitions- Worthington- 100 distributors in total- domestic manufacturing
capacity and strong distribution network.
3. Phase 3- moving from intensive distribution strategy to assigning exclusive territories to
distributors-finalizing distributors on the basis of no overlapping territories, time period of
association with atlas, business revenues, market share, sales efforts, technical service
capability. Segregated product lines for no intrabrand competition- 85 distributors,
distributor conferences- service, display, direct accounts, training.
4. Phase 4- Economic recession- did not reduce price- increased efforts using promotion and
end user advertisements to create pull- distributors focussing on high selling items and not
all the products- larger compressors easily sold- distribution audit- A distributors- more than
80% of sales from air compressors, accessories and service- B- 10 to 80%- C- less than 10%
Distributors
A B C
Distributor development program to shift C and B distributors into A category- carrying full
range of atlas compressors. A and B distributors focussing on selling easier big machines-
help in achieving targets. By providing full line will it solve this issue? Distributors have to be
motivated to sell all the products and put efforts for all the product lines.
Company shifting from intensive distribution to exclusive territories. With the decision on
distributors to have whichever product they want to having the whole product line.
Communication needed to align the distributors with company objectives- not performed.
Context of the conflict:

Between Atlas and CR Swaney- distributor since 1964. Exclusive distributor in New England
territory- then Air power came in- different product lines sold- no conflict. Z series sold by CR
Swaney- also given to Air power- conflict arose. Atlas wanted CR to have whole product line-
did not succeed- Atlas cancelling CR distributorship- lawsuit filed- conflict arose from before
when CR did not want to keep GA series.
1. No communication as to why they did not want to sell GA series and not resolving issues
by conversation
2. All problems being explained through lawsuits and not arbitration
3. Cause of conflict- resource scarcity since Z series was high selling, market was restrictive
and air power was competing head on and even taking away CR’s orders.
4. Company did not detect channel conflict early until lawsuit was filed. Before giving Z
series to air power as well- communication had to be established with all the parties to
clear out why the company is giving the Z series to air power and whatever problems
they have with CR. As mentioned in the lawsuit- Atlas never mentioned any
disgruntlement with CR but wrote all the problems they had in the official letter.
5. Atlas at a higher power since they are not only dependent on CR. They also have Air
power which is functioning good. But CR is an old distributor- long relationship-
shouldn’t be let gone- other competitors will take away market share- bad word of
mouth- air power becoming more powerful since sole distributor.

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4 levels of franchise policy:

1. Basic franchise- compressors below 200 hp

Column1 Recip Rotary Centrifugal

1. Behaviour different in 25hp and 300hp range

1. Ingersoll rand- market leader in US- 30% market share

Evolution of distribution strategy for Atlas:

Context of the conflict:

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