ATLAS-COPCO CASE STUDY SOLUTION

Q1:-

Atlas-Copco Market Entry Phases and its impact on Distributors, Customers and on Itself

Atlas-Copco Market Entry Phases and its impact on Distributors, Customers and on Itself

	Phase 1	Phase 2	Phase3	Phase4
Distributors	Poor	Average	Excellent	Excellent
Customers	Poor	Average	Excellent	Excellent
Atlas-Copco	Poor	Average	Excellent	Excellent

Atlas-Copco during its first phase failed to manage it market entry, it was poor from all perspectives. The policy was poor for distributors, it was insufficient to bring better service outputs for customers and for Atlas-Copco it didn’t bring fruitful results.

There were many reasons for that. The primary reason for failure was installed base of machines, which means the existing installed machines were of reciprocating type and distributors earn the margin of 30-35% from the spare parts, they were having exclusive territories and most carry one manufacturer’s product line. Most distributors were unwilling to entertain Atlas-Copco as new entrant with new rotary screw technology. The service output for customers was not sufficient because the distributors were not having installed machines and technical expertise to guide customers.

In the second phase Atlas-Copco improved its strategy, focused more on its oil-free rotator screw compressors along with distributors, offered 15% margin on its list price, introduced maintenance contracts, given flexibility to choose the products they want and the support of field sales force. In the second phase it managed to perform average better than previous phase. It signed more than 50 distributor agreements along with this the acquisition of Worthington’s air compressor plant helped it too, with the support of field sales staff and training Distributors was able to provide better service outputs to customers and it worked well for Atlas-Copco. Atlas showed its initiative regarding commitment to distributors.

Atlas-Copco worked very well with distributors in the third phase, tried to resolve plenty of problems like distribution overlap in some territories and by 1981 it was having 85 distributors and different meetings and conferences has been done with them. From that time the trust and commitment start building between Atlas and the distributors. They focused on

a)      Services to end-user (Better Service Output)

b)      Display

c)       Customer Accounts management( Some account want direct relationship)

d)      Training

Atlas and its distributors joined hands to provide better service outputs to its customers, Atlas also launched training program to support distributors and the combination of all brought great results for everybody. Distributors were happy, customers were happy and it all worked well for Atlas-Copco too.

The phase four when the market share of Atlas climbed 10% it was all due to its distributors. Along with this, distributors were having trust on Atlas-Copco as long term supplier in the market. The element of trust and commitment was their between the parties. The interpersonal alliance worked well for both the entities.  Atlas-Copco did distributors audit and analyze their current network. They launched the distributor development program to help those distributors who are under performing, encouraged them to allocate more resources along with that Atlas initiated a training program to help the sales rep of those distributors.

Q2:-

The four-level franchising policy seems good and very formal from Atlas-Copco’s perspective but it is not very effective and suitable for distributors. Before formulating the new franchising policy it must have reviewed its past and the working norms with distributors. The previous success of Atlas-Copco is very prominent but the success of history does not mean success in future. The distributors contributed well and showed their commitment and level of trust in Atlas-Copco but they are not ready to be formal.

During all phases they were having choice, flexibility and informal alliances but implementing four-level franchising policy will make them legally bound and force them to do something for which most of them are not ready. It is not a time to use power forcing distributors for something which they don’t want.

Distributors work as channel members to have economic satisfaction from the relationship, they have rational expectation of financial rewards and this is the reason they invest into the relationship by many ways. Economic satisfaction plays important role in building and maintaining trust that is necessary for committed relationship along with these noneconomic factors contributes too like satisfaction, honesty, devotion, respect exchange of idea works well too. Procedural and distributive justices are important as well to provide satisfaction to channel members. In the previous phases distributors were having many of them but with new policy distributors will not get satisfactory returns.

Atlas-Copco distributors are not dependent upon it because they don’t have much greater utility in compressors and second they have many alternatives like Ingersoll-Rand, Joy and Sullair. They can go to its competitor specially Sullair who is also having expertise in rotary screw technology and the distributors are having installed base machines and expertise needed for the sales of these compressors. Some may agree to perform functions for Atlas but the commitment level will not be the same. Atlas must remember its first phase when it failed completely without the support of distributors.

Some distributors may have good relationship with customers which they have build from tenure of many years; if they follow the new policy they have to start from initial stage and progress with in that time their relationship with existing customers can get affected.

In order to sell the big compressors according to policy they must first cover the two levels of franchising the basic and enhanced one after that they can sell the compressors greater than 450hp. Along with that they must have marketing and sales expertise as they will not have support from sales team of Atlas.

Some of distributors already invested heavily for services to customers, on displays, sales people and on the products in which they are comfortable. Some got expertise in Z series, some are good at selling multiple product line and some are happy to have maintenance services. They performed their functions very well and achieved the goals and set targets.

Atlas-Copco was successful because of its distributors, and the level of trust they have shown to Atlas and their confidence. If Atlas-Copco will try to implement the four-level franchising policy then it can bring disastrous results and in further can lead to a loss in market share.

Q3:-

Atlas-Copco’s franchising policy is based on four levels, dividing distributors and the roles which they will perform by selling different compressors etc. A channel design is viable and successful until unless it provide desirable service outputs to customers. If customers are not satisfied and required level of service output is not supplied to them then the whole channel design is useless.

Atlas-Copco during in its all four phases tried to provide better service outputs with the help of its distributors and its growth shows the level of customer satisfaction but the success of history is not promise for success in future. The four-level franchising policy will not work effectively for the customers of Atlas and can bring demand side gaps for the end-users. Customers want to reduce their search time, waiting time, opportunity cost and want to achieve long term benefits.

	One Stop Shop	Spatial Convenience	Distributor Loyalty	Searching Time
Small Customers	Medium	High	Medium	Medium
Big Customers	High	Low	Medium	Low

The four-level franchising policy varies by product line not by services provided. The distribution is exclusive and having specified territories. With this policy there is tendency that loyal customers who prefer to purchase from their favorite distributor may feel uncomfortable to purchase from new distributor. Customers may find difficult to select distributor which can fulfill their exact specifications regarding the compressors.

IMPACTS OF FOUR-LEVEL FRANCHISING POLICY ON CUSTOMERS

BEFORE IMPLEMENTATION	AFTER IMPLEMENTATION
Big companies was able to get big & Small compressors from distributor(Monsanto, Polaroid)	Big companies can’t get small compressors from Agency level distributor(Level 3) SOD>SOS
Small compressor customers can get the compressor from any distributor on basis on availability, credit terms and maintenance support	Small compressor customers have to find basic franchise for purchase of small compressors, they have to search and spend time for searching SOD>SOS
Distributors was there to provide after sale services and different services regarding maintenance	For post and after sale services customers have to contact authorized service center which may not be present in their region SOD>SOS

Small customers have to find the basic franchise or enhanced distributor franchise to fulfill their needs, they value spatial convenience, loyalty and searching time high but with the new policy they can’t get the desired service outputs. There may be possibility the basic or enhanced distributor franchise may not be present in their territory then instead of going for Atlas compressors customer can move toward its competitors.

Customers don’t have option for one stop shop. Some customers want to buy big and small compressors at a same time but with new policy they can’t do this. For big ones they have to visit another distributor and for small they have to visit another. Same is the case with spare parts and different services. Like Polaroid and Monsanto they purchase big and small compressors but with new policy they have to visit another distributor.

 For warranty and post warranty services customers have to go to authorized service centre which will be a new thing for customers and what if the authorized service centre is not in their territory where as previously distributor was sufficient to provide warrant and post warranty services.

Q4:-

Atlas-Copco was having sales of $50 Million for its industrial compressor business from which $37 million was coming from its distributors. Distributors of Atlas worked very well and let Atlas to capture market share. Now Atlas comes up with new four-level franchising policy as a result of distributors’ audit and development program.

During the start of Atlas-Copco’s operations in USA, its distributors had shown the level of trust and commitment. The success of Atlas-Copco is not only by its sales team but with the collective collaboration of its distributors. The new four-level franchising policy will lead Atlas-Copco to failure.

Atlas-Copco is willing to form new relationship with its distributors by adopting. In the past there was strategic alliance between both parties but it was inclined towards more informal structure. From Phase 1 to Phase 4 Atlas-Copco was flexible in operations and distributors were happy too and the success can be seen by viewing the growth of Atlas’s market share. If Atlas implements the four-level franchising policy then it will cause conflicts between both the parties.

Distributors are not ready and not expecting from Atlas to become so formal. Atlas-Copco will show its opportunistic behavior by adopting four-level franchising policy which will bring the element of uncertainty and propensity to leave for distributors.

If four-level policy applied then Distributors  have to follow a path in order to sell the big compressors; they have to move from 1^st level to 3^rd level, then what about those distributors who are all ready selling the big compressors? They again have to start from the scratch and it will take their plenty of time, their existing customers will also have to wait for somebody to serve them. The implementation process will take a lot of time for distributors to move up and during that time frame the competitors can take the lead.

IMPACTS OF FOUR-LEVEL FRANCHISING POLICY ON ATLAS-COPCO

BEFORE IMPLEMENTATION	AFTER IMPLEMENTATION
Satisfied Channel Members (Distributors)	Dissatisfied Channel members (Distributors)
Informal strategic Alliance (Full of commitment & Trust)	Formal Strategic Alliance (Absence of Commitment & Trust)
Satisfied Customers (Sufficient Service Output)	Dissatisfied Customers( Insufficient Service Output)
Growing Market Share	Growth not Guaranteed
Lesser threat from channel members for switch	Chances of channel members to drop ATLAS

Q5:-

With the passage of time distributors have made their core competencies in selling different model of compressors for Atlas-Copco, some are good at selling big compressors and some are comfortable with small compressors. The four-levels franchising policy will detract them from their operations. Atlas’s corporate strategy is to gain market share, it can’t achieve it with new policy and even it can’t go to market alone. It needs distributors to achieve its corporate strategy and for achievement it must build strong relationship with distributors full of trust and commitment.

Instead of offering them four-level franchising policy to gain and build distribution channels for growth in market share, I would be offering the channel members three set options to choose from.

New Options

	Set 1(Polish Existing Strength)	Set2(Expansion)	Set3(After Sale Service)
Monetary Help	More Lucrative Displays, Distributor advertisement locally	Sharing cost in expansion, credit facilities, Sales Rep Training	Sharing cost for setting up efficient workshops, Setting Mobile workshop
Flexibility	Flexibility to choose the product which they want to sell or have expertise	Can choose product to add in their product line for expansion	Choice to have in-house workshop, choice to have mobile workshop, choice of going for after sale service contract
Continuous Training	Regular training sessions	New Training sessions to sell new products recently added by distributor	Training to provide better customer support and Mobile Workshop
Rewarding	Selling compressors more than quota will lead the distributor to have higher margins on extra units sold	Selling compressors more than quota will lead the distributor to have higher margins on extra units sold	Positive feedback from customers will let the distributors to have more margins on after sale services

With the three options, Atlas-Copco can gain and strengthen its distribution channel. Instead of offering the four-level franchising policy for which they are not ready three set options should be introduced. Distributors can choose any set as per their needs.

Set 1 is for those distributors who are comfortable what they are selling like small compressors but they want to penetrate the market more and enhance their skills, Atlas will provide them monetary support for more advertisement along with more lucrative in-store displays. Continuous training session will be provided to them to stay up to day with modern trends and they will be having rewards when they will go beyond their quota.

Set 2 is for those distributors who want to expand, want to increase the product line, like if they are into selling small compressors and want to sell big compressors. In this set Atlas will offer them monetary support in terms of expansion of their facilities, training their sales representatives to have marketing and customer services skills. Distributors will be having flexibility to choose the product they want to add in their product line and they will be having the rewards for exceeding their quota limit.

Set 3 is for distributors who don’t have after sale service facility/expertise and want to have after sale services with their distribution. Those willing to have will get monetary support for setting up maintenance workshop, along with this they will be having support for mobile workshop to visit the customer and provide on the spot maintenance service. The positive feedback the Atlas-Copco receives from customers the more the rewards the distributor will get of that territory.

The reason for offering three set policy is to give channel members more economic and noneconomic benefits and satisfaction, the more the satisfaction the more the level of commitment and trust which leads to building strong distribution channel.