Gino SA distribution channel

management

PGFX19003 A Ashok Kumar | PGFX19023 J Navin Joseph Peter | PGFX19028 R Preethy |

PGFX19041 P Silambarasan | PGFX19057 P Meganathan |
Gino
•Gino’s largest distributor in China.
•Given the size and potential of the business, Zhou was excited by the
initiative and he entered into discussions with Feima after receiving the
consent of Jinghua.
•As the project progressed, however, Jinghua had become more and
more aggressive in opposing the deal.
•Jinghua’s general manager, Henry Gong even threatened to “reconsider
the co-operation with Gino if Feima is touched.”
•Zhou was debating whether or not to proceed with the project.
• Then the distributors were going to Paris to attend the company’s
global distributors meeting where they would meet with Jean-Guy
Picher, the director of the Commercial Department of Gino Burner.
Burners - Products
• Burners are electromechanically controlled appliances that provided
controlled flame for combustion applications such as boilers and
furnaces
• The body contained the control system, consisting of the electric
circuit, dumper, fan, valve, pump and control box.
• The control system was usually housed in a plastic and iron canopy,
which was often painted in a bright color.
• The head was usually a heatproof carbon steel tube with nozzles.
• In field applications, the head was placed in the combustion chamber
of the boiler or furnace and the body was left outside. The body was
connected to a power cable and an oil or natural gas supply
Burner market
• Europe is the single largest burner market in the world.
• But the market has now become saturated.
• In emerging markets such as Asia, the Middle East and parts of
Africa, however, the market is growing rapidly.
• Most burners were used in various kinds of boilers, from small
household units to high-output industrial boilers
• Other applications included absorption chillers, industrial furnaces and
ovens, ceramic kilns, car painting booths and other incineration
appliances.
•There were different ways to partition the burner market, but Gino used
output capacity as its primary segmentation variable.
•Domestic burners, typically matched with boilers of capacity up to 0.5
ton.
•Commercial burners, which fired boilers typically with capacities of
0.5 tons to 2 tons.
•Industrial burners were usually used for large absorption-type chillers
and boilers for applications in various industries.
Burner Application

Burners are used

• In household for hot water in shower and dish wash.
• As industrial boilers that generated steam or hot water for heating
buildings.
• In chillers, industrial furnaces and ovens, ceramic kilns, car painting
booths and other incineration appliances.
Company background
• Gino Burner founded in 1931, manufacturer of burners,
headquartered in Paris, France.
• In-house production capability, a well-established channel
network and international exposure.
• Manufacture over 50 models of burners.
• Known for its domestic Burners.
• Largest burner manufacturers and exporters in the world.
• The company was traditionally known in the market as
providing the products of “best value.”
10-20% Lower Price than competitor
The burner market in china
Before 1990
• China rich in coal-low efficiency and polluting-coal combustion
boilers and hence no burners

1990 - 1995
• Emphasis on pollution control, replaced with oil combustion boilers
• Weishaupt (Germany), Baltur & Ridello (Italy), Elco
(Germany), Quenod (France), Corona (Japan)
1995 - 1998
• Price became an issue-Local manufacturers-only 5000 units-5 years
to become a threat-small burners
• Domestic-14% Commercial-8% Industrial-less than 3%
• Despite offering 10% to 20% less than Weishaupt low penetration
in industrial burners

Post 1999
• Domestic - price wars ; commercial – mainstream market
• Industrial burners – growth expected at 20% for next 5 years
Consumer buying process

Distribution
Channel
•Different burner manufacturers adopted different sales strategies to
access the market.
•These burner manufacturers typically set up a marketing office in
China (usually in Beijing, Shanghai or Guangzhou), to launch
marketing campaigns, provide technical support and manage
distribution channels.
•Weishaupt was the only burner manufacturer that had its own direct
sales force and a distributor channel as well.
• The buying process for OEM customers differed from that of end
users.
• OEM customers usually made their purchasing decisions relatively
independently, whereas the decision making process of end user
customers (especially if they were in the public sector) normally
involved more stakeholders.
• For an OEM customer, “word of mouth” was very important in
deciding which brand of burner to buy.
• In 80 per cent of cases, the first step for an OEM customer in buying a
brand of burners was to pay “scouting” or “intelligence” visits to other
OEMs who used the brand they were considering
Segmentation

• There was no universally accepted manner of burner market

segmentation in China, and no official statistics on the size of the
market.
• The norm in the industry, however, was to divide the market into
three segments: domestic boilers and hot water boilers; commercial
boilers and non-boiler applications, such as dryers or incinerators;
and industrial boilers.
Domestic Boilers and Water Heaters
•It was estimated that there were approximately 310 major boiler and
water heater manufacturers in China in 1999.
•This segment began to mushroom in the early 1990s and reached its
peak between 1997 and 1998.
•The volume of these factories ranged from 50 units to 1,500 units per
annum with an average of 250 units.
Commercial Boilers and Other Industrial
Applications
• These applications included commercial boilers, dryers, incinerators,
ovens, hot air blowers, kilns, ovens, direct combustion air
conditioners and freezers.
Industrial Boilers
• Approximately 60 manufacturers in China produced about 3,400
industrial boilers in 1999.
• Due to the relatively higher upfront investment in capital assets and
technology, almost all these boilers were equipped with imported
burners.
Range Market Size
Domestic 79,900
Commercial 20,080
Industrial 2,920
Total 102,900
Gino Distribution Network in
China
• Three Distributors
• Wayip Trading Co., based in the south China city Guangzhou; 100%
Gino burners
• Fung’s Co., based in the central coastal city Shanghai
90%revenue from textile industry
• Jinghua Mechanical Engineering Company, in the northern city,
Beijing; Largest distributor with 40% revenue of total.
Ji ngh ua F U N G ’s Wayip TOTAL
Domestic 4 , 354 3, 0 75 3,458 10,887
Commercial 876 433 568 1,877
Industrial 37 48 52 137
Tot al 5 , 267 3, 5 56 4,078 12,901
Distributors’ Functions
 Credit Function

Payment is made by the

distributor’s bank as soon as
the goods are Shipped
Stock Function
Sales and Customer Service
 Pricing
• Transfer price
• Base Price
• Public Price
• Contract Price

Transfer price Base Price Publiic Price Contract Price

100$ 1232RMB 1978RMB 1578RMB

B.P=1.484*8.32 TP
P.B=1.6*B.P
C.P=0.8*P.B
1$=8.32RMB
 Revenue from Distributors
Type Transfer Price Base price Jinghua Fung Wayip
Domestic 2500 3710 16153340 11408250 12829180
Commercial 9000 13356 11699856 5783148 7586208
Industrial 65000 96460 3569020 4630080 5015920
Total 31422216(40%) 21821478 30061388

Profits from Distributors

Type Margin Jinghua Fung Wayip
Domestic 20% 3230668 2281650 2565836
Commercial 25% 2924964 1445787 1896552
Industrial 30% 1070706 1389024 1504776

Values IN RMB
Current
Situation
• Gino rely completely on distributors for sales.
• Gino want to increase its industrial burner market.
• Weishaupt own sales force and distribution network.
• OEM are trying to bypass distributors.
• Issues with disributor.
Distribution Related Issues
• Distributor Behaviour
• Demand for Better Terms: Bargaining For more margin.
• Stolen Sales: Poaching other Gino Distributor.
• Reluctance to Stock Industrial Burners: Loss of sales due to
shortage of stock.
• No candidates for new or replacing distributors.
• No warehouse.
• Feima Boiler Co. Ltd is a leading boiler factory in northern China,
made over 1,200 sets of boilers.
• Last year Feima bought from Jinghua 350 domestic burners, 50
commercial burners and 3 industrial burners.
• Jinghua gave an average 25 % discount off the public list price.
• Now Feima is approaching Gino for OEM, expecting a 10 per cent
greater discount and promising to buy 50 % of its commercial and
industrial burners and all its domestic burners from Gino.
What Decision David Zhou Should
Take
Should condiser
1. The possible response from Gino’s other two distributors.
2. The message that his decision would send to competitors.
3. The attitude of Gino’s corporate management once the issue was put
forward in April with Picher, the director of the Commercial
Department.
4. Feima’s response.
5. Were there any other solutions that could save face for both sides?
 Who are the Key Players
• David Zhou
China Marketing Manager of Gino SA
• Jean-Michelle Pierre
Gino’s Asia Pacific Manager
• Henry Gong
Jinghua’s General Manager
• Feima Boiler Co. Ltd.
• Lower Price • Over reliance on
• Good distributors
Reputation • No Warehouse
• Reputable • No workforce
Employee Base for
Sales & Service

• New OEM • Loss of Jinghua(40%

Buisness Revenue)
• Control over • Loss of Distributor trust
Distributor Power • Can’t meet Assigned
• Increased Profits Goals
1. Develop Feima as OEM
• Pros
• Profit of about 359% more
than the earlier dealing with
Feima.
• Increased unit sales through
Feima.
• Brand image and potential
end-user channels built.
• New OEM channel
developed.
• Decreasing
distributor power
• Cons
• Disappointed Jinghua.
• Fear in distributor channel
may lead to poaching
and exits.
• Industrial stocking
remains a challenge.
• High marketing investment.
• If Jinghua leave 40% loss of
revenue
• No new distributor available
 Values IN RMB

If Fiema is OEM
BASE LIST OEM COST OF PROFIT ON 1
TYPE UNITSPRICE PRICE PRICE 1 UNIT UNIT Total
DOMESTIC 1055 3710 5936 3858.4 2938 920.4 971022
COMMERCIAL 81 13356 21369.6 13890.24 10017 3873.24 313732.4
INDUSTRIAL 35 96460 154336 68190 32128.4 1124494
100318.4
Total 2409248

Earlier
BASE MARGIN ON 1
TYPE UNITS PRICE LIST PRICE OEM PRICE UNIT Profit
DOMESTIC 350 3710 5936 4452 772 270200
COMMERCI
AL 50 13356 21369.6 16027.2 3339 166950
INDUSTRIAL 3 96460 154336 115752 28290 84870
Total
525020
Profit increased= 359%
2. Accept Fiema as Jinghua’s
Customer
• Negoitate with Fiema, that it can buy Industrial burner directly
from Gino at 10% greater discount and Commercial, domestic
burners from jinghua’s at 5% greater discount, if Fiema keeps
its promise.
• Give 2% discount to Jinghua on its dealing with Fiema. So that
there is no loss to Jinghua.
• Jinghua will be happy as its sales are increasing and
total revenue too.
• Fiema will also be pleased as it is getting a greater discount.
Gino Enjoys good profit even on giving
3% discount to Jinghua
BASE OEM MARGIN ON
TYPE UNITS PRICE LIST PRICE PRICE 1 UNIT Profit
DOMEST
IC 1055 3710 5936 3858.4 630.7 665388.5
COMME 13890.
RCIAL 81 13356 21369.6 24 2938.32 238003.92
INDUST 10031
RIAL 35 96460 154336 8.4 32128.4 1124494
 • Pros • Cons

• Increase in unit sales. • A little loss in profit

• Relationship • High Investment
with distributors
strengthened.
• Industrial
burners demand
increased.
• New OEM.
• Decreasing power of
distributors
• Win Win situation for
both.
• Sales goal are met.
 • Pros • Cons

• Relationships with • OEM account lost.

distributors • Guaranteed unit
remain sales lost.
undeterred. • Distributor
• Increase Trust in power remains.
Distributor • No profit
increased
• No sales goal
met.
Recommendations
• By weighing the Pro’s & Con’s the second choice is
• best.
• If negotiation fails then choice third should be chosen, since Gino
cannot afford to loose its distribution network
• A warehouse should be built so that stocking problem is solved.
• For services, Charge 5% extra from customers, so that distributors are
motivated for giving better service.
• Improve the brand image by advertising, organizing various events etc.
• To resolve conflict with Distribution Channel
• To decide whether to give OEM status to Feima
• Increase Annual combined sales
• Increase annual sales of Industrial burner
• Develop OEM accounts
• Improve spare and supply
• Build the Brand image