gino sa: channel distribution management
TRANSCRIPT
GINO SA:DISTRIBUTION
CHANNELMANAGEMENT
HARVARD CASE STUDY ANALYSIS
What isGINO SA ?
GINO SA
• One of the largest burner manufacturer and exporter in the world and enjoys up to 14% market share
• Set-up in France
THE PLAYERS• David Zhou - China marketing manager
of Gino SA• Jean Michael Pierre - Asia Pacific Area
Manager• Henry Gong - Gino’s largest distributor
Jinghua’s general manager
MarketSegmentation
SEGMENTS• Domestic Boilers• Commercial Boilers• Industrial Boilers
Segments Manufacturers Average Price Market Size
Domestic Boilers and
Water Boilers
310 RMB 2500 per unit
RMB 194 million
Commercial boilers
RMB 9000 RMB 198 million
Industrial Boilers 60 RMB 65000 RMB 221 million
RANGE SYSTEM• Estimated sizes in unit sold
RANGE MARKET SIZE
Domestic 79,900
Commercial 20,080
Industrial 2,920
Total 102,900
DISTRIBUTION NETWORK
• The distributors: 1. Jinghua (also sold boilers) 2. FUNG’s (textile industry) accounted 90% of annual turnover 3. Wayip (sold only GINO burners)• Revenue split between burners and spare
was 80/20
DISTRIBUTION NETWORK
• Performance Statistics
Jinghua FUNG’s Wayip Total
Domestic 4,354 3,075 3,458 10,887
Commercial
876 433 568 1,877
Industrial 37 48 52 137
Total 5,267 3,556 4,078 12,901
What isthe problem?
THE PROBLEM
• Choosing between an OEM proposal from Feima and agitating its well- established distribution channel, especially Jinghua.
WHO ARE INVOLVED?
• GINO- the main producer• Jinghua- largest distributor of GINO
in China and accounted 40% of GINO’s China revenue - the distributor
• FEIMA- potential OEM and major client of Jinghua - the buyer
AIM
• Grow its annual unit sales by 20%, industrial sales by 200 units
• Build two OEM & end user channels by improving service standards
RISK INVOLVED
• Feima’s OEM businesses may lead to frayed relationship with existing distributor, Jinghua.
OBJECTIVE
• Choose between pleasing distributor or setting up OEM.
• If OEM: create a pricing strategy for potential OEM’s including Feima.
What can bethe advantages?
ADVANTAGESWhy Zhou wants Feima’s OEM business?
• Developing OEM business was one way to combat increasing power of distributors
• Good opportunity to break into a well-entrenched customers in industrial burners
ADVANTAGES• Success with Feima would make it
easier for Gino to develop OEM business in other distributor’s territories
What can bethe disadvantages?
DISADVANTAGESWhy Jinghua was adamantly opposed?
• Jinghua strongly believed that Gino should not develop distributor’s existing costumer as OEM
• The practice would set a bad example, which could destroy their confidence in co-operating with Gino
SWOTanalysis
SWOT ANALYSIS
STRENGTH
• Global presence, well established channel network and strong brand reputation
• Price gap from competition of up to 30%
• Contribution margins (30%- industrial, 25%- commercial, less than 20%- domestic)
• Reputable employee base
WEAKNESS
• Reliance on oligopolistic distribution channel for meeting the sales targets
• Unable to take over industrial burner market
• Unable to steal major market from competitors
OPPORTUNITIES
• Increased demand (20% higher in the next five years) in industrial range.
THREATS
• Political influence of local manufacturers leading to increased output and selling power
• Declining growth in western markets
What can be done?
ALTERNATIVES (1/3)
1. Reject Feima’s offer
ADVANTAGES• Strengthening of ties between
manufacturer and distributors• Maintain its leadership position in
Domestic Segment
DISADVANTAGES• Revenue lost from potential new orders• Conflict with strategy of adding more
OEM accounts• Opportunity cost in high margin
Industrial Segment• Increase in distribution power
ALTERNATIVES (2/3)
2. Accept Feima’s offer for industrial segment and leave other segments to Jinghua
ADVANTAGES• Increase in revenue and profits with
penetration into industrial segment• Completely in line with management
strategy goals• Jinghua also making more revenue and
profit• Warehouse will solve inventory
problems
DISADVANTAGES• Getting distributors on their side can
be a tough task despite more profits
ALTERNATIVES (3/3)
3. Offer the discounts to Feima through
Jinghua
ADVANTAGES• Good relationship with Jinghua and
other distributors• Continuation of the existing relation
with Feima
DISADVANTAGES• Alternative not aligned to Gino’s
strategy• Can impact the overall margin of the
industry• Other distributor’s OEM accounts will
ask for same margin
Financial analysis of alternatives
FINANCIAL ANALYSIS FOR ALTERNATIVE 1
Domestic Commercial Industrial Total
Units sold by a distributor
10887 1877 137 12901
Transfer Price (RMB) 2500 9000 65000
Revenue from burners (RMB)
27217500 16893000 8905000 53015500
Revenue from spares in USD (80/20) split
6804375 4223250 2226250 13253875
Net revenue of Gino in RMB
34021875 21116250 11131250 66269375
Net revenue of Gino in USD
4099021 2544126 1341114 2984262
Total Contribution Margin (20%, 25%, 30%)
$819804 $508825 $268222 $1596852
FINANCIAL ANALYSIS FOR ALTERNATIVE 2
On the next page
Domestic Commercial
Industrial Industrial Direct
Total
Forecasted Units 11810 2003 165 36 13978
Transfer Price (RMB) 2500 9000 65000 120575
Revenue from burners (RMB)
29525000
18627000 10725000 4340700 62617700
Revenue from spares in USD (80/20) split
7381250 4506750 2681250 1085175 15654425
Net revenue of Gino in RMB
36906250
22533750 13406250 5425875 782772125
Net revenue of Gino in USD
4446536 2714909 1615210 653719 9430376
Total Contribution Margin (20%, 25%, 30%, 30%)
$889307 $678727 $484563 $196115 $2248713
Setting up warehouse(30000*12/8.3)
$43373
Shipping, Insurance etc. (48.4% of Cm)
$94920
Outsourcing cost (5% of CM)
$14096
Net contribution $889307 $678727 $484563 $43725 $2096323
FINANCIAL ANALYSIS FOR ALTERNATIVE 3
Domestic Commercial Industrial Total
Forecasted Units 11810 2003 198 13978
Transfer Price (RMB) 2500 9000 65000
Revenue from burners (RMB)
29525000 18627000 12870000 60422000
Revenue from spares in USD (80/20) split
7381250 4506750 3217500 15105500
Net revenue of Gino in RMB
36906250 22533750 16087500 75527500
Net revenue of Gino in USD
4446536 2714909 1938253 9099698
Total Contribution Margin (10%, 15%, 20%)
$444653 $407236 $387650 $1239540
FORECASTING NUMBER OF UNITS
Current Industry Growth
(2%, 5%,
20%)
Addition in Feima
sales
Projected sales 2000
Projected sales 2001
Projected sales 2002
Domestic
10887 11105 705 11810 12047 12288
Commercial
1817 1971 32 2003 2104 2210
Industrial
137 165 33 198 238 286
EVALUATION OF ALTERNATIVES
Resolve Jinghua’s problem (0.35)
Revenue and profit
(0.3)
Industrial Segment
penetration (0.25)
Bargaining of
distributors (0.10)
Total
Alternative 1
1 1 2 1 1.25
Alternative 2
3 3 3 2 2.9
Alternative 3
2 2 1 3 1.85
Recommendation of strategy
RECOMMENDATION• From financial analysis & pros and cons
of all Alternative 2 is recommended• It is aligned with Gino’s long term
strategy and achieve the target of 200 Industrial burners.
RECOMMENDATION• The warehouse will house Industrial
burner inventory which will reduce inventory cycle time for other distributors giving Gino a competitive edge.
Contingency Planning
IMPLEMENTATION• Feima would be happy about the deal
as it is getting the percentage discount it demanded
• If Jinghua does not agree to the plan due to fear of losing the industrial market a contract may be signed stating that Gino will not acquire any industry burner OEM contract for 2 years
IMPLEMENTATION• If Other OEMs ask for the same margin
then the discount must be compensated by increase in purchase
Presentation created by-ROHIT, NSIT Delhi
During an internship by-Prof. Sameer Mathur, IIM Lucknowwww.IIMInternship.com