GINO SA

Distribution Channel Management

A Harvard Business School Case

by Nived R Nambiar

An introduction toGino SA

Founded in 1931.HQ: Paris, France.

50+ models of burners.

Known for products of “best value”.

Gino History

Set up Beijing office in 1995.Currency: Renminbi (RMB)

Objectives:● Marketing Research and Campaigns.● Administering Distribution Channels.● Technical Support and Counselling.● Develop long term cooperation initiatives.● Key account and OEM business development.

Gino History

The Players Involved

David Zhou China Marketing ManagerGino SA

Jean-Michel Pierre Asia Pacific Area Manager

Gino

Current Situation

Burner Production & Market

World Markets

Gino Worldwide Production

Market Analysis

Burner Market

● Before 1990○ Coal was major source of energy.○ 80% boilers used coal powered burners.

● 1990 - 1995○ More pollution control laws.○ Coal replaced by oil-combustion boilers.○ Major burner manufacturers such as Weishaupt

(Germany), Elco(Germany), Baltur & Reillo(Italy) etc.. entered market.

Burner Market

● 1995 - 1998○ Increase in burner applications.○ More burner manufacturers entered market.○ Participation from local manufacturers.

● Post 1999○ Modest growth in domestic range market.○ Commercial range became mainstream market.○ Demand for industrial burners was estimated to be 20%

per year.

What happened at Gino

In the domestic rangeMarket share rose to 14% from less than 1% in

terms of volume.

In the commercial range market share rose to 8% from a potential zero.

In the industrial range GINO only claimed a market share of less than 3%.

Gino SA

The customer buying process

Market Segmentation

Divided into 3 segments

● Domestic Boilers○ Around 310 manufacturers.○ Production volume ranged from 50 to 1500 (avg : 250)○ Avg price RMB 2,500. Market size is RMB 194 million.

● Commercial Boilers○ Estimated volume is 22,000 units in 1999.○ Avg price RMB 9,000. Market size is RMB 198 million.

● Industrial Boilers○ 60 manufacturers produced 3,400 units in 1999.○ Avg price RMB 65,000. Market size is RMB 220 million.

Gino segmented market based on a range system

Gino’s Distribution Channel

Gino enlisted 3 distributers

● Revenue split between burners and spare was 80/20.

● Bonuses on fulfilling yearly budget.● The distributers:

○ Jinghua (also sold boilers)○ FUNG’s (textile industry) accounted 90% of

annual turnover.○ Wayip (sold only GINO burners)

Performance Statistics

Role of Distributors

● Credit Function

● Stock Function

● Sales and Service Function

Burner Pricing

There are mainly 4 levels of price

● Transfer Price : Price in US dollars quoted to distributors by GINO.

● Base Price : Transfer price converted to local currency by multiplying a conversion factor of 12.32.

● Public Price : “Grossing up” base price by 60% on all models.

● Contract Price: Price at which product is sold to consumers after discount.

Emerging Issues

Strategy change

With GINO beginning to diversify in 1998.

New goals have been set for Gino China.

Annual sales of 15,000 units

Annual sale of industrial burners over 200 units

Develop 2 OEM and 2 end user accounts over 2 years.

Improve service supply.

Distributor’s Behaviour

● Demand for better terms.

● Stolen Sales

● Reluctance to buy stock industrial burners

Current Problem

Feima Boiler Ltd. One of the 20 largest OEMs

Production of Feima in 1999

What is the Situation ?

Feima approached Gino directly to obtain better prices

Their request,10% greater discount from Gino

Their offer,Purchase of 50% of its commercial & industrial burners and 100% of its domestic burner from

Gino.

At the same time,

Pressure from Jinghua and other distributors to decline

Feima’s offer!

Jinghua threatened to“reconsider cooperation with Gino”

Andpressure from

David’s supervisor to accept the proposal from

Feima

WhatdecisionshouldDavidtake ?

Things to be considered,

● Response of other distributors● The message this decision would send to

competitors.● Feima’s response.● Response of Gino’s corporate management● A solution that can save the face of both sides.

Up Sides of accepting contract

● Developing OEM business.

● Success with Feima would make to easier to develop OEM business in other territories.

● Increase sales with Feima and build brand image.

Down sides of accepting contract

● May lose support among distributors.

● Can effect relation with Jinghua who accounts

for 40% of Gino’s annual turnover in China.

Whatare his

Options ?

Options

● Option 1:Let the distributors supply to Feima directly and give additional 10% discount to Feima, given they keep their offer.

● Option 2:Refuse the offer from Fiema and maintain the current relations.

● Option 3:Develop Feima as an OEM. But disappoint the distributors.

The best alternative

The best alternative would beOption 1

as it would help,

● Increase unit sales.● Strengthen distributor relations● New OEM relations.● Build brand image.

Up sides of Option 1

● Maintains distributor relations and establishes relation with Feima with new pricing.

● Increased sales with Feima leads to increased annual turnover.

● Building relation with Feima helps to build brand image and reach other OEMs.

Thank You

Disclaimer

Created by Nived R Nambiar, MEC Cochin, during an internship by Prof. Sameer Mathur, IIM Lucknow.

www.IIMInternship.com