GINO SA: DISTRIBUTION CHANNEL

MANAGEMENT

Group 16:

NIKHIL 0121/56
ONKAR 0129/56
KANISHKA 0273/56
RIYA 0296/56
JOY 0354/56
 GINO SA

● Manufactured over 50+ models of burner GOALS

● Competitive Edge: in house production capability, well 01
established channel network, international exposure Achieve annual combined
● Sell at 10-20% lower price than competitors sales of 15k units (200
units of Industrial)

Segments Profit M% Jinghua Total Units % Jinghua

02
Optimize distribution
Domestic 20% 4,354 10,887 40% channel and giving
distributor more marketing
Commercial 25% 876 1,877 47% and technical supporT

Industrial 30% 37 137 27% 03

Develop minimum 2 OEM
accounts and 2 end user
PROBLEM STATEMENT accounts

The main issue concerning Gino SA is whether to choose Feima as it’s

OEM (sell burners directly ) or not. Selling burners directly to Feima will 04
Improve service and build
boost sales and help to combat increasing bargaining power of brand image
distributors but it may destroy relationship with its largest distributor,
Jinghua and other distributors too join hands.
 Burner Industry in China
Evolution
China mostly relies on coal for energy.
Pre 1990
Low efficiency & high pollutants.
China emphasizes on pollution
Early 1990 control. International burner
manufacturers enter the market
Domestic burners compete on basis
Late 1990 of price. Commercial burner’s demand
increase
Domestic market growth is stagnant.
Post 1999 Industrial burner market projected to
grow at a high pace (20% p.a.)
*currently we are in year 2000
Current Scenario
● Burner manufacturers rely solely on distributors for
sales. (Exception: Weishaupt)
● Manufacturer and distributors share love-hate
relationship and don’t trust each other
● OEM customers rely heavily on “word-of-mouth” and
“guanxi” (connections) before buying
Buying preference:
● Domestic: price conscious
● Commercial: price, compatibility & reliability
● Industrial: reliability, availability, compatibility with
boilers, price
 Distributor Network
Pros
● Help achieve Annual sales targets since
bonuses for sales people depend on them
● Ensures Availability, Visibility & Reliability
● Significant penetration - Domestic-14%,
Commercial-8%
● Provide Inventory & Spare parts storage
facilities
● Provide Installation & After-sales service
● Has “guanxi” - local connections
● Helps with networking and reaching out to
new OEM customer connections
● Performs Customer interface function by
deploying sales force personnel
Cons
● Bullwhip effect
● Sensitive to any signal of Manufacturers
selling directly to OEM customers
● Reluctance to stock Industrial burners &
Spares
● Higher Bargaining power for better prices &
Lower quotas
● Marketing, commercial & Price promotional
support
● Poaching sales from fellow distributors
● Flouting the maximum discount % level &
undercutting (Distributor undercutting)
 High market
size growth

Future Star Star

Build Dominate
Asia China

High market
Low market
share growth
share growth
Sales
Avoid Sustain
North America Europe

Low market
size growth
 Financial Analysis

Pricing Analysis
Base Price: Rs 1232 Moving directly to OEM
MRP: Rs 1972 is financially viable for
Max possible discount the company
on MRP: 38%

Distributor Company Summary

Dis. Discount: 30% Moving directly will
Dis Margin: 8% increase sales share of
- Dis Cost: 2% OEM from ~2% to ~8%
- Dis Profit: 5%

Direct OEM Assumption

In direct relation, after
Discount: 35%
sales service is provided
Cost of after-sales
by the company
service: 3%
 POSSIBLE OPTIONS

1. Giving Monetary incentive to Distributor

The solution is to give monetary benefit to distributor in form of a margin even if OEM is reaching directly

Pros:
● Keeping relationship with distributors stable
● No loss of face in the cultural context

Cons:
● Possibility of increased bargaining power to distributor
● Lost opportunity of discount to OEM directly
● Possibility of getting into messy negotiations
● Additional cost possible for after sales support

Summary:
● In conclusion, this solution doesn’t seem very viable
 POSSIBLE OPTIONS
2. Assigning new provinces (less developed) to Jinghua

All three distributors of Gino have already been assigned exclusive rights to some provinces and selling
burners in other distributor’s territory was prohibited. New areas in which selling burners become viable due
to economies of scale are assigned to high achieving distributors.
Solution:
● To compensate Jinghua for loss of ~400 units sales, new provinces can be directly assigned to
Jhingua so that existing relationship is maintained
Pros:
● Gino can supply burners directly to Feima at 10% additional discount over 25% discount on list price
● It will help Gino to start with developing OEM business and will led to increase in sales by 769 units
● As Jhingua is not able to serve industrial customers, it will also help to break into well entrenched
customer in industrial burners
Cons:
● This may upset other distributors whose sales growth is more.
● Assigning new provinces may not solve the problem of reducing bargaining power in long run
Summary:
● Though this option is better than previous one, but it is more of a short term solution. This solution
doesn’t seem appropriate from long run perspective
Recommendation: Phased out cutting of distributors: STEP 1

Takeover of industrial boilers’ contract

As the first step, we would sign contract with the
OEMs for industrial boilers bypassing
distributors.
Rational for GINO
In a long run we would be able to build trust
among the OEM network and hence will
prove as a great business opportunity to
on-board other OEMs. Increased chances of
profitability and increased volumes

Consequence for Distributors

Saving on inventory cost incurred
due to poor demand forecasting
of industrial boilers

Consequence for OEM

More discounts on the bulk purchase.
Long term contract hence stability.
Recommendation: Phased out cutting of distributors: STEP 2
Takeover of repair and maintenance of commercial
and industrial boilers
As the first step, we would sign contract with the
OEMs for industrial boilers bypassing distributors.
Rational for GINO
GINO will be a better alternative providing
technical assistance to the OEMs (eg- predictive
analysis), hence, increasing the credibility among
OEMs, increasing our bargaining power and
reducing distributors power
Consequence for Distributors
Due to suboptimal servicing capabilities
compared to GINO, distributors will lose out
on the bargaining power on contracts of
commercial boilers.
Consequence for OEM
Better technical assistance in repair
and maintenance and long term
contracts for purchase of commercial
boilers
 Other Recommendations

Introducing the concept of Auxiliary services

credit cycle The case mentions two things-
decreasing relevance of
To compensate the distributors for
distributors with time and their
collaborating with OEMs we can
poor technical assistance
introduce the concept of credit cycle
capability. For a smooth transition
for the distributors. This not only will
we need not only decrease the
help distributors to be more
bargaining power of distributors
competitive in the market and adapt to
but also live up to the demand
a new flexible business model but also
expectations of the OEMs. Both
will help GINO for smooth transition
of these can be simultaneously
with OEMs without direct monetary
achieved by incorporating
compensation to distributors
technology in the business. For
example, predictive analysis in
repair and maintenance will not
only give GINO a significant
advantage over distributors but
will also attract other OEMs with
time
Thank You