2. • Largest burner manufacturer
• Founded in 1931 with headquarters in Paris, France
• Traditionally known in the market as providing the products of “best value”
• In the domestic range, Gino burners were usually 10%-20% lower in price
than the major competitors, and in some extreme cases, the price gap could
reach 30%
• The industrial range had an average contribution margin of about 30%, the
commercial range about 25%, while the domestic range was less than 20%
3. • Electrochemical device, which provides a
controlled flame for boilers and furnaces
• 2 major parts: the body and the head
• The body consists of electrical circuits,
dumper, fan, valve, pump and control box
• The head was a heatproof carbon steel tube
with nozzles
4. SEGMENTS BOILER CAPACITY USES
Domestic Upto 0.5 ton Households/sauna
Commercial 0.5-2 ton Offices/shops/restaurants
Industrial >2 ton
Absorption type chillers and
boilers
• Gino used output capacity as its variable for segmentation
• Becket: market leader In US
• China, a rising star
5. Area Market Size Gino Sales
Europe 574 276
North America 433 45
Asia 291 36
Rest of world 250 24
Total 1548 381
• Developed markets of Europe and U.S. have become saturated
• Highest growth in Asia, Middle East and Africa
• Demand was increasing for domestic and commercial burners
6. Range Output Range(kcal/hour) Gino Production in 1999
Domestic 50,000-300,000 329
Commercial 300,000-2,000,000 49
Industrial >2,000,000 3
Total 381
7. • Gino officially set up its Beijing office in 1995.
• The marketing manager, David Zhou, was in charge of overall
marketing issues, including channel management. He supervised
three assistant marketing managers, each in charge of marketing
related issues in one segment.
• Technical manager Peter Wang was in charge of overall technical
support to distributors and customers and was highly respected for
his ability to solve tough technical problems.
• Zhou reported to Jean-Michelle Pierre, Gino’s Pacific manager, who
worked in the corporate headquarters in Paris.
8. Prior to 1990
China was rich in coal resources and had been relying heavily on coal for its major
source of energy.
As coal was low in efficiency and high in emission of pollutants, the boilers used
were mostly coal combustion boilers, which had no need for burners.
1990-1995
Coal-combustion boilers were replaced by oil-combustion burners in order to limit
the pollution.
Weishaupt (Germany), Baltur & Riello (Italy), Elco (Germany), Quenod (France) and
Corona (Japan) became the established brands.
9. 1995-1998
Competition moved more and more to price basis.
Annual local production amounted to no more than 5,000 pieces in total.
Take local manufactures at least five years to pose a threat to the international
manufactures.
Gino became the price leader in the domestic range market.
It gained Domestic-14%, Commercial- 8% and industrial- <3% market share.
Despite offering prices 10%-20% lower than Weishaupt, it had low penetration in
industrial market.
Post 1999
Domestic market: price wars.
Industrial burners- growth expected at 20% for next 5 years.
10. • Most burner manufacturers, relied solely on distributors for
sales.
• Weishaupt; only manufacturer having its own direct sale and a
distributor as well in China.
• OEM’s often tried to bypass distributors
• Manufacturer’s refrained from giving quotations
• Issues: Services, spares and prices going to OEM
11. • Decisions are made independently
• Word of mouth, scouting trips, design institutes
• Criteria: Price, Reputation, Service, Spare supply, reliability,
technical compatibility, personal connections
• Importance of price inverse proportion to the output capacity
of burners
12. • Purchase the machinery components for a project
separately to negotiate the prices
• Public tendering, used to select vendors for these projects
Example: A government project involving industrial burners
14. Weishaupt, was the leading brand in industrial boilers in all parts of China.
Manufacturers Average price Market Size
Domestic Boilers &
Water Boilers
310 RMB 2,500 per unit RMB194 million
Commercial boiler
and other Industrial
Applications
-- RMB9,000 Rmb198 million
Industrial Boilers 60 RMB65,000 RMB221 million
16. • Three distributors were set up in China
• Wayip Trading Co., in Guangzhou: 100% Gino burners, looking for HVAC products
• FUNG’s Co., in Shanghai: 90% annual turnover from textile machinery
• Jinghua, in Beijing: Made and sold boilers also
• Revenue split between burners and spares: 80/20
• Distributors fulfilling the budget were awarded a bonus of 1% of ordered value
17. • Transfer Price (US$)
Free on board (FOB) price in U.S. dollars that Gino quoted to the distributors.
• Base Price (RMB)
The total acquisition cost to distributors in order to have full ownership of a
burner, to have it in stock and ready for sale.
• Public Price (RMB)
“Grossing up” the base price by 60% of all models
• Contract Price (RMB)
Actual transaction price that a distributor reached in transaction with its
customer.
18. A burner with a,
Transfer price of US$100;
Base price(for distributor): RMB1,232
Public price(for customers): RMB1,972
Contact price: RMB1,578 (at a discount of 20% for the customer)
Gross profit to distributor: RMB346
19. • Achieve annual sales of 15,000 units
• Industrial burners > 200 units
• Optimize the channels to cover more area
• 2 OEM accounts + 2 end user accounts in 2 years
• Improve service and spare supply
• Build the brand Image
20. Feima, a leading boiler company, offered Gino for direct sales to
get additional discounts of atleast 10% and in return would give
purchase 100% of domestic burners, and 50% of commercial and
Industrial burners from Gino. Gino is really excited about this offer
as it meets its long term objective of OEM accounts and Industrial
segment penetration. Currently, Feima meets its burner
requirement through Jinghua, leading distributor of Gino, and
hence Jinghua is opposed to this offer.
21. Losing one out of three distributers means direct hit on sales and
hence Gino has to take this decision very carefully. If Zhou, Marketing
manager of Gino SA, decided to accept Feima’s OEM business and
deliver burners directly to Feima, Gino is very likely to lose one of its
main distributors in China, and ultimately harm future sales. It could
also have a negative impact on other 2 distributers. If Zhou doesn’t
accept Feima’s offer, Gino will lose the potential opportunity to create
an OEM business in China and potential sales, primarily in Industrial
segment. Moreover, it will have to succumb to demands of distributers
again, hurting sales in all segments including lucrative Industrial
segment.
23. Whether to acquire OEM contract of Feima and disappoint its existing
distributor or to forgone extra revenue from sales was a difficult choice Gino
has to make. The decision was bound to have larger impact on Gino sales in
China. Gino has to make sure any decision should address following Key issues
or Concerns:
A) Resolve the existing conflict in a possible win-win situation for both parties.
B) Control the distributers bargaining power
C) Penetrate into high growing Industrial segment of burners
D) Revenue and high profitability
24. • Response from Gino’s other two distributors
• Message sent to competitors
• Attitude of Gino’s corporate management
• Feima’s response
• Relationship with Jinghua
25.
26. • Gino SA benefits from global presence, well-established channel
network and strong brand reputation.
• A substantial price gap from competition of up to 30% and significant
contribution margins.
• The company also sustains a 14% domestic range market share.
• As one of the largest burner manufacturers and exporters, Gino SA
banks on reputable employee base (technical and marketing) that is
motivated by its compensation structure.
• Gino enjoys strong market share is largest European market and hence
financially stable.
• The emerging markets like China were growing rapidly and Gino had
strong distributer relationship in China, a major advantage in burner
market.
27. • Excessive reliance on distribution channel for meeting the sales
targets leaves Gino SA with little to no power in managing its product
flow and after sales services.
• Shirking amongst distributors in stealing sales from other provinces
and reluctance to stock Industrial burners is leading to an opportunity
loss of at least 50 units.
• Gino’s primary weakness was its poor market penetration in Industrial
segment.
• High additional staff expenses
28. • The emerging markets such as China have lot of potential
for growth and profit margin was generally higher in such
markets.
• Industrial segment is expected to grow at 20% annually for
next 5 years.
• Gino can capitalize in these opportunities and convert
itself into major player.
• OEM’s were ready to purchase directly from manufacture
rather than distributor to get better prices.
29. • Political influence of local manufacturers may lead to reduced
profit margin
• Traditional markets have become saturated
• Poor growth in domestic range market
• Loosing any of the distributor
30.
31. ADVANTAGES:
• Increased unit sales through Feima
• Brand image and potential end-user channels built
• New OEM channel developed
• Decreasing distributor power
DISADVANTAGES :
• Disappointed Jinghua.
• Fear in distributor channel may lead to poaching and exits
• Industrial stocking remains a challenge
• High marketing investment
• Longer cycle times.
32. ADVANTAGES:
• Good relationship with distributor Jinghua
• Jinghua will be responsible for 40% of Gino’s China reserve, as before
• Retain the current competitive advantage
• Industrial segment sales promote
DISADVANTAGES:
• Feima’s relationship with Gino and Jinghua can get impacted and Feima
can go to Gino’s competitors
• Gino will also possess a heavy opportunity cost for industrial segment
• The bargaining power of distributor will be difficult to control
• High investment
33. ADVANTAGES :
• Maintains relationship with both, Jinghua and Feima
• Accepting the Feima’s offer for industrial segment, will increase Gino’s
industrial sale by approximately 12% , making this alternative consistent with
Gino’s goals of OEM accounts and market penetration in Industrial segment
• Meeting company’s target of selling 200 industrial burners
• The bargaining power of distributers will be reduced.
DISADVANTAGES :
• Other distributor’s OEM accounts will ask for same margin and eventually the
margins of entire industry will be affected.
• Distributors will be difficult to convince for reduction in margin
• Marketing and other expenses needs to be streamlined
• Can impact the entire profit margin of industry
34. • Looking for long term RELATIONSHIPS not immediate profits
• TRUST and REPUTATION with dealers is vital in B2B
• Customer says “price” but wants “experience”
• No other dealers available. Weishaupt’s dealers not ready to switch.
• 40% of total sales from Jinghua
• No current warehouse of Gino in China. Existing workforce can not provide service
• Channel power is required to negotiate effectively.
35. is the best fit for the situation
MIDDLE WAY
A win-win situation for all the parties
36. Before the global distributors meeting, Gino need to convince Jinghua about
this offer highlighting its increase in profitability. The contract between
Jinghua and Gino gives right to Gino to enter into OEM deal, and hence
Jinghua has to understand this. During the same period, Gino should keep
FUNG’s and Wayip into confidence with this action plan. FUNG’s and Wayip
will also benefit as their high inventory cycle time for industrial burners can be
reduced from Gino’s warehouse. The warehouse to house the inventory would
also built a good competitive advantage as compared to other competitors.
Satisfaction of Feima is very important for Gino because it can further build on
industrial burners segment and improve its industrial burners demand.
37. 1. Jinghua not agreeing to the plan:
Gino can sign a memorandum of understanding with Jinghua that Gino will
not acquire any other industrial burner OEM contract for 2 years.
2. FUNG’s and Wayip’s concern about loss of future industrial sales:
This can be a potential threat to FUNG’s and Wayip’s future sales in
industrial sector. Gino should convey its intent to penetrate in industrial
segment. They already have lost around 50 sales and hence this action has
been taken.
3. Other OEM’s of distributer ask for same margin:
Any discounts in Industrial segment should be compensated by increase in
volume of industrial burners.
38. If GINO works according to option 3, i.e., The Middle Way,
satisfying both the distributor Jinghua and OEM Feima and following
a proper financial and marketing strategy, it will surely expand its
market by maintaining a good relationship with its distributors as
well as customers. This will lead to an overall growth of the company
and enhance its status in the long run.
39.
40. These slides were created by ARUSHI AGRAWAL, as part
of an internship done under the guidance of Prof. Sameer
Mathur (www.IIMInternship.com)
