GINO PPT.pptx

Prof. Prem Prakash Dewani.
IIM Lucknow
GINO
Distribution Channel Management
Richard IVEY School Case

Distributors Markets, Acquire A Company,
Diversification, Whether to sell directly or OEM or not
New Market, How to control Distributors/Retailer, Manufacturer, Wholesaler
Reduce Channel Conflict between Channel Partners
Vertical (Conflict with my Director/Boss) /Horizontal (Conflict with my colleagues)
(Wife some conflict with my Mother)/ Wife’s Conflict with my Sister
How should I reduce

All expected
losses from
termination - result
from the perceived
lack of comparable
potential alternative
partners,
relationship
dissolution expenses,
and/or substantial
switching costs.
Firms that receive
superior benefits
from their
partnership-relative
to other options-on
such dimensions as
product profitability,
customer
satisfaction, and
product performance
will be committed
to the relationship
Direct precursor of
both relationship
commitment
& trust, is the extent
to which partners
have beliefs
in common about
what behaviors,
goals, and policies
are important or
unimportant,
appropriate or
inappropriate, and
right or wrong.
Formal as well
as informal sharing
of meaningful and
timely information
between firms
Past communication
is antecedent or
trust in subsequent
periods this
accumulation of trust
leads to better
communication
Self-interest seeking
with guile
Deceit-oriented
violation of implicit
or explicit promises
about one's
appropriate or
required role
behavior
The degree to which
a partner accepts or
adheres to another's
specific requests or
policies
The perceived
likelihood that a
partner will
terminate the
relationship
in the (reasonably)
near future
Refers to situations
in which parties work
together to achieve
mutual goals
When disputes are
resolved amicably,
such disagreements
can be referred to as
"functional conflict“.
Refers to the extent
to which a partner
(1) has enough
information to make
key decisions, (2) can
predict the
consequences of
those decisions, and
(3) has confidence
in those decisions
Enduring desire to
maintain a valuable
relationship
Confidence in an
exchange partner's
reliability & integrity

10
Prof. Prem P. Dewani
Customer Value

Principal-Agent
Model
11
Agency Theory

12
Customer Value
X Y X Y X Y
Exchange Exchange Exchange Exchange Exchange Exchange
Relationship Relationship Relationship Relationship Relationship
P-A Model P-A Model P-A Model P-A Model P-A Model

13
The New Marketing Realities
Modern retailers
Increasingly emphasize
in-store experiences for
their customers,
as does Dick’s
Sporting Goods.

14

15

16
Hypothesized
Realm of
Buyer and
Seller
Relationships

17
The Relationship
Development
Process
1. Awareness
2. Exploration
3. Expansion
4. Commitment
5.Dissolution
1
2
3
4
5

18
The Relationship Development Process

Prof. Prem Prakash Dewani.
IIM Lucknow
Building Managing and Retailing
Customer/ Distributor Relationships/
Reducing Channel Conflict

• The Product/s
• Burners
• Markets
• Segmentation
• Growth
Some Case Facts
GINO SA

What is Company's
Competitive Edge?
23

Price Compared to
Competitors
24

GINO’s Beijing Office
Roles and
Responsibilities?
26

Burner Market in
CHINA?
Prior to 1990
1990-1995
1995-1998
Post 1999
27

Customer Buying Process
GINO SA
• Buyers of Various Segments
• Buyers as
• Distributors,
• Retailors,
• Customers,
• and OEMs

Segmentation…
GINO SA
• Domestic and Water Heaters
• Commercial Boilers and other Industrial Applications
• Industrial Boilers

GINO’s Distribution Network in CHINA
GINO SA
• Organizational Structure
• Distributor’s Performance

GINO’s Distributor Functions
GINO SA
• Credit Function
• Stock Function
• Sales and Service Function

Pricing of Burners
GINO SA
• Transfer Price (US $)
• Base Price (RMB)
• Public Price (RMB)
• Contract Price (RMB)

Emerging Issues
GINO SA
•Change in Strategy
•Distributor Behavior
•Demand for Better Terms
•Stolen Sales
•Reluctance to Stock Industrial Burners

Burner Channels in CHINA
•Change in Strategy
•Distributor Behavior
•Demand for Better Terms
•Stolen Sales
•Reluctance to Stock Industrial Burners
GINO SA

Role of Power in Channel
Manufacturer
Distributor
Whole Seller
Retailer
Customer
Power Structure
Chairman
Director
Dean
Me
Associate
Prof
Officer
G Father
Father
ME
My Wife
Son

What is
the situation
in early 2000?
37

38
GINO SA
Current Situation Analysis
Early in 2000, Gino was one of the world’s largest burner
manufacturers, a recognized leader in the domestic and commercial
ranges of products
GINO is anxious to penetrate the high-growth, high-margin industrial
segment as well.
The market in China was the major growth opportunity for Gino.
The company’s first five years in the Chinese market had seen
considerable success
Current issue is a dispute over a major original equipment
manufacturer (OEM) account Feima, which was a customer of
Jinghua,

• Distributors weren’t keeping adequate
inventories of industrial burners due to the
uncertain prospect of sales
• Distributors weren’t consistently providing
adequate service to customers
Emerging Channel Problems
GINO SA

• Distributors had become much more demanding
in asking for favourable conditions from Gino
• Distributors had begun to violate the rules
prohibiting cross-territory sales, and
consequently prices were falling due to the
internal competition.
Emerging Channel Problems
GINO SA

Examining channel management issues in
emerging markets.
Teaching Objectives
GINO SA
1

Exploring the role of distributors and OEM
customers in manufacturers’ strategies, and
trade-offs between them
Teaching Objectives
GINO SA
2

Understanding goal congruence issues
between the manufacturer and its
distributors.
Teaching Objectives
GINO SA
3

Stimulating discussion of face-saving
compromises in managing distributors.
Teaching Objectives
GINO SA
4

Recognizing channel issues in a broader
strategic context, along with product line
management, pricing and
implementation issues.
Teaching Objectives
GINO SA
5

What are Gino’s competitive advantages and
disadvantages in China? What are the
barriers that are preventing Gino from
aggressively penetrating the industrial burner
market in China?
Key Questions
GINO SA
1

How serious is the control issue that Gino perceives it
has with its distributors?
Why does it have this problem? At this stage of its
development in China, should Gino be trying to take
more control of its distributors, or should the
relationship be a more co-operative one?
Key Questions
GINO SA
2

What should Gino’s long-term (three years
ahead) channel strategy be?
Key Questions
GINO SA
3

Should David Zhou proceed with selling direct
to Feima or not?
What should be the criteria for the decision?
What else should Gino be doing in the short
term?
Key Questions
GINO SA
4

What lessons can be learned from this case?
Key Takeaway
Key Questions
GINO SA
5

Should Gino proceed with the Feima project or
not?
 What would be the response of Jean-Michel Pierre and the
management team?
 What would happen during the Paris meeting?
 What signals will be sent to other distributors, OEMs and
competitors?
Short-Term Issues and Consideration
GINO SA

The annual bonuses, awarded for
performance versus annual sales budget
GINO SA

What other actions could be taken to help
distributors to change their attitude toward
industrial burners?
GINO SA

•Will Gino achieve its strategic target in
China? Does it have the right strategy or
not?
•Is direct sales the best distribution strategy
in the long term?
•How should Gino deal with its distributors in
order to produce the desired behaviour?
Long-Term Issues and Consideration
GINO SA

A large marketing and technical support office with
an “enviable budget,” indicating that it could give
distributors a lot of support, especially the
technical support for the industrial burners.
GINO Advantages in Chinese Market
GINO SA

Very good distributors, as evidenced by the
increase in the market share in the past four
years.
GINO SA

Established brand equity in small burners.
GINO SA

Almost invisible in industrial range
GINO Disadvantages in Chinese Market
GINO SA

Too strong an identity as a small, low-priced
burner provider.
GINO SA

“Distributors control all” model has constrained
Gino’s ability to implement the corporate strategy it
wants.
GINO SA

Distributors are behaving in a disadvantageous
manner.
GINO SA

• Price leadership
• Effective channel members (reliable, financially credible,
strong sales and service capability)
• Aggressive marketing (as shown in the case, Gino was
quite active and proactive in marketing its products, at
least in commercial and domestic ranges)
• Solid manufacturing expertise and technical capability
Key Success Factors
GINO SA

Fewer accounts in industrial segments, mostly
well-established organizations with reputations
Different Players in the Market
GINO SA

Different buying criteria (brand, technical
performance and service, rather than price) — so
it’s much more of a technical sell in the industrial
segment
GINO SA

Domestic segments were less likely to go through
public tendering for purchasing.
GINO SA

The larger the burner, the higher requirement for
safety, the more important the role of the design
institute.
GINO SA

The serious consequences resulting from an error
in specifying or buying industrial burners make the
buying process much more rigorous than it is for
domestic burners, thus creating a higher entry
barrier for new competitors in the industrial
segment
GINO SA

The decision-making process in the case of
bidding is much more complicated than in the case
of direct buying.
GINO SA

The overwhelmingly strong position of Weishaupt
Barriers Preventing Growth in Industrial Market
GINO SA
1

The lack of good reference accounts in the Gino
industrial range
GINO SA
2

The lack of industrial burner inventories at Gino
distributors, which prevents Gino from capitalizing
on opportunities created when Weishaupt stocks
out
GINO SA
3

For Gino’s distributors, the uncertain prospect of
being able to sell the industrial range and the
significant capital needed for inventory in order
to compete effectively in the segment
GINO SA
4

Lack of sufficient incentives for Gino
management or distributors to sell industrial
burners, given that bonuses are based on unit
sales in the incentive package rather than value
(e.g., consider that a sale of RMB62,500
represents one average-sized industrial burner, but
seven commercial burners and 25 domestic
burners.)
GINO SA
5

What GINO
should do to Spur
the Distributors ?
74

Allow credit support for industrial burners stock
What GINO Should Do
GINO SA
1

Allocate more marketing resources to industrial
burners.
What GINO Should Do
GINO SA
2

Review the price of industrial burners as
compared to the other two ranges.
What GINO Should Do
GINO SA
3

The involvement in pre-marketing and technical
support phase to distributors by combining Gino’s
team with that of distributors.
What GINO Should Do
GINO SA
4

Review the incentive package to make it indexed
to the value instead of volume. The weighted
average method could be used. The bonus could
also be made progressive to the value with a cap
but without a ceiling percentage.
What GINO Should Do
GINO SA
5

Target
Industrial sector, large customers (OEMs
and end-users)
GINO Strategy Long-Term
GINO SA

Product
Solid technology, not technical leader, but a fast follower
to Weishaupt; best service level in the industry
GINO SA

Price
10 per cent below Weishaupt
GINO SA

Distribution
Best distributors in the China market: high service levels
and stock levels; strong mutual loyalty with Gino
• or
Direct sales to large OEMs (top 20), with distributors
used for other accounts
GINO SA

Selling Efforts
Bonus based on sales value, not units
GINO SA

Should GINO Sell
Direct to FEIMA?
87

Criteria
• What fits best with the long-term objectives and strategy?
• What will provide the greatest penetration of the industrial
market segment?
• What financial returns are there from each option?
• What will produce better reference sales in future?
• What risks are there with each alternative? Especially, the risk
of losing Jinghua and possibly one or both of Gino’s other China
distributors, must be weighed when considering the OEM
strategy.
• What will be the impact on the Gino managers’ bonuses?
GINO Strategy Short-Term
GINO SA

In managing channels, you must be able to identify
how and where the distributors created the most
value to customers and to manufacturers.
Key Learnings from this CASE
GINO SA
1

In a market chain with many channel members
involved, any action in marketing may bring about
a chain reaction.
There was no “individual event.”
GINO SA
2

The relationship between a distributor and a
producer is often one of “co-opetition” by nature
— the two both co-operate and compete,
depending on the strength and bargaining power
of each party.
GINO SA
3

Managing channels in a cross-cultural perspective
is always more challenging. Disputes are
inevitable. But the model for solving the disputes
should be
“tolerate the differences and maximize the
common benefit.”
GINO SA
4

In a market where myopic, short-term, self-focused
behavior can predominate, it is important for the
producers to identify, from the very beginning, the
best long-term channel partners in order to
make the business sustainable.
GINO SA
5

Distributors and company management must be
closely aligned with strategic goals.
GINO SA
6

In management of international channels, it is of
particular importance to find face-saving
solutions (so neither side “loses” a dispute) that
align the needs of distributors and the needs of
management.
GINO SA
7

•The Feima project was put on hold before the meeting in
Paris.
•Jinghua gave a larger discount of 28 per cent to Feima so
that Feima increased the Gino share to nearly 50 per cent;
Gino was reasonably happy with the result.
Prof. Prem Prakash Dewani
WHAT HAPPENED IN GINO

• As an understanding, Gino still retained the right to deal
directly with Feima, but no such actions were taken in the
next six months.

Over all,
the event prompted Gino to reconsider a number of issues with its
channels, such as
1)The relationship with distributors
 Should Gino give distributors more carrot or more stick?
 What type of distributors were the most valuable to Gino?

2) The allocation of marketing and technical resources: How
should the company assign the marketing budget and technical staff to
support the most-needed segment?
What communication mechanism must be built up to co-ordinate the
actions between the marketing department and the technical
department?
What process should be established to make the response to the
changes in the market in the “first time”?

3) Goal congruence and incentive package: How should the company design an
incentive package that would encourage all the major stakeholders to act on both
short-term gain and long-term development?

4) Pricing issues for different models and reviewing process: How often should the
price be reviewed?
What comes first in making annual price: simplified management process or market
demand changes?
What benchmarks should be referred to when making annual prices? What should
be the right process in deciding the annual prices?
To what extent should the distributors be involved?

5) The functions of distributors, particularly the credit and distributors’ functions:
Does Gino need the distributors more or vice versa

One direct result of this situation was that Gino decided to
set up a bonded warehouse in Pudong, Shanghai. The
function of the warehouse was to provide a stock of the
industrial burners and spares for customers and distributors.

The commodities inside the bonded warehouse were duty-
free while being kept in stock. Instead of paying duty per
transaction when commodities were sold and delivered
from the bonded warehouse, an annual or biannual import
duties could be levied collectively.

GINO PPT.pptx

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