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Case analysis :Gino SA distribution channel management
This document analyzes Gino SA's distribution channel management and options regarding giving OEM status to Feima Boiler Co. Ltd. Key points include: - Gino sells burners through distributors Jinghua, FUNG's, and Wayip who are demanding better terms - Feima wants OEM treatment to get a 10% discount and buy 50% of its commercial/industrial burners from Gino - Jinghua opposes this deal as Feima is its existing customer - Giving OEM to Feima could gain a new reference account but upset Jinghua, potentially losing 6% of its profits - Alternatives include not signing
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Case analysis :Gino SA distribution channel management
- 1. Gino SA Distribution ChannelManagement Case Analysis By- Rahee Hardaha
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- 3. Who are theKey Players •David Zhou China Marketing Manager of Gino SA •Jean-Michelle Pierre Gino’s Asia Pacific Manager •Henry Gong Jinghua’s General Manager •Feima Boiler Co. Ltd.
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- 6. •To resolve conflictwith Distribution Channel •To decide whether to give OEM status to Feima •Increase Annual combined sales •Increase annual sales of Industrial burner •Develop OEM accounts •Improve spare and supply •Build the Brand image
- 7. FactsandInsight World Market forBurners (in thousands of units) Area Marketsize GinoSales Europe 574 276 NorthAmerica 433 45 Asia 291 36 RestofTheWorld 250 24 Total 1548 381 FactsandInsight
- 8. Advantages: • In houseproduction Capabilities • A well established channel network • International Exposure Range OutputRange Production(in thousandsofunits) AverageMargin% Domestic 50000-300000 329 20 Commercial 300000-2000000 49 25 Industrial >2000000 3 30 Total 381 FactsandInsight Production and Margines
- 9. Gino: • Domestic RangeMarket: Price leader in that range and 14% market share • Commercial Range: Growth is impressive and nearly 8% market share • Industrial Range Market: Very Disappointing even after offering prices 10% to 20% lower than it’s competitor Estimated Size of Ranges (Total China Market) FactsandInsight
- 10. Jingua Mechanical EngineeringCompany (Northern Region) Also made and sold boilers although margins on the boilers was less than that on burners FUNG’s Co. (Central Coastal Region) Main product line was textile Machinery with over 90% of annual turnover Wayip Trading Company(Sothern Region) 100% Gino burners business FactsandInsight
- 11. Jinghua FUNG’s WayipTotal Domestic 4354 3075 3458 10887 Commercial 876 433 568 1877 Industrial 37 48 52 137 Total 5267 3556 4078 12901 FactsandInsight
- 12. • Transfer Price:Free on the board price in U.S. dollars • Base Price: Price in RMB including import duty, VAT, shipping, insurance and domestic transportation • Public Price: Grossing up Base price by 60% • Contract Price: Actual Transaction Price 20% discount off the public price is provided by distributors Gino had agreed to allow maximum 25% discount FactsandInsight
- 13. Some Market changesin Distributor's Behavior in recent Months • They were demanding for better terms • Stolen Sales causing lack of service and technical support to new customers • Reluctance to Stock Industrial Burners lost at least 50 units sale due to lack of inventory FactsandInsight
- 14. • Leading Boilercompany in northern china • Jinghua’s Customer and it allowed an average 25% Discount • The primary purpose of approaching Gino for OEM treatment was to obtain at least 10% greater discount • It will buy at least 50% of its commercial and industrial burners and all its domestic burners in return Range Volume Burner from Gino Estimated After Getting OEM Domestic 1055 350 1055 Commercial 163 50 82 Industrial 71 3 35 Total 1289 403 1172 FactsandInsight
- 15. • Henry Gong,Jinghua’s General Manager • Aggressively opposing the deal between Feima and Gino for OEM account • Threatened to reconsider the co-operation with Gino is Feima is touched and was famous for honoring what he said • He was an expert in Networking and lobbying Gino’s other two distributors Reasonforopposing: 1. Ginoshould notdevelopdistributor’sexistingcustomeras OEMaccounts 2. Itcould destroydistributor’sconfidenceinco-operation FactsandInsight
- 16. Zhou has toDecide whether he wants to sign OEM with Fiema?
- 17. 1. What arethe advantages? 2. Is it possible to give atleast 10% more discount to Feima? 3. Is it possible to charge prices higher than what it charges to Distributor? 4. How it will affect the Jinghua?
- 18. Advantages • Developing OEMbusiness was one way to combat the increasing bargaining power of distributors • Good opportunity to break into a well-entrenched customer(other competitors) in industrial burners • Receive good reference account • Success with Feima would make it easier for Gino to develop OEM business • It will help in developing Brand image Advantages
- 19. Range Volume Burnerfrom Gino EstimatedAfter GettingOEM Difference Domestic 1055 350 1055 705 Commercial 163 50 82 32 Industrial 71 3 35 32 Total 1289 403 1172 769 Advantages
- 20. Taking Difference andaverage Transfer Price Range Difference TransferPrice(RMB) AverageMargin% AverageMargin(RMB) Domestic 705 2500 20 3,52,500 Commercial 32 9000 25 72,000 Industrial 32 65000 30 6,24,000 Total 769 10,48,5000 Advantages
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- 22. Willitbeabletogive10%morediscount? • Lets assumethe transfer price is $100. • Base price will 100*12.32= RMB1,232 • So the public price will be 1232*1.6= RMB1,972 • At present Feima is getting 25% discount • At 35% discount, it will cost 1972*.65 = RMB1,282 • It can charge $104 • 4% higher than what it charges to distributors
- 23. HowitwouldaffectJinghua? •Jinghua has beenplacing much emphasis on Feima to develop better business relationship •Let’s see how much Jinghua would lose…
- 24. Feima was customerof Jinghua….. Jinghua ToFeima AverageTransferPricefrom Manufacturer(RMB) Domestic 4354 350 2500 Commercial 876 50 9000 Industrial 37 3 65,000 Total 5267 353
- 25. • Cumulative effectfactor(including import duty , VAT, shipping , insurance and domestic transportation)= 1.484 • Margin Factor= (1.484*1.6*0.75) -1.484 = .30 Public Price Factor Discount
- 26. Jinghua’s margin andloss LOSS= 379500 6352200 = 6% With 6% loss in profit , Jinghua is less likely to leave Gino. Jinghua ToFeima Domestic 4354*2500*.3= RMB32,65,500 350*2500*.3=RMB2,62,500 Commercial 876*9000*.3= RMB23,65,200 50*9000*.3=RMB1,35,000 Industrial 37*65000*.3= RMB7,21.500 3*65000*.3=RMB58,500 Total RMB63,52,200 RMB3,79,500
- 28. Alternative • DO notsign OEM with Feima and allow Jinghua to continue business with it • Applying pressure on Distributors to keep larger inventory of Industrial Burner • Launching sales force to penetrate in Industrial Range Disadvantage: • Loss of potential OEM • Higher bargaining power of distributor • Increase in cost in order to launch sales force Advantages: • This will also reduce cycle time • Better relationship with Distributors
- 29. Created by RaheeHardaha,IIT Delhi, during an internship by Prof. Sameer Mathur, IIM Lucknow. www.IIMInternship.com