Gino SA is a large burner manufacturer looking to expand its business in China, where it currently sells through distributors, but one distributor's largest customer, Feima Boiler, wants to deal directly with Gino as an OEM. However, granting Feima OEM status could undermine Gino's distributor relationship, so the best solution is to keep Feima loyal to the distributor while lowering transfer prices to the distributor to allow for discounts to Feima.

1. GINO SA: DISTRIBUTION CHANNEL MANAGEMENT

2. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
 Gino Burner Co. was founded in 1931
 Headquartered in Paris, France
 Wide product line: 50+ models
GINO
In-house production capablity
Well established channel network
International exposure
HANDY TRAITS

3. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
 Gino had cost advantage and was known for providing “best
value”
 Gino was best known for it’s domestic burners
 Margins were higher in developing countries
 One of the largest manufacturers in the world
SEGMENT
OUTPUT
RANGE(kcal/hour)
GINO PRODUCTION -
1999
MARGINS
DOMESTIC 50,000-300,000 329 <20%
COMMERCIAL 300,000-2,000,000 49 25%
INDUSTRIAL >2,000,000 3 30%
Total 381

4. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
 Becket is the market leader in U.S.
 U.S. market has high entry barrier
 China is a rising star
 Gino had cost advantage and was known for providing “best value”
 The industry does not follow a single standard to classify burners
SEGMENT OUTPUT
RANGE(kcal/h
our)
OUTPUT
RANGE(kcal/h
our)
MARGINS
DOMESTIC 50,000-
300,000
329 <20%
COMMERCIAL 300,000-
2,000,000
49 25%
INDUSTRIAL >2,000,000 3 30%
Total 381

5. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVESCHINA
BURNER MARKET IN CHINA
Before 1990:
 China rich in coal-low efficiency and polluting-coal combustion boilers and hence no burners
1990-1995:
 Emphasis on pollution control, replaced with oil combustion boilers
 Weishaupt (Germany), Baltur & Ridello (Italy), Elco (Germany), Quenod (France), Corona (Japan)
1995-1998:
 New applications for burners & demand for commercial range began to increase
 Price became an issue-Local manufacturers-only 5000 units-5 years to become a threat-small burners
 Gino- price leader in domestic range (reference point for competitors)
 Domestic-14% Commercial-8% Industrial-less than 3%
 Despite offering 10% to 20% less than Weishaupt low penetration in industrial burners
Post 1999:
 Domestic- price wars ; commercial – mainstream market
 Industrial burners – growth expected at 20% for next 5 years

6. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVESCHINA
MARKET SEGMENTATION IN CHINA
Domestic Boilers & Water heaters:
 310 Major manufacturers; Avg. Price: RMB2,500; Size: RMB194 million
Commercial Boilers & Industrial applications:
 Avg. Price: RMB9,000; Size: RMB198 million
Industrial Boilers & Water heaters:
 60 Major manufacturers; Avg. Price: RMB65,000; Size: RMB221 million; Weishaupt
ESTIMATED SIZES OF
RANGES

7. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVESCHINA
BURNER CHANNELS IN CHINA
CUSTOMERS MOSTLY DEPEND UPON DISTRIBUTORS FOR PURCHASING THE PRODUCTS
MOJORITY OF THE PRODUCTS

8. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVESCHINA
 Most manufacturers relied completely on
distributors
 Weishaupt : own sales force and distribution
network
 OEM’s often tried to bypass distributors
 Manufacturer’s refrained from giving quotations
 Issues: Services, spares and pricing going to OEM
 OEM Customers and End user customers
CUSTOMER BUYING PROCESS
 Decisions made independently – 3 step process
 Word of mouth, design institutes and frequency
 (1)Price (2)Reputation (3)Service (4)Spare
(5)Supply
(6)Reliability (7)Technical (8) Personal
connections
 Commercial and technical
 Importance of price inverse relationship with
capacity
 Buys boiler and burner separately to negotiate
price
 Public tendering – (1)Price (2)References
OEM Customers
End User Customers

9. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
 Gino, Beijing, 1995
 Market research and campaigns, administration of distribution
channels, technical support and counselling, key account and OEM
business development, identifying partners for JV
 Gino is an aggressive company with good budget
 Field technical training to customers and distributors
 Bonus- sales target- RMB8,000 to RMB10,000
 Total compensation three times the average
GINO IN CHINA

10. THE ‘ PEOPLE ‘
GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
 Jean-Guy Picher, Director of Commercial Department
 Jean Michael Pierre, Asia Pacific Manager
 David Zhou, China marketing manager
 Three assistant marketing managers
 Peter Wang, Technical manager
 Two tech support engineers

11. GINO’S DISTRIBUTORS
GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
 Three distributors were set up in 1995
 Revenue: burners/spares :80/20
 Wayip-Gungzhou -100% Gino (HVAC)
 Fung-Shanghai-Textile machinery(90% revenue)
 Jinghua-Beijing - 50% boilers
DISTRIBUTOR PERFORMANCE STATISTICS

12. DISTRIBUTOR FUNCTIONS
GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Credit Function: line of credit
Stock Function: 10 major
models accounted for 80% of
sales
Sales & Service Function

13. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Transfer price(US$):
Free on board price in
US dollars quoted to
distributors
PRICING
Base Price:
total acquisition cost to
distributors
conversion factor: 12.32

14. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Public Price(RMB):
public customer price
released on market named
“guidelines for price”
Contact Price(RMB):
actual transaction price
distributor reach in a
transaction with customer

15. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Product line + Geographic coverage
Gino in domestic is unshakable
 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
THREE YEAR GOALS DISTRIBUTOR BEHAVIOUR
Demand for better
terms
Stolen Sales
Reluctance to stock
industrial burners

16. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
FEIMA BOILER CO. LTD.
• Leading boiler factory
in China
• Purchased 350 domestic,
50 commercial and 3
industrial burners from
Jinghua

17. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
CURRENT PROBLEM
GINO SAFEIMA BOILER CO. LTD. JINGHUA
Approached Gino
for OEM status to
obtain better prices

18. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES

19. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
ACCEPTANCE would mean 
➢ this would combat bargaining power of
distributors
➢ good opportunity to break into well
entrenched customer in industrial
burners
➢ could increase sales
➢ could develop more OEM business in
China

20. But Jinghua opposed this because…
➢ it believed Gino should not develop
distributors’ existing customers as OEM
➢ this would set a bad example and could
destroy their confidence in coperating
with Gino
GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES

21. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
The best possible solution for Gino is to ask
Feima to remain loyal to Jinghua while
asking Jinghua to sell burners to Feima at
lower prices.
THUS GINO WOULD BE ABLE TO OFFER
DISCOUNTS TO FEIMA BY LOWERING THE
TRANSFER PRICES TO JINGHUA
Do not break the channel as the company can not afford to loose the dealers.
Exception could be negotiated for industrial segment.
The ultimate aim should be to go for long term benefits.

22. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSISS ALTERNATIVES
The other ALTERNATE
solution is to consider Feima as
OEM and provide Jinhua with
increased benefits like
increasing its territory or the
profit margins
• BUT THAT WOULD ENABLE OTHER DISTRIBUTORS ASK FOR SUCH GRANTS AS
WELL.
• THAT WOULD DELIVER A PARTIAL BIASED IMAGE OF GINO SA TOWARDS OTHER
DISTRIBUTORS

23. TRUST and REPUTATION with dealers is vital in B2B
Channel power is required to negotiate effectively
Customer says “price” but wants “experience”
Look for long term RELATIONSHIPS not immediate profits
GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSISS ALTERNATIVES

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REFERENCES

26. Created by Anubhab Mondal,IIT Kharagpur during an
internship under Prof. Sameer Mathur ,IIM Lucknow
<www.IIMInternship.com>