Gino Burner Co. is a leading burner manufacturer based in France that wants to expand its market share in China. It currently distributes products through distributors like Jinghua. A new opportunity arose with Feima proposing to be an OEM customer, but this could damage relations with Jinghua. Two alternatives were considered: 1) maintaining relationships with distributors or 2) signing a deal directly with Feima. Financial analysis showed the Feima deal would boost revenue and profits for both Gino and Jinghua. Thus, alternative 2 of directly supplying Feima while offering discounts to Jinghua was recommended to penetrate the industrial segment and meet growth goals in China.

1. GINO SA: DISTRIBUTION
CHANNEL STRATEGY
A DETAILED CASE ANALYSIS

2. COMPANY BACKGROUND
Gino Burner Co., a leading
manufacturer of burners is
headquartered in Paris,France.

3. The company is a leader in Europe
but growth is becoming stagnant.
The new frontier is Asia and China
is the rising star.

4. GROWTH OF MARKET SHARE OF
GINO IN CHINA
DOMESTIC- 1% TO 14%
COMMERCIAL-0% TO 8%
INDUSTRIAL-0% TO 3%

5. PEOPLE INVOLVED
1)DAVID ZHOU- CHINA MARKETING MANAGER OF
GINO
2)JEAN-MICHEL PIERRE- ASIA PACIFIC AREA
MANAGER OF GINO
3)HENRY GONG- GENERAL MANAGER OF
JINGHUA

6. SWOT ANALYSIS

7. STRENGTHS
• Good range of products in product line
• Financially Stable
• In-House production capabilities
• Reputation of manufacturing best value
products for customers.
• Cost advantage of 10-20% lower margin.

8. WEAKNESSES
• Less market penetration in industrial segment
• Dependency on distributor for sales and
services
• Distributor unable to manage Industry
segment demand.
• No Warehouses of its own

9. OPPORTUNITIES
• China is the rising star in the global arena,
huge potential to raise revenues as well as
profits
• High growth in industrial segment – about
20% annually for next 5 years

10. THREATS
• Growing power of distributors
• Losing any of the distributors
• Presence of large local manufacturer having
strong political connections in area

11. GOALS OF GINO CHINA
• ACHIEVE ANNUAL SALES OF 15000 UNITS
INCLUDING ATLEAST 200 INDUSTRIAL ONES
• DEVELOPING MINIMUM 2 OEM ACCOUNTS
AND MORE DISTRIBUTORS
• IMPROVE SERVICE AND SPARE SUPPLY

12. SITUATION
EITHER ACCEPT FEIMA’S OFFER AS AN
OEM(ORIGINAL EQUIPMENT
MANUFACTURER) CUSTOMER AND MOVE
TOWARDS ITS GOAL BUT IT CAN HAMPER
THE RELATIONSHIP WITH ITS LARGEST
DISTRIBUTOR, JINGHUA
OR
REJECT FEIMA’S OFFER AND CONTINUE ITS
EXISTING RELATIONSHIP WITH ITS
DISTRIBUTORS

13. AIMS FROM THE SITUATION
• Resolve the existing conflict in a possible win-
win situation for both parties
• Control the distributers bargaining power
• Penetrate into high growing and high margin
Industrial segment of burners
• Increase Revenue and Profitability

14. HOW TO SALVAGE THE SITUATION?
WE CONSIDER 2 ALTERNATIVES

15. ALTERNATIVE 1
GINO REJECTS FEIMA’S PROPOSAL AND
MAINTAINS ITS STRONG RELATIONSHIP WITH
DISTRIBUTORS AS IT CANNOT AFFORD TO
LOSE ANY DISTRIBUTOR. BUT GINO RISKS
LOSING FEIMA AS A CUSTOMER.

16. ALTERNATIVE 2
GINO SIGNS OEM CONTRACT WITH FEIMA
FOR INDUSTRIAL SEGMENT ONLY WITH 10%
ADDITIONAL MARGIN AND PUSH JINGHUA
FOR 10% DISCOUNT ON FEIMA’S
COMMERCIAL AND DOMESTIC BURNERS.

17. Forecasting Number of Units for the coming fiscal year (GINO does not sell
directly to FEIMA)
ALTERNATIVE 1 Current Estimated Market
Growth (in %)
Projected sale of
units
Domestic 10887 5 11432
Commercial 1877 10 2065
Industrial sale
through distributors
137 20 165
Assumptions:
1. FEIMA continues to buy the current amount of units from Jinghua
2. The no of units sold by GINO is assumed to rise same as the net market growth

18. Forecasting Number of Units for the coming fiscal year (GINO sells only the Industrial
burners directly to FEIMA)
ALTERNAT
IVE 2
Current
sales –
Sales to
FEIMA
Estimat
ed
Market
Growt
h (in
%)
Projected sale
of units
(except to
FEIMA)
Sales to FEIMA Net sales
Domestic 10537 5 11064 1055 12119
Commerci
al
1827 10 2010 82 2092
Industrial 134 20 161 36 197
Assumptions:
1. FEIMA boiler production remains the same as the last year.
2. The no of units sold by GINO to all except FEIMA is assumed to rise same as the net market growth
These much units
are sold directly to
FEIMA by GINO

19. FINANCIAL ANALYSIS OF
ALTERNATIVE 1

20. Financial Analysis of GINO when GINO does not directly sell to FEIMA
ALTERNATIVE 1 Domestic Commercial Industrial Total Sell
Units projected to be
sold by all
distributors
11432 2065 165
Transfer Price (RMB) 2,500 9,000 65,000
Revenue from
Burners sale
28,580,000 18,585,000 10,725,000 57,890,000
Revenue from sales
of Spare parts (80/20
split)
7,145,000 4,646,250 2,681,250 14,472,500
Net Revenue (in
RMB)
35,725,000 23,231,250 13,406,250 72,362,500
Total Contribution
Margin
(20%;25%;30%)
7,145,000 5,807,813 4,021,875 16,974,688
Assumptions:
1. FEIMA continues to buy same amount of units as the previous year from Jinghua
2. US$1=RMB8.3 IN 2000
3. Multiple of exchange rate= 1.484*(RMB8.3) [For Taxes, Transportation,Shipping ,Insurance etc.]

21. FINANCIAL ANALYSIS OF
ALTERNATIVE 2

22. ALTERNATIVE 2 DOMES
TIC
COMMERCIAL INDUSTRIAL INDUSTRIAL
DIRECT SELL
TOTAL
PRICE PER
UNIT(RMB)
2500 9000 65000 120575
FORECASTED UNITS 12119 2092 161 36
REVENUE FROM
BURNERS(RMB)
302975
00
18828000 1046500 4340700 63931200
COST OF
SHIPPING,INSURAN
CE ETC.(48.4% OF
TRANSFER PRICE)
(RMB)
- - - 1132560 1132560
REVENUE FROM
SPARES (80/20
SPLIT) (RMB)
757437
5
4707000 2616250 802035 15699660
NET
REVENUE(RMB)
378718
25
23535000 13081250 4010175 78498250
CONTRIBUTION
MARGIN(20%,25%,
757437
5
5883750 3924375 1203052.5 18585552.5

23. ALTERNATIVE 2(CONT.)
UPFRONT COST OF WAREHOUSE(RMB)
[USEFUL INVESTMENT]
= 200000
ANNUAL OPERATING EXPENSES
[DEAD INVESTMENT]
=
30000*12= 360000
NET MARGIN(RMB)
=
18585552.5-360000
= 18225552.5
CLEARLY HIGHER
THAN
ALTERNATIVE 1

24. COMPARATIVE FINANCIAL ANALYSIS
OF JINGHUA

25. ALTERNATIVE 1

26. Financial Analysis of Jinghua in case where GINO refuses to directly sell to
FEIMA
Current Sales Expected
Growth rate (%)
Projected
sales
Selling
price/unit
Total
Revenue
Domestic 4354 5 4572 4,453 20,359,116
Commercial 876 10 964 16,031 15,453,884
Industrial 37 20 44 115,778 5,094,232
Net Revenue 40,907,232
Assumptions and Calculations:
1. FEIMA continues to buy from Jinghua
2. The selling price is calculated by marking up the base price by 60% and then giving a 25% discount on the
same

27. ALTERNATIVE 2

28. Financial Analysis of Jinghua in case where GINO directly sells industrial units to
FEIMA
ALL – (To FEIMA) To FEIMA Net
Projected
sales
Selling
price/unit
Total
Revenue
Sales SP/unit Revenue
Domestic 4204 4,453 18,720,412 1055 3,860 4,072,300 22,792,712
Commerci
al
909 16,031 14,572,179 82 13,893 1,139,226 15,711,405
Industrial 41 115,778 4,746,898 0 100,341 0 4,746,898
Net Revenue 43,251,015
Assumptions and Calculations:
1. FEIMA buys domestic and commercial units from Jinghua at a 10 % discount more
2. The selling price is calculated by marking up the base price by 60% and then giving a 35% discount on the
same
Significantly
higher than the
previous case

29. ALTERNATIVE 1
PROS
• STRENGTHENING OF TIES
BETWEEN MANUFACTURER
AND DISTRIBUTORS
CONS
• DISTRIBUTORS DICTATING
THE TERMS
• OPPOSITE TO GOAL OF
CREATING NEW OEM
CUSTOMERS
• REVENUE LOST FROM
POTENTIAL NEW ORDERS
• OPPORTUNITY COST IN
HIGH MARGIN INDUSTRIAL
SEGMENT

30. ALTERNATIVE 2
PROS
• STRATEGY IN LINE WITH GOAL
OF CREATING OEM ACCOUNTS
AND 200 INDUSTRIAL
BURNERS
• INCREASE IN REVENUE AND
PROFITS WITH PENETRATION
INTO INDUSTRIAL SEGMENT
• INVENTORY PROBLEMS WILL
ALSO BE LESS WITH
ESTABLISHMENT OF
WAREHOUSE
• JINGHUA ALSO MAKING MORE
REVENUES AND PROFITS
CONS
• GETTING DISTRIBUTORS ON
THEIR SIDE CAN BE A
TOUGH TASK DESPITE MORE
PROFITS

31. RECOMMENDATION
AS CAN BE SEEN FROM THE
FINANCIAL ANALYSIS OF GINO AND
JINGHUA AS WELL AS PROS AND
CONS OF BOTH ALTERNATIVES
ALTERNATIVE 2 IS RECOMMENDED

32. THESE SLIDES WERE CREATED BY
AMOD BANSAL,THAPAR UNIVERSITY
AS PART OF AN INTERNSHIP DONE UNDER THE
GUIDANCE OF
PROF. SAMEER MATHUR,IIM LUCKNOW
(www.iiminternship.com)

33. THANK YOU