Gino SA - Distribution Channel Management

GINO SA: DISTRIBUTION CHANNEL MANAGEMENT

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


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

SEGMENTOUTPUT

RANGE(kcal/hour)GINO PRODUCTION

-1999MARGINS

DOMESTIC 50,000-300,000 329 <20%

COMMERCIAL 300,000-2,000,000 49 25%

INDUSTRIAL >2,000,000 3 30%

Total 381


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/hour)

OUTPUT RANGE(kcal/hour)

MARGINS

DOMESTIC 50,000-300,000

329 <20%

COMMERCIAL

300,000-2,000,000

49 25%

INDUSTRIAL

>2,000,000 3 30%

Total 381

GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES CHINA

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


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


BURNER CHANNELS IN CHINA

CUSTOMERS MOSTLY DEPEND UPON DISTRIBUTORS FOR PURCHASING THE PRODUCTS

MOJORITY OF THE PRODUCTS


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


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

THE ‘ PEOPLE ‘


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

GINO’S DISTRIBUTORS


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

DISTRIBUTOR FUNCTIONS


Credit Function: line of credit

Stock Function: 10 major models accounted for 80% of sales

Sales & Service Function


Transfer price(US$):Free on board price in US dollars quoted to distributors

PRICING

Base Price:total acquisition cost to distributorsconversion factor: 12.32


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


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


FEIMA BOILER CO. LTD.

• Leading boiler factory in China

• Purchased 350 domestic, 50 commercial and 3 industrial burners from Jinghua


CURRENT PROBLEM

GINO SAFEIMA BOILER CO. LTD. JINGHUA

Approached Gino for OEM status to obtain better prices


WHAT TO DO ?????DAVID

ZHOU


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

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



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 JINGHUADo 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.

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

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

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http://www.slideshare.net/

http://www.yahoo.com/

http://www.freephotos.com/

http://www.tedx.com/

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Anubhab Mondal , B-Tech.

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

Marketing

Gino SA - Distribution Channel Management