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Gino SaDistribution Channel Management
Harvard Business Case Study
What is Gino Sa?
Gino Burner Co.
Founded in 1931
Manufacturer of Burners
Headquarters – Paris, France
Wide product line : 50+ models
Burners
1.Domestic2. Commercial
3. Industrial
The burner industry
Type Boiler Capacity
Users
1. Domestic Upto 0.5 ton Unit heating applications
2. Commercial
0.5 ton to 2 ton
Heating and sanitary water for small operations
3. Industrial < 2 tons Large absorption type chillers and boilers
World wide market
Developed markets of Europe and US have become saturated
Highest growth in Asia, Middle East and Africa
Demand was increasing in domestic and commercial burners
Burner market in China
Before 1990 : 1. China rich in coal-low efficiency and polluting coal combustion burners2. No need for burners
1990 to 1995 : 1. Regulations on pollution control2. Emergence of oil-combustion boilers3. Established brands – Weishaupt(Germany), Elco(Germany),
Quenod(France).
1995 to 1998 : 1. Demand for commercial burners increased2. Gino’s Beijing office3. Price became an issue.4. Gino – price leader in domestic range5. Domestic – 14% , Commercial – 8% , Industrial – less than
3%6. Weishaupt – price leader in industrial burners
Post 1999 : 1. Domestic burners – price wars2. Commercial burners – mainstream market3. Industrial burners – growth expected at 20% for next 5 years
Gino’s competitive advantages
In-house production capability
Well established channel network
International Exposure
About Gino
1. Gino has cost advantage2. Known for providing “best value”3. Gino was best known for domestic
burners4. Margins were higher in developing
countries
Who are the players?
1. DAVID ZHOU China marketing manager of Gino Sa
2. JEAN-MICHEL PIERRE Asia Pacific Area Manager
3. HENRY GONG Gino’s largest distributor JINGHUA’s general manager
Burner channels in China
Burner manufacturers
Distributors
Dealers
OEM – Original Equipment Manufacturers
End-users
Gino’s 3 main distributors
Jinghua Mechanical Engineering – Gino’s largest distributor in China
Wayip Trading Co.
FUNG’s Co.
Gino’s distribution network in China
Three distributors were set up in 1995 Revenue came from burners/spares (80/20)
1. Wayip based in Guangzhou -100% Gino (HVAC)
2. Fung based in Shanghai – Textile machinery (90% revenue)
3. Jinghua based in Beijing – 50% boilers
Gino’s distribution behavior
Demand for better terms
Stolen sales
Reluctance to stock industrial burners
1.
2.
3.
Gino’s three year goals
Become a leader in the industrial range
Achieve annual combined sales volume of 15,000 units
Industrial burners > 200 units
Optimize distribution channels to cover more areas
2 OEM accounts + 2 end user accounts in 2 years
Improve service and spare supply
Build brand image
SITUATION
The Gino Burner Co emerged as one of the largest manufacturer of burners in the world, producing over
381,000 burners in 1999
Enlisted three distributors in China – Wayip, FUNG’s and Jinghua(largest distributor)
Gino diversified in 1998 – product line and geographic coverage
Gino faced changes in distributor’s behavior and their attitudes. Gino was becoming the hostage of its
distributors.
Tianjin Feima Boiler company had requested permission to Zhou, to purchase burners directly from Gino instead
of from Jinghua, Gino’s largest distributor.
Gino had 6 weeks to decide between granting Feima OEM status, harming its relationship with current distributors
or denying the request and risk losing Feima as a customer.
Let us analyze and focus
on six major issues!
1.Analyze Gino’s
competitive advantages and disadvantages
In China.
Gino’s competitive advantages
Cost advantage in domestic & industrial
burners
Gino’s prices were the lowest & competitors set their prices in ref to Gino’s
prices
Industrial burner segment
becoming price conscious
Strong channel network
Global presence and good
brand image
Competitive Disadvantages
Excessive reliance on few
distributors
Distributors reluctance to
stock industrial burners
leading to poor presence in the
market
Becoming a hostage of its distributors
Stronghold of Weishaupt in
industrial burner
category
2.Analyze the barriersthat are preventing Gino
from penetrating theindustrial burner market
In China.
1. Despite offering prices 10 percent lower than Weishaupt, Gino claimed a market share of less than three percent.
2. The 80/20 rule where 10 models accounted for over 80% of the orders
3. The demand for more marketing support by the distributors
4. The problem of Stolen sales and the lack of service and technical support to new customers
5. Reluctance of distributors to stock industrial burners due to high cost and difficulty in forecasting demand
6. Lack of replacement distributors
3.Analyze the control issuethat Gino has with its
Distributors.
95 percent of Gino’s sales in China is done through distributors
The various functions of Distributors are : 1. Credit function2. Stock function3. Sales and Service function
Distributors have high Cohesive power especially in domestic markets
They have high influencing power
Gino should have co-operative relationship with the distributors because
1. Distributors will help in achieving its long time goal (in three years ) – optimize distribution channel, build brand image and increase industrial burners sale
2. Scarcity of efficient distributors3. Distributors are the main players who help in maintaining
brand value and managing the product cost
4.Analyze the long term Channel Strategy
of Gino.
Formulate key account policy for future clients 1. Purchase of large number of units qualifies for direct
customers
2. For existing OEM accounts go through Distributor OEM model
Set ‘margin’ targets for distributors3. Expanding industrial segment
4. Gross margin in industrial segment was 35% (commercial – 25% and domestic less than 20%)
Decrease cost of stocking industrial burners5. Discontinue slow moving models
6. Incentivize distributors – multiple product line volume discounts & incentives for stocking industrial burners
Set up its own warehouse 1. Restrict it to key end users and OEM accounts
2. Backup for distributor stocks
Eventually develop & expand own sales force for industrial
burners.
Build stronger relationship with distributors3. Provide incentives
4. Mutual respect
5. Better credit terms
5.Analyze Zhou’s decision
if he should directly sell to Feima or not!
Details to consider
Relationship with Jinghua
The possible response from other distributors – Wayip and FUNG’s
Feima’s response
The message about decision that will reach its competitors
The attitude of Gino’s corporate management
Decisions that can be made
CHOICE 1Proceed with Feima as an OEM
CHOICE 2Deny Feima’s request and refuse to by pass
distributors
CHOICE 3Approve Feima’s request but only for its
industrial Burners segment
CHOICE 1
Proceed with Feima as an OEM
PROS
1. Initiate OEM business in China
2. Combat the increasing bargaining power of distributors
3. Good opportunity to break into industrial burner segment
4. Avoid middlemen5. Eliminate the distributor’s
bad behavior and changing attitude
CONS
1. Destroys relationship with distributors
2. Destroy confidence in co-operating with Gino
3. Difficult to determine prices
4. Outside core competencies
CHOICE 2Deny Feima’s request and refuse to by
pass distributors
PROS
1. Meet the annual sales target
2. Maintain 40% of Gino’s revenue in China
3. Loyalty earned4. Maintains relationship with
distributors
CONS
1. Impact on Feima’s relationship
2. Cannot achieve its goal to set up 2 OEMs
3. Cannot optimize the distribution channel
4. Face the changing behavior of distributors
PROS
1. Meet the annual sales target
2. Impact on relationship with distributors
3. Earn Feima’s promise and establish success
4. Set up OEM in other territories
CHOICE 3Approve Feima’s request but only for its
industrial Burners segment
CONS
1. Destroys relationship with distributors
2. Destroy confidence in co-operating with Gino
3. Difficult to determine prices
4. Outside core competencies
By constructing a
decision matrix, we arrive
at an optimal solution.
CRITERIA WEIGHT CHOICE 1
CHOICE 2
CHOICE 3
Impact on relationships
35% 1 4 2
Price 25% 4 3 3
Brand Image 20% 2 4 3
Core Competencies
10% 2 5 4
Growth potential
10% 4 3 4
Total 100% 2.5 3.8 3.15
Decision Matrix
By constructing a
decision matrix, we arrive
at an optimal solution.
CHOICE 2Deny Feima’s request and refuse
to by pass distributors
6.Analyze the Inference from
This case study about Gino Sa
No Control and Monitoring over undercutting, discounts on List price, after sales service, technical support, stocking , inventory control, CRM.
Don’t keep all the eggs in one basket
A manufacturer should maintain a co-operative relationship with his distributors.
Direct Customer Feedback on timely intervals should be taken
Customer Care was controlled by Jinghua instead of Gino
No marketing support in form of price & commercial promotion
Created by Vaishnavi Ketharnathan, SVCE Chennai, during an internship by Prof.
Sameer Mathur, IIM Lucknow.
www.IIMInternship.com