GINO SA : Distribution Channel Management

Case analysis

A.Tejitha ReddyIIT Hyderabad

Present situation

Gino SA is one of the largest burner manufacturers and

exporters in the world and enjoys up to 14% market share with its product

mix. It officially set up its Beijing office in 1995.It was carrying 95% of its sales only through 3 major distributors in

China

Major Distributors in China

•Wayip Trading Co.

• Jinghua Mechanical Engineering Company

•FUNG’s Co

Market

SegmentationDomestic

boilers

Commercial Boilers

Industrial Boilers

Current Situation

Feima ,one of the largest OEM’s

in China which is currently being

supplied Gino products by

Jinghua approached Zhou, China

marketing manager of Gino SA

for permission to buy burners

directly from Gino

Current situation

The current issue is Choice between Feima’s OEM businesses, which may lead to frayed relationship

with existing distributors in China and leaving Feima as Jinghua’s company.

problem

Solution 1

Reject Feima’s offer

Good relationship with Jinghua and other distributors.

Feima's relationship can get affected which may lead to feima approaching Gino’s competitors.

Bargaining power of distributor will become difficult to control.

Solution 2

Offer the discounts

to Feima through Jinghua

Good relationship with the Jinghua and other distributors.

Continuation of the existing relation with feima

No increase in sales to feima.

Other distributor’s OEM accounts will ask for same margin

No step towards long term goal

Solution 3

Accept Feima’s offer

Initiation to OEM accounts for Gino in China

Increased purchase of Gino Burners by Feima

A way to combat the increasing bargaining power of distributors

Reconsideration of Jinghua’s co-operation with Gino

Threat to relationship with other major distributors.

All the above alternatives have so many risks which

may effect the revenue and Gino’s position in China to

a very great extent and put the relationship with either distributors or

consumers at stake. So we need to think of another

alternative method where both Jinghua and Feima are

satisfied

Solution 4

Accept Feima’s offer for Industrial segment and leave other segments to Jinghua.

Tables from the case : Gino SA : Distribution channel management

Segment Average cost of

burner(RMD)

% contribution of revenue

Domestic 2500 20

Commercial 9000 25

Industrial 65000 30

In case Gino and Feima sign a pact the Feima promised to purchase at least 50% of its commercial and industrial burners and all its domestic burners from Gino. Then from the above tables Gino’s sales in China would become:

Segment Previous Gino sales

Addition due to

Industrial growth

Addition Due to Feima

Total

Domestic 10887 218 11105 705 11810

Commercial

1877 94 1971 32 2003

Industrial 137 28 165 33 198

Estimated Annual sales

Domestic Commercial Industrial

No of units 11105 1971 165

Price per unit of burner

2500 9000 65000

Revenue from burners

27762500 17739000 10725000

Revenue from spares

6940625 4434759 2681250

Total Revenue 34703125 22173750 13406250

Contribution to Gino

6940625 5543437.50 4021875

Total Revenue to Gino: 16505937.5 RMD that is $1988667.17

•All revenues are in terms of RMD unless specified.

Numerical Analysis Considering Solution:1

Domestic Commercial Industrial Industrial directly sold

No of units 11810 2003 165 36

Price per unit of burner

2500 9000 65000 58500*

Revenue from burners

29525000 18027000 10725000 2106000

Revenue from spares

7381250 4506750 2681250 526500

Total Revenue 36906250 22533750 13406250 2632500

Contribution to Gino

7381250 5633437.50 4021875 787950

• *- considering that extra 10% discount• All revenues are in terms of RMD unless specified.

Total Revenue to Gino: 17826312.50 RMD that is $2147748.5

Numerical Analysis Considering Solution:4

Even from Numerical analysis we see that solution 4 is more profitable compared to solution 1.This implies it is also profitable compared to solution 2(since solution 2 offers more discount compared to 1).Thus comparing all the pros and cons, achievement of Gino’s long term goals and also the profit in all casesSolution 4 is preferred. The extra revenue could be used for setting up a Gino warehouse in Shangai.

conclusion

Feima would be happy about the deal as it is getting the percentage discount it

demanded and in addition ,due to setting up of warehouse, delivery of burners would be

faster

Implementation

Jinghua could be convinced , since at the cost of losing some industrial burners Jinghua was increasing its profits in both domestic and commercial

segments. Moreover setting up of a warehouse would reduce its

transportation costs.

Implementation

Disclaimer:Created by

Tejitha Reddy Ajjuguttu, IIT Hyderabad,

during an internship by Prof. Sameer Mathur, IIM Lucknow.

www.IIMInternship.com

Contents:Gino SA:Distribution Channel Management