GINO SA:

DISTRIBUTION
CHANNEL
MANAGEMENT

HARVARD CASE STUDY ANALYSIS

What is
GINO SA ?

GINO SA
One of the largest burner
manufacturer and exporter in the
world and enjoys up to 14% market
share
Set-up in France

THE PLAYERS
David Zhou - China marketing manager
of Gino SA
Jean Michael Pierre - Asia Pacific Area
Manager
Henry Gong - Ginos largest distributor
Jinghuas general manager

Market
Segmentation

SEGMENTS

Domestic Boilers
Commercial Boilers
Industrial Boilers
Segments

Manufacturers

Average Price

Market Size

Domestic Boilers
and
Water Boilers

310

RMB 2500 per

unit

RMB 194 million

RMB 9000

RMB 198 million

RMB 65000

RMB 221 million

Commercial
boilers
Industrial Boilers

60

RANGE SYSTEM
Estimated sizes in unit sold
RANGE

MARKET SIZE

Domestic

79,900

Commercial
Industrial
Total

20,080
2,920
102,900

DISTRIBUTION NETWORK
The distributors:
1. Jinghua (also sold boilers)
2. FUNGs (textile industry) accounted
90% of
annual turnover
3. Wayip (sold only GINO burners)
Revenue split between burners and spare
was 80/20

DISTRIBUTION NETWORK
Performance Statistics
Jinghua
Domestic
4,354
Commerci
876
al
Industrial
37
Total
5,267

FUNGs
3,075
433

Wayip
3,458
568

Total
10,887
1,877

48
3,556

52
4,078

137
12,901

What is
the problem?

THE PROBLEM
Choosing between an OEM proposal
from Feima and agitating its wellestablished distribution channel,
especially Jinghua.

WHO ARE INVOLVED?

GINO- the main producer
Jinghua- largest distributor of GINO
in China and accounted 40% of
GINOs China revenue - the
distributor
FEIMA- potential OEM and major
client of Jinghua - the buyer

AIM
Grow its annual unit sales by 20%,
industrial sales by 200 units
Build two OEM & end user channels
by improving service standards

RISK INVOLVED
Feimas OEM businesses may lead
to frayed relationship with existing
distributor, Jinghua.

OBJECTIVE
Choose between pleasing
distributor or setting up OEM.
If OEM: create a pricing strategy for
potential OEMs including Feima.

What can be
the advantages?

ADVANTAGES
Why Zhou wants Feimas OEM business?
Developing OEM business was one way
to combat increasing power of
distributors
Good opportunity to break into a wellentrenched customers in industrial

ADVANTAGES
Success with Feima would make it
easier for Gino to develop OEM
business in other distributors
territories

What can be
the disadvantages?

DISADVANTAGES
Why Jinghua was adamantly opposed?
Jinghua strongly believed that Gino
should not develop distributors
existing costumer as OEM
The practice would set a bad example,
which could destroy their confidence in

SWOT
analysis

SWOT ANALYSIS

STRENGTH
Global presence, well established
channel network and strong brand
reputation
Price gap from competition of up to
30%
Contribution margins (30%industrial, 25%- commercial, less

WEAKNESS
Reliance on oligopolistic
distribution channel for meeting
the sales targets
Unable to take over industrial
burner market
Unable to steal major market from
competitors

OPPORTUNITIES
Increased demand (20% higher in
the next five years) in industrial
range.

THREATS
Political influence of local
manufacturers leading to increased
output and selling power
Declining growth in western
markets

What can
be done?

ALTERNATIVES (1/3)
1. Reject Feimas offer

ADVANTAGES
Strengthening of ties between
manufacturer and distributors
Maintain its leadership position in
Domestic Segment

DISADVANTAGES
Revenue lost from potential new orders
Conflict with strategy of adding more
OEM accounts
Opportunity cost in high margin
Industrial Segment
Increase in distribution power

ALTERNATIVES (2/3)
2. Accept Feimas offer for industrial
segment and leave other
segments to Jinghua

ADVANTAGES
Increase in revenue and profits with
penetration into industrial segment
Completely in line with management
strategy goals
Jinghua also making more revenue and
profit
Warehouse will solve inventory

DISADVANTAGES
Getting distributors on their side can
be a tough task despite more profits

ALTERNATIVES (3/3)
3. Offer the discounts to Feima
through
Jinghua

ADVANTAGES
Good relationship with Jinghua and
other distributors
Continuation of the existing relation
with Feima

DISADVANTAGES
Alternative not aligned to Ginos
strategy
Can impact the overall margin of the
industry
Other distributors OEM accounts will
ask for same margin

Financial analysis
of alternatives

FINANCIAL ANALYSIS FOR ALTERNATIVE

1
Domestic

Commercia
l

Industrial

Total

Units sold by a
distributor

10887

1877

137

12901

Transfer Price (RMB)

2500

9000

65000

Revenue from burners

(RMB)

27217500

16893000

8905000

53015500

Revenue from spares in

USD (80/20) split

6804375

4223250

2226250

13253875

Net revenue of Gino in

RMB

34021875

21116250

11131250

66269375

Net revenue of Gino in

USD

4099021

2544126

1341114

2984262

FINANCIAL ANALYSIS FOR ALTERNATIVE

2
On the next page

Domesti
c

Commerc
ial

Industria
l

Industrial
Direct

Total

Forecasted Units

11810

2003

165

36

13978

Transfer Price (RMB)

2500

9000

65000

120575

Revenue from burners

(RMB)

2952500
0

18627000

10725000

4340700

62617700

Revenue from spares in

USD (80/20) split

7381250

4506750

2681250

1085175

15654425

Net revenue of Gino in

RMB

3690625
0

22533750

13406250

5425875

78277212
5

Net revenue of Gino in

USD

4446536

2714909

1615210

653719

9430376

Total Contribution Margin

(20%, 25%, 30%, 30%)

$889307

$678727

$484563

$196115

$2248713

Setting up
warehouse(30000*12/8.3)

$43373

Shipping, Insurance etc.

(48.4% of Cm)

$94920

Outsourcing cost (5% of

CM)

$14096

FINANCIAL ANALYSIS FOR ALTERNATIVE

3
Domestic

Commercia
l

Industrial

Total

Forecasted Units

11810

2003

198

13978

Transfer Price (RMB)

2500

9000

65000

Revenue from burners

(RMB)

29525000

18627000

12870000

60422000

Revenue from spares in

USD (80/20) split

7381250

4506750

3217500

15105500

Net revenue of Gino in

RMB

36906250

22533750

16087500

75527500

Net revenue of Gino in

USD

4446536

2714909

1938253

9099698

Total Contribution

$444653

$407236

$387650

$1239540

FORECASTING NUMBER OF UNITS

Curre
nt

Industr Additio Project

y
n in
ed
Growth Feima
sales
(2%,
sales
2000
5%,
20%)
Domestic 10887 11105
705
11810
Commerci 1817
1971
32
2003
al
Industrial
137
165
33
198

Project
ed
sales
2001

Project
ed
sales
2002

12047
2104

12288
2210

238

286

EVALUATION OF ALTERNATIVES
Resolve
Jinghua
s
problem
(0.35)
Alternative
1
1
Alternative
3
2
Alternative
3

Revenue Industria Bargaini

and
l
ng of
profit
Segment distribut
(0.3)
penetrati
ors
on (0.25)
(0.10)
1
2
1

Total

1.25

2.9

1.85

Recommendation
of strategy

RECOMMENDATION
From financial analysis & pros and cons
of all Alternative 2 is recommended
It is aligned with Ginos long term
strategy and achieve the target of 200
Industrial burners.

RECOMMENDATION
The warehouse will house Industrial
burner inventory which will reduce
inventory cycle time for other
distributors giving Gino a competitive
edge.

Contingency
Planning

IMPLEMENTATION
Feima would be happy about the deal
as it is getting the percentage discount
it demanded
If Jinghua does not agree to the plan
due to fear of losing the industrial
market a contract may be signed
stating that Gino will not acquire any

IMPLEMENTATION
If Other OEMs ask for the same margin
then the discount must be
compensated by increase in purchase

Presentation created by-

ROHIT, NSIT Delhi

During an internship by-

Prof. Sameer Mathur, IIM

Lucknow
www.IIMInternship.com