Gino SA:Distribution Channel Management

transcript

GINO SA:DISTRIBUTION CHANNEL MANAGEMENT

WHAT IS GINO SA?

▸ Gino SA is one of the largest burner manufacturers and exporters in the world.

▸ It enjoys upto 14% market share with its product mix.

The Players

▸ David Zhou – China Marketing Manager of Gino SA.

▸ Jean Michael Pierre – Asia Pacific Area Manager

▸ Jean-Guy Picher – Director of Commercial Department of Gino Burners

LONG TERM OBJECTIVES▸ Achieve Annual Combined

Sales Volume of 15000 units ▸ Achieve Annual Sales of

Industrial Burners of 200 units ▸ Optimise the Distribution

Channels▸ Develop atleast 2 OEM

Accounts & 2 end user key Accounts within 2 years

▸ Improve service and spare supply

▸ Build Brand Image

SWOT ANALYSIS

STRENGHTS

▸ Market Leader in the Domestic Burner segment

▸ Financially Stable due to international Presence

▸ Has the reputation for ‘Best Value’ products

▸ In house Production Capability

WEAKNESSES

▸ Poor Market Penetration in the Industrial Burner segment

▸ Doesn’t have any Direct Sales Force

▸ Total dependence on Distributors for sales and service

▸ Increasing Distributors’ Bargaining Power

OPPORTUNITIES

▸ China is an Emerging Market with huge potential for Growth and Profit margin

▸ Industrial Segment is expected to grow annually by 20% for next 5 years

THREATS

▸ Losing any of the Distributors is a major threat as it directly impacts sales

▸ Presence of large local manufacturers in the area having strong political connections

Present Situation

Three Distributors are responsible for selling 95% of Gino’s burners in China and hence acquired a major bargaining

Feima, a leading boiler Co. offered Gino for direct sales to get additional 10% discount for significant increase

in purchase

Jinghua, leading distributor of Gino is opposed to this offer as it decreases

its revenues significantly

GOALS FOR THIS SETTLEMENT

▸ Resolve the existing conflict in a possible win-win for all parties

▸ Control the Distributors’ Bargaining Power

▸ Penetrate into high growing Industrial Segment of Burners

▸ Revenue and High Profitability

ALTERNATIVES CONSIDERED

DECLINE FEIMA’S OFFER

A conservative approach to

maintain the good relationship with the

Distributors and retain the

Competitive Advantage

ADVANTAGES

▸ Strengthen Distributor-Manufacturer relationship

▸ Maintain its Leadership position in Domestic segment

DISADVANTAGES

▸ Forgone revenue from potential sales in domestic and commercial from Feima

▸ Opportunity cost in lucrative Industrial Segment

▸ Conflict with strategy of adding more OEM accounts

▸ Increase in Distributor Power

2.ACCEPT FEIMA’S

OFFER FOR INDUSTRIAL SEGMENT &

OTHER TO JINGHUA

Gino signs OEM contract with Feima only in the Industrial Segment and gives

additional 10% Discount and pushes

Jinghua for 10% Discount on

commercial and domestic burners

ADVANTAGES

▸ Completely in line with management strategy goals

▸ Will penetrate into high growing Industrial Segment

▸ Warehouse will resolve Inventory Cycle time problems

▸ Increase in overall sales and Profitability

DISADVANTAGES

▸ Convincing the Distributor can be a Challenge despite high profits from year 1

OFFER DISCOUNT TO

FEIMA THROUGH JINGHUA

Gino offers Discount to Feima

via Distributor Jinghua by

lowering the Transfer Price

ADVANTAGES

▸ Will satisfy both the parties

▸ Can work further on the Distributor-Manufacturer relationship

DISADVANTAGES

▸ Alternative not aligned to Gino’s Strategy

▸ Can open a Pandora’s Box where other Distributor’s OEM accounts will ask for the same margin

▸ Can impact the overall margin of the Industry

▸ Distributors’ Power will further increase

EVALUATION OF ALTERNATIVES

Gino’s Financial Analysis for Alternative 1

Domestic Commercial

Industrial

Direct

Units sold by all 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 7984262

Total Contribution Margin(20%, 25%, 30%)

$819804 $508825 $268222 $1596852

Domestic

Commercial

Industrial

Industrial Direct

Forecasted Units 11810 2003 165 36 13978

Transfer Price(RMB) 2500 9000 65000 120575

Revenue from Burners(RMB) 29525000

18027000

10725000

4340700 62617700

7381250 4506750 2681250 1085175 15654425

Net Revenue of Gino in RMB 36906250

22533750

13406250

5425875 78272125

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

Net Contribution $889307 $678727 $484563 $43725 $2096323

Domestic Commercial

Industrial

Direct

Forecasted Units 11810 2003 198 13978

Transfer Price(RMB) 2500 9000 65000

Revenue from Burners(RMB) 29525000 18027000

12870000

60422000

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 Margin(10%, 15%, 20%)

$444653 $407236 $387650 $1239540

Forecasting Number Of Units

Current

Industry Growth

(2%, 5%, 20%)

Addition in Femina

Proj. Sales2000

2001 2002

Domestic 10887 11105 705 11810 12047 12288

Commercial 1877 1971 32 2003 2104 2210

Industrial 137 165 33 198 238 286

Jinghua’s Financial Analysis for Alternative 1

Domestic(2500/8.3*1.4

Commercial(9000/8.3*1.484

Industrial(65000/8.3*1.

Jinghua’s Cost to Acquire(Q*2500*1.484/

$1946185.54

$1409621.20 $430002.41 $3785809.16

Jinghua’s Revenue(5% Public, 95% Contracts)

$2522256.46

$1826869.08 $557283.12 $4906408.67

Jinghua’s Profits $576070.92 $417247.88 $127280.71 $1120599.51

Segmentation share of Profits

51% 37% 11%

Domestic(2500/8.3*1.

Jinghua’s Cost to Acquire(Q*2500*1.484/8.

$2261312.54

$1461114.22 $395137.35 $4117563.61

$2930660.41

$1893604.03 $512098.00 $5336362.44

Discounts to Feima $47157.23 $8783.13

Jinghua’s Profits $622191.14

$423706.68 $116960.66 $1162858.47

54% 36% 10%

Domestic(2500/8.3*1.4

Jinghua’s Cost to Acquire(Q*2500*1.484/

$1946185.54

$1409621.20 $430002.41 $3785809.16

$2226436.26

$1612606.66 $491922.76 $4330965.68

Jinghua’s Profits $280250.72 $202985.45 $61920.35 $545156.52

51% 37% 11%

Evaluation of Alternatives

Resolve Jinghua’s Problem(0.35)

Revenue and

Profitabiliy

Industrial Segment Penetrati

on(0.25)

Bargaining of

Distributors

(0.10)

Alternative 1

1 1 2 1 1.25

Alternative 2

3 3 3 2 2.9

Alternative 3

2 2 1 3 1.85

RECOMMENDATION OF STRATEGY

Alternative 2 is recommended.

It is completely aligned with Gino’s Long Term Strategy and achieves

the target of 200 Industrial Burners

Jinghua can compensate 10% discount by its

additional sales of 705 domestic and 32

commercial burners at a loss of just 3 industrial

burners

The warehouse will also house Industrial Burner

inventory which will reduce Inventory cycle

time for other Distributors giving Gino

a competitive edge

CONTINGENCY PLANNING

If Jinghua does not agreeto the plan due to the

fear of losing the industrial market a contract may be signed stating

that Gino will not acquire any Industry burner OEM contract for 2

If Other OEMs ask for the same

marginThen the discount must be Compensated by increase in

purchase

THANKS!

DISCLAIMER

Created by Animesh Agarwal, IIT BHU, during an internship

by Prof. Sameer Mathur, IIM

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