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