gino sa – distribution channel management

–

48% market share in

Europe(developed market)

12% market share in

Asia(emerging market)

growth rate.

•

•

•

Feima boiler Co. Ltd. Approached Gino to buy burners directly from them instead of from the distributors to receive higher discounts.

In exchange Feima will purchase 100% of its domestic burners and at least 50% of commercial and industrial burners from Gino.

Gino has no OEM accounts till now and Feima would be its first.

Jinghua, who has been supplying burners to Feima so far is opposing this deal. Jinghua is the largest distributor of Gino’s burners(40%).

Jinghua threatens that it will reconsider cooperation with Gino is Feima is touched.

How to find a win-win situation here?

With a considerable market share in strong markets such as Europe(48%), Gino is financially stable

Markets in Asia are showing a strong growth rate and particularly

China is

exciting.

Gino is in a business-to-business market

which means small customer base and distribution channels are important. Usually large amount of business is received from one or few companies.

Gino has three distribution channels in China, Jinghua(40.8%), Wayip(31.6%) and FUNGs(27.5%). Larger percentages means

high bargaining power. Forcing the

manufacturer to give the distributor more trade promotions.

Gino dominates the market in domestic burners, but high margins are possible in industrial burners

industry. Gino needs more market share in the

industrial and commercial burners industry.

Feima boiler Co. is promising a good deal in sales if it can receive greater discounts and buy directly from Gino instead of buying from its distributor, Jinghua mechanical engineering company.

Feima’s largest supplier is Weishaupt(main competitor of Gino), the proposed deal would make Gino the largest supplier of Feima and thus

Gino will be able to steal sales from its competitor. Feima will

also be the first OEM account for Gino and will serve as a reference account for other OEMs in the industry.

Jinghua is aggressively opposing the proposal of

Feima and angering Jinghua would

mean a possibility of

losing 40% of

sales in China for Gino

Technically, Gino would not be crossing any legal boundaries in pursuing the deal with Feima,

but active opposition of its largest distributor Jinghua is making Gino

reconsider the aspects of the deal. Gino also lacks its own sales force which is making distributors’ satisfaction much important for Gino.

Pursue the deal with Feima and risk the

40% sales it has through Jinghua.

Reject the proposal of Feima and preserve

the sales from Jighua and keep them

satisfied.

Come up with an intermediate win-win

situation where it can aquire Feima and

still retain Jinghua.

’

’

“ ”

’

Burner

category

Avg

Transfer

price(RMB)

Base price

(RMB)

Public

price

(RMB)

Contract

price

(RMB)

No. of

burners

sold in

1999

Revenue

from sales

(RMB)

Total

revenue

(burners+

spares)

Domestic 2500 3710 5936 4452 4354 19,384,008

Commerci

al

9000 13356 21370 17808 876 15,599,808

Industrial 65000 96460 154336 137800 37 5,098,600

Total 40,082,416 50,103,604

Feima’s purchase from Jinghua in

1999Burner category Units bought from

Jinghua

Revenue from sales

(RMB)

Domestic 350 1,558,200

Commercial 50 801,350

Industrial 3 347,256

2,706,806 total

6.75% of

total revenue of

Jinghua’s sales

Burner type Expected

prices (RMB)

Promised

quantity

Revenue

(RMB)

Profits/unit

(RMB)

Category

profits(RMB)

Domestic 3858 1055 4,070,190 148 156,140

Commercial 15600 82 or more

(at least 50%

of 163)

1,279,200 2244 184,008

Industrial 123,469 43 or more

(at least 50%

of 85)

including

annual growth

rate

5,309,167 27,009 1,161,387

1,501,535

So

In such case previous profits from Feima which are 606,320RMB

increase to 1,501,535RMB. An increase of 895,215RMB. At least

2.5 times the profit which they made before.

Gino can now add a condition that Jinghua should be willing to stock atleast 20% more industrial burners in its ware house to cash in on the stock-outs of its competitors.

With this condition in the deal the total number of annual sales in

industrial burners would come up to 216(96+58+62), which

takes into account the annual growth rate on industry and the added business from the deal.

This number is what Gino China is planning to achieve. So one goal can be clearly accomplished.

The total annual sales after this deal will come up to 13,711 units which is 1289 units less than the 15000 mark Gino hopes to achieve. But the above estimate did not take into account the moderate growth rate of domestic and commercial industry. Taking that into account would help Gino achieve its total sales quota too.

–

David Zhou has to convince Feima to agree for this arrangement.

Total revenue(burner sales)

Jinghua in RMB

Profits, Jinghua

RMB

Revenue including sales of

spares

RMB

5,349,390 (projected) 340,148 (projected) 7,881,300(including industrial

burners segment) projected

2,706,806 (previous) 606,320 (previous) 3,383,508 (previous)

Two times more revenue

generated

43% less profits generated 132% revenue generated

Setting up warehouses…. Estimated costs 5,230,000RMB (1200 units)

Setting up own sales force…. No data given

Finding new distribution channels (research + marketing)

Distributor satisfaction (0.25)

Possibility of reaching long term goals (0.25)

Bargaining power (0.20)

Investment levels (0.10)

Profit and sales (0.20)

Weightages assigned on the basis of priority

Factors Weightage

Strategy 1

Weightage

Strategy 2

Strategy 1

score

Strategy 2

score

Distributor

satisfaction

4 3 1 0.75

Reaching long

term goals

3 3.5 0.75 0.875

Control of

bargaining power

1 3 0.2 0.6

Investment levels

(low level = high

score)

3 3.5 0.3 0.35

Profit and sales 4 3.5 0.8 0.7

3.05(total) 3.275(total)

David Zhou has to negotiate with both Feima and Jinghua, both companies need to co-operate for Gino to be able to pull this off.

Jinghua will not be able to exploit the deal to attain more bargaining power.

Investing on warehouse is possible because Gino is financially stable and there is need to develop more channels.

By decreasing Jinghua’s power expanding into more channels is possible.

First OEM account gained.

Penetration into industrial segment.

More control over this segment to avoid losing opportunities.

Image Credits:

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