gino sa – distribution channel management
TRANSCRIPT
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48% market share in
Europe(developed market)
12% market share in
Asia(emerging market)
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growth rate.
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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?
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With a considerable market share in strong markets such as Europe(48%), Gino is financially stable
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Markets in Asia are showing a strong growth rate and particularly
China is
exciting.
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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.
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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.
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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.
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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.
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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.
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Jinghua is aggressively opposing the proposal of
Feima and angering Jinghua would
mean a possibility of
losing 40% of
sales in China for Gino
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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.
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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.
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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
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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
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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
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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.
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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.
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David Zhou has to convince Feima to agree for this arrangement.
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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
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Setting up warehouses…. Estimated costs 5,230,000RMB (1200 units)
Setting up own sales force…. No data given
Finding new distribution channels (research + marketing)
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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
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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)
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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.
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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.
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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.
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Image Credits:
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