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
power
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
1.
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
3.
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
Industrial
Direct
Total
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
Gino’s Financial Analysis for Alternative 2
Domestic
Commercial
Industrial
Industrial Direct
Total
Forecasted Units 11810 2003 165 36 13978
Transfer Price(RMB) 2500 9000 65000 120575
Revenue from Burners(RMB) 29525000
18027000
10725000
4340700 62617700
Revenue from Spares in USD(80/20 split)
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
Gino’s Financial Analysis for Alternative 3
Domestic Commercial
Industrial
Industrial
Direct
Total
Forecasted Units 11810 2003 198 13978
Transfer Price(RMB) 2500 9000 65000
Revenue from Burners(RMB) 29525000 18027000
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 Margin(10%, 15%, 20%)
$444653 $407236 $387650 $1239540
Forecasting Number Of Units
Current
Industry Growth
(2%, 5%, 20%)
Addition in Femina
sales
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
84)
Commercial(9000/8.3*1.484
)
Industrial(65000/8.3*1.
484)
Total
Jinghua’s Cost to Acquire(Q*2500*1.484/
8.3)
$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%
Jinghua’s Financial Analysis for Alternative 2
Domestic(2500/8.3*1.
484)
Commercial(9000/8.3*1.4
84)
Industrial(65000/8.3*1.
484)
Total
Jinghua’s Cost to Acquire(Q*2500*1.484/8.
3)
$2261312.54
$1461114.22 $395137.35 $4117563.61
Jinghua’s Revenue(5% Public, 95% Contracts)
$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
Segmentation share of Profits
54% 36% 10%
Jinghua’s Financial Analysis for Alternative 3
Domestic(2500/8.3*1.4
84)
Commercial(9000/8.3*1.484
)
Industrial(65000/8.3*1.
484)
Total
Jinghua’s Cost to Acquire(Q*2500*1.484/
8.3)
$1946185.54
$1409621.20 $430002.41 $3785809.16
Jinghua’s Revenue(5% Public, 95% Contracts)
$2226436.26
$1612606.66 $491922.76 $4330965.68
Jinghua’s Profits $280250.72 $202985.45 $61920.35 $545156.52
Segmentation share of Profits
51% 37% 11%
Evaluation of Alternatives
Resolve Jinghua’s Problem(0.35)
Revenue and
Profitabiliy
(0.3)
Industrial Segment Penetrati
on(0.25)
Bargaining of
Distributors
(0.10)
Total
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
RECOMMENDATION OF STRATEGY
Jinghua can compensate 10% discount by its
additional sales of 705 domestic and 32
commercial burners at a loss of just 3 industrial
burners
RECOMMENDATION OF STRATEGY
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
years
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
Lucknow