.

M600 Case Report

Jeevana Jagat Adusumilli

Table of contents

EXECUTIVE SUMMARY

PROBLEM/OPPORTUNITY

SWOT ANALYSIS

ALTERNATIVES

Accept Feima as Jinghuas

customer

Develop Feima as OEM

Reject Feima

ALTERNATIVE ASSESMENT

RECOMMENDATION

IMPLEMENTATION/ACTION
PLAN

CONTINGENCY PLAN

Appendix-A

Appendix-B

Appendix-C

Appendix-D

10

Jeevana J Adusumilli | #1192298 | M600 Case report |

EXECUTIVE SUMMARY:
Gino SA is one of the largest burner manufacturers and exporters in the world and enjoys up to 14%
market share with its product mix. The key issue that could potentially grow or break the brand is
choosing between an OEM proposal from Feima and agitating its well-established distribution channel,
especially Jinghua. The company further aims to grow its annual unit sales by 20%, industrial sales by
200 units, build two OEM & end user channels by improving service standards. After an in-depth analysis
into Ginos internal and external factors that may influence its strategic goals for the future, the report
identifies three alternatives that could potentially address all the concerns. Weighing each alternative
across key factors; investment, unit sales, channel development, brand image, customer service and risks
involved, it is found that continuing Feima as Jinghuas customer and offering its requested discount is
the best fit. Since the accepted additional discount will eat into Jinguas profit margin reducing it by 13%,
Gino is suggested to take a 1% hit to its transfer price for Feima account. This brings the company closer
to its annual unit sales goal. The distributor channels are aligned by implementing a service charge as a
percentage of public prices of industrial, commercial and spare parts to increase their revenue by 3.6%
and profit margin by 3%. This new fee, along with a customer feed back component will be implemented
on purchases made from March 2000. The plan optimizes the existing channel, reduce its power but also
instigate service standards, spares stocking and motivated industrial unit sales. It also attracts OEM
channels, which base their purchase decision on availability of spares and service. To reduce the cycle
times that may have forced Gino to lose industrial sales, it will open a warehouse in South China and
employ a sales force of 36 individuals that work toward acquiring new channels, increasing unit sales and
promoting the brand image. The plan aims to achieve its aim by December 2000. In the event that Gino
fails to achieve its unit sales by August by more than 20% and distributor shirking continues, the
company moves toward contingency plan. Where distributors will be offered product volume discounts
and sales force assigned new sales targets. With the new push strategy, the regional sales managers will
closely monitor sales performances to ensure Ginos success.
M600Case
Case
Report
Jeevana J Adusumilli | #1192298 | M600
report
| 3
Jeevana J Adusumilli | #1192298

PROBLEM/OPPORTUNITY: The impending issue concerning Gino SA is the choice between Feimas
OEM businesses, which may lead to frayed relationship with existing distributor, Jinghua that constitute
40% of revenue in China and Fiema as Jinghuas. In the event that the company chooses to accept this
proposal Gino SA needs a pricing strategy for potential OEMs including Feima. Although Jinghua is not
believed to leave Gino SA, any action that Zhou may perform is bound to influence Gino SAs brand
equity and recognition in the market and other distribution channels that it plans to build further in the
next three years. Further the company aims to open two OEM accounts, develop more distributors and
assist through marketing and technical support, increase annual industrial burner sales to 200 units, and
over all sales to 15,000 units.
IMPORTANCE
Low

High

URGENCY

Low

Develop OEM channel

Optimize Distributor channel
Build brand image

High
Increase Industrial Sales
Increase overall unit Sales
Improve service and spare supply

Feima Proposal

SWOT ANALYSIS:
Strengths Gino SA benefits from global presence, well-established channel network and strong brand
reputation. In-house production capability adds to the competitive advantage for the company to enjoy a
substantial price gap from competition of up to 30% and significant contribution margins (30% Industrial, 25% - Commercial, less than 20% - Domestic). The company also sustains a 14% domestic
range market share. As one of the largest burner manufacturers and exporters, Gino SA banks on
reputable employee base (technical and marketing) that is motivated by its compensation structure.
Weaknesses Excessive reliance on oligopolistic distribution channel for meeting the sales targets leaves
Gino SA with little to no power in managing its product flow and after sales services. Shirking amongst
distributors in stealing sales from other provinces and reluctance to stock Industrial burners is leading to
Jeevana J Adusumilli | #1192298 | M600 Case report |

an opportunity loss of at least 50 units. Opportunities Increasing demand (20% higher in the next five
years) in Industrial range has remained an unexploited market for Gino SA despite lower comparative
offering price (10-20%) due to lack of brand image in the segment. Threats Political influence of local
manufacturers leading to increased output and selling power may lead to reduced profit margin within the
next five year time period. Declining growth in western markets forces Gino SA to bank on developing
markets like China to meet the sales targets.
ALTERNATIVES:
1. Accept Feima as Jinghua customer: This alternative proposes to continue Feima as a distributors
customer with new pricing (appx-b). This allows Gina a 2% increase in profit margin, and brings it closer to
achieving the unit sales volume budget including industrial burners for the next three years. In order to
address reduced Jinghuas profit margin to 4%, Gina will offer the additional discount through reducing
the transfer prices for Feima account by 1%. Further issues concerning distributor channel conflicts, a
service fee of 5% (of commercial, industrial & spare public price) for appointments, which include
burners post warranty (one year), installation and start of commercial and industrial burners added to
contract price would be implemented. This will further increase the distributors revenue by 3.6%(appx-a) as
opposed to revenue being lost due to excessive contract discounts and encourages industrial and
commercial products. This further increases services standard & spares stocking in the channel. Gino will
supplement its existing channel with a penetrating sales force to attract OEMs by promoting its products
at design institutes and trade shows. Focusing on the industrial segment, the company will establish a
warehouse in the Southern part of China assisting major industrial market handled by Wayip, which
accounts for 38% of Ginos industrial sales to compensate for stocking issues. Gino will continue to
leverage its current brand image as well as acquire new accounts. Advantages: Increase in unit sales.
Relationship with distributors strengthened. Improved service standards. Industrial burners emphasized.

Jeevana J Adusumilli | #1192298 | M600 Case report |

New OEM accounts. New distribution channel established. Reduced cycle time. Decreasing power of
distributors. Disadvantages: Loss of potential OEM. High investment.
2. Develop Feima as OEM: With this alternative Feima will be developed as an OEM with its proposed
pricing, since it is a leading boiler manufacturer in Northern China and constitutes major portion of
revenue in that area. This increases Ginos profit margin by 2%. A slab based price mix is introduced for
all potential OEMs (appx-d) to ensure OEM referencing in the future. In order to compensate for the
distributor dissatisfaction, a service fee will be implemented as in alternative 1 that increases their
revenue by 3.6%. Also Gino will support its existing channel with an integrated advertising campaign
targeted at industrial burners to create a brand image through global consumer culture positioning.
Advantages: Increased unit sales through Feima. Brand image and potential end-user channels built.
New OEM channel developed. Decreasing distributor power. Disadvantages: Disappointed Jinghua.
Fear in distributor channel may lead to poaching and exits. Industrial stocking remains a challenge.
High marketing investment. Longer cycle times.
3. Reject Feima: Under this option, Feima proposal will be rejected to ensure distributor channels
cooperation. But an in-house sales force will be developed that will concentrate on acquiring OEMs and
end users through design school presentations and tradeshows. Further, a warehouse will be established
in Southern part of China to encourage industrial sales across the country. Gino will remain as a budget
manufacturer leveraging its current brand perception. Advantages: New OEM and end user accounts.
Relationships with distributors remain undeterred. Industrial segment sales promoted. Shortened cycle
time. Disadvantages: OEM account lost. Guaranteed unit sales lost. Distributor power remains. High
investment.
ALTERNATIVE ASSESSMENT: The alternatives are weighed across investment, unit sales, brand
image, customer service, channel development and risk factors. Investment defines cost of upfront capital
(including warehouse, marketing and sales force expenses). Unit sales define the comparative projected
increase in units towards meeting the company sales targets. Brand Image contributes to the unit sales by
positioning Gino as a culturally associated, budget product in domestic and a reliable brand in its

Jeevana J Adusumilli | #1192298 | M600 Case report |

industrial segments. Further customer service takes spare parts and technical assistance into account
toward escalating distributor revenue and future sales for OEM channel and industrial products. Channel
development weighs contribution of each alternative into efficiently diversifying Ginos distribution
Alternative 1
Alternative 2
Alternative 3
Weights
(Accept Feima as
(Develop Feima as
(Reject Feima)
Jinghuas customer)
OEM)
Investment
0.1
2
3
3
Unit Sales
0.2
5
4
3
Brand Image
0.1
3
4
3
Customer Service
0.2
5
5
1
Channel dev.
0.2
3
4
3
Risk
0.2
5
1
5
Total
4.1
3.1
2.8
channel. Risk factor takes into account the possibility of fraying distributor relationships due to the
Decision
Criterion

decision made in the designated alternative.

RECOMMENDATION:
Alternative 1 poses to be the most strategic fit for the current situation and future corporate goals of Gina.
Despite the high capital warehouse and sales force expense (appx-d), this alternative is bound to motivate
existing channels to build new OEM and end user channels with Ginos in-house sales force and promote
spares sales/stock and service. Which further structure consumer confidence in the brand leading to
development of industrial segment. In addition a warehouse built in Southern China, which accounts for
26% profit margin and 38% of industrial sales as opposed to Central China with 35% industrial unit sales
contribution (appx-a), will ensure stocking with most profitable product mix for Gino to invest in. The risk
of disturbing the existing distribution channel being negligible, this plan ensures increase in unit sales
through Feima and new channels underway bringing Gino closer to its sales targets with additional 28
industrial and 1299 commercial/domestic to be sold annually (appx-c) in order to meet its target.
IMPLEMENTATION/ACTION PLAN:
The implementation is carried out in 2 phases (appx-c). Phase 1: This phase will last from March to July.
During first month, Feima will be issued the additional discount and distributors, a new contract of
service charge to be implemented for new purchases starting March 2000. This ensures distributor
satisfaction and further a customer feedback component with each service (form to be mailed to Gino) is
Jeevana J Adusumilli | #1192298 | M600 Case report |

added which allows Gino to recognize any technical or service issues the customers may incur during the
appointment. A sales force of 36 individuals (9 per region) is recruited and field trained. The warehouse
establishment procedure is underway in this period. From April to July the sales force is assigned sales
targets of 1299 units of domestic/commercial burners and 28 industrial burners, which is the differential
amount to reaching the annual unit sales target. Sales teams will approach design schools and trade shows
to pitch their sales with a fully functional warehouse setup by June. This phase ensures the stocking of
industrial burners and further in assisting the regional distributor in reducing cycle times and increasing
sales. Phase 2: In the end of July, sales force performance and distributor service standards are assessed.
Necessary adjustments to the sales targets and distributor service contract are made. This will compensate
for any discrepancies in unmet roll over sales targets from the previous period. In the next five months the
push strategy will continue and periodic feedback is collected to track progress. An assessment of sales
performance is conducted in the end of December.
CONTINGENCY:
Contingency plan (appx-c) comes into force at the end of July 2000 in the event that the sales targets are
missed by more than 20% and distributor shirking continues despite the service fee contract. This plan
banks on increasing the existing sales force by 9 new individuals, expanding each region to 12 members
in the first one-month. The push strategy continues, with monthly sales budgets (of 520 (1560 total)
commercial/domestic burners and 12 (36 total) industrial burners per region) as opposed to annual and a
quarterly review by Sales managers of the concerned regions. Also, in order to motivate the sales staff,
commission based compensation system is introduced to ensure unit sales. Distributor dissatisfaction will
be addressed with a volume-based discount on transfer price (appx-c). The volume scales are structured to
encourage distributors to sell more as well as avail the discounts on their current sales performances. The
contingency plan promises Gino SA in reaching its corporate goals in the remaining short period.

Jeevana J Adusumilli | #1192298 | M600 Case report |

Appendix-A

Jeevana J Adusumilli | #1192298 | M600 Case report |

Appendix-B

Jeevana J Adusumilli | #1192298 | M600 Case report | 10

Appendix-C
Implementation/Contingency plan:
Phase
1

Timeline
March
2000
(1 month)

Apr-Jul
(4 months)

Aug-Dec
(5 months)

Objectives
Announce and implement service charges for all future accounts
Form sales force of 36 by region (9*4 regions)
Launch warehouse establishment in Southern China
Sales force training with targets for each region being 1299(433
per region) commercial/ domestic & 28(10 per region) industrial
burners, 1 OEM & 1 end user account per region.
Fully operational warehouse to stock all segments (June)
Sales force presentations in design schools and tradeshows.
Collect periodic feedback from customers through sales force
Asses sales force and distributor performance
Analyze feedback from customers and distributors
Form new targets if necessary
New service contract if necessary
Continue push strategy

Contingency
Aug
(1 month)

Aug-Dec
(5 months)

Form new targets (of 520 (1560 total) commercial/domestic burners

and 12 (36 total) industrial burners per region)
Recruit 10 new sales members and assign new targets
Announce volume discounts for all distributors
Asses sales force and distributor performance
Analyze feedback from customers and distributors
Monthly review of sales performance by sales manager
Continue push strategy

Proposed Contingency discounts for distributors

Product
Domestic

Commercial

Industrial

Range

Target Price

1-4000
4000-4500
4500-5000
Above 5000
1-900
900-1300
1300-1600
Above 1600
1-15
15-20
20-30
Above 30

301
301
301
301
1084
1084
1084
1084
7831
7831
7831
7831

Dealer
Price
301
286
271
256
1084
1030
976
921
7831
7439
7048
6656

Gino
Discount
0%
5%
10%
15%
0%
5%
10%
15%
0%
5%
10%
15%

Jeevana J Adusumilli | #1192298 | M600 Case report | 11

Appendix-D
Proposed OEM pricing
Product
Domestic

Commercial

Industrial

Range

Base Price

1-750
750-900
900-1050
Above 1050
1-40
40-60
60-80
Above 80
1-15
15-20
20-30
Above 30

3,708
3708
3708
3708
13355
13355
13355
13355
96478
96478
96478
96478

OEM
Price
4,450
4252
4079
3896
16026
15358
14691
14028
115774
110950
106126
100337

Gino
Mark-up
20%
15%
10%
4%
20%
15%
10%
4%
20%
15%
10%
4%

Ware house expenses

Cost
Setup cost
Operation
Capacity
Expected Rev*
Gross Margin

Year 1
$200,000
$360,000
$5,000,000

Year 2
0
$360,000
$5,000,000

5560000
720,000

5560000
920,000

* Computed assuming Gino will reach its 15000 annual sales targets

Jeevana J Adusumilli | #1192298 | M600 Case report | 12