GINO SA : Distribution Channel Management

Gaurav Singh | 12120

Problem Statement
David Zhou, China marketing manager of Gino SA had to decide whether to accept Feimas OEM (Original equipment manufacturer) business on stake of not only loosing its largest distributor Jinghua who accounted for their 40% of sales in China but also possibility of resistance from other distributors

Burner Industry Analysis (China)

Divided in three major Segments
Market Size (No of Units)
Domestic boilers and water heater Commercial Boilers 79,900 20,080

Market Size (in RMB)

194 Million 198 Million Price

Influencing Factor

Major factors: Technical compatibility, reliability, price Minor Factors: Supply of spares, after sales service Major factors: Reliability Minor Factors: Availability of stock, word of mouth

Industrial Boilers

2,920

221 Million

Company Analysis : SWOT

Strengths Wide burner product line Strong penetration in Domestic market In house production capability Well established channel network Positioned as best value products International Exposer Well trained technical team under supervision of highly respected technical Manager Peter Wang Opportunities Opportunity to grow in immerging and rapidly growing Asian market High growth in industrial segment in the coming years approx. 20% annually for next 5 years Weakness Completely dependent on distributors for sales and post sale services Virtually zero presence in Industry segment where margin is highest Very weak hold on distributor as they are not ready to stock Industry segment products Inaccurate forecasting for Industry segment products Threats Potential to lose on of the major distributors Growing clout of local players Saturated European market Plans of direct relationship with OEM in conflict with distributors

Importance of Distributors
Major Task Credit, Stock and sales/services Impossible to achieve annual sales target without them Additional cost of inventory and service in case decided to bypass distributors Domestic market has become a commodity so loosing distributor will badly damage market share If distributor get unite, would be difficult to do bargaining with them in this industry

Distributors Concern

Feima is being approached directly by OEM for the hope of greater discount OEM business will set a bad example and could destroy their confidence and co-operation with Gino Additional issues on pricing and policy creep up

Offer of Feima
If Gino give Feima OEM status and additional 10% discount in return Feima promised to purchase at least 50% of its commercials and industrials burners and all its domestic burners from Gino. Current Sales Ginos Sales Ginos
(Volume) (Volume) Projected Sales (Volume) Domestic Commercial 1,055 163 350 50 1,055 81

Industrial 71 3 35 Additional 10% discount is not in company policy and this could sour their relationship with distributor. Could cascade into other OEMs asking for similar or more discount.

Possible Alternatives

1. Refuse Feima for direct sales 2. Bypass distributors and sell directly to Feima 3. Sell directly to Feima and give distributor additional discounts in the other segments

Alternative 1
Pros:
Strengthened relationship with distributor

Cons:
Losing potential sales from industrial segment Will increase distributors power, not good in long run and for sustainable business

Alternative 2
Pros:
Help to decrease the bargaining power of distributors Increase the companys revenues by 6% Opportunity to get more business in industry segment through reference It supports companys long term goal of developing at least two OEM accounts

Cons:
Possible loss of sales Other distributors can also backfire with Jinghua

Alternative 3
Pros:
Win-win situation for everyone The additional discounts in the domestic and personal segments will pacify the distributor Industrial segment have higher margins so profitability will increase

Cons:
Additional Base Price In discounts Public Priceto RMB (RMB)
1232 1971.2

Transactioncan hurt Gino distributor Price

1576.96 1379.84

Price to Feima

Recommendation
Gino should sell directly to Feima at the desired discount while giving Jinghua additional discounts in domestic and commercial segment This will establish Gino in the industrial segments and OEM accounts The distributor will also be pacified and the potential losses from loss of sales to Feima will be recovered from extra discounts in the domestic and commercial segment

THANK YOU