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Gino SA Distribution Channel Management
Case Analysis
By- Rahee Hardaha
Gino Burner Co.
Who are the Key Players•David Zhou
China Marketing Manager of Gino SA
• Jean-Michelle Pierre
Gino’s Asia Pacific Manager
•Henry Gong
Jinghua’s General Manager
•Feima Boiler Co. Ltd.
Current Situation
•To resolve conflict with Distribution Channel
•To decide whether to give OEM status to Feima
• Increase Annual combined sales
• Increase annual sales of Industrial burner
•Develop OEM accounts
• Improve spare and supply
•Build the Brand image
Facts and InsightWorld Market for Burners (in thousands of units)
Area Market size Gino Sales
Europe 574 276
North America 433 45
Asia 291 36
Rest of The World 250 24
Total 1548 381
Facts and Insight
Advantages:
• In house production Capabilities
• A well established channel network
• International Exposure
Range Output Range Production (in thousands of units)
Average Margin %
Domestic 50000-300000 329 20Commercial 300000-2000000 49 25
Industrial >2000000 3 30Total 381
Facts and Insight
Production and Margines
Gino:• Domestic Range Market: Price leader in that range and 14% market
share
• Commercial Range: Growth is impressive and nearly 8% market share
• Industrial Range Market: Very Disappointing even after offering prices 10% to 20% lower than it’s competitor
Estimated Size of Ranges (Total China Market)
Facts and Insight
Jingua Mechanical Engineering Company (Northern Region)Also made and sold boilers although margins on the boilers was less than that on burners
FUNG’s Co. (Central Coastal Region)Main product line was textile Machinery with over 90% of annual turnover
Wayip Trading Company(Sothern Region)100% Gino burners business
Facts and Insight
Jinghua FUNG’s Wayip Total
Domestic 4354 3075 3458 10887
Commercial 876 433 568 1877
Industrial 37 48 52 137
Total 5267 3556 4078 12901
Facts and Insight
• Transfer Price: Free on the board price in U.S. dollars
• Base Price: Price in RMB including import duty, VAT, shipping, insurance and domestic transportation
• Public Price: Grossing up Base price by 60%
• Contract Price: Actual Transaction Price
20% discount off the public price is provided by distributors
Gino had agreed to allow maximum 25% discount
Facts and Insight
Some Market changes in Distributor's Behavior in recent Months
• They were demanding for better terms
• Stolen Sales causing lack of service and technical support to new customers
• Reluctance to Stock Industrial Burners
lost at least 50 units sale due to lack of inventory
Facts and Insight
• Leading Boiler company in northern china
• Jinghua’s Customer and it allowed an average 25% Discount
• The primary purpose of approaching Gino for OEM treatment was to obtain at least 10% greater discount
• It will buy at least 50% of its commercial and industrial burners and all its domestic burners in return
Range Volume Burner from Gino Estimated After Getting OEM
Domestic 1055 350 1055
Commercial 163 50 82
Industrial 71 3 35
Total 1289 403 1172 Facts and Insight
• Henry Gong, Jinghua’s General Manager
• Aggressively opposing the deal between Feima and Gino for OEM account
• Threatened to reconsider the co-operation with Gino is Feima is touched and was famous for honoring what he said
• He was an expert in Networking and lobbying Gino’s other two distributors
Reason for opposing:1. Gino should not develop distributor’s existing customer as
OEM accounts2. It could destroy distributor’s confidence in co-operation
Facts and Insight
Zhou has to Decide whether he wants to sign OEM with Fiema?
1. What are the advantages?
2. Is it possible to give atleast 10% more discount to Feima?
3. Is it possible to charge prices higher than what it charges to Distributor?
4. How it will affect the Jinghua?
Advantages• Developing OEM business was one way to combat the increasing
bargaining power of distributors• Good opportunity to break into a well-entrenched customer(other
competitors) in industrial burners• Receive good reference account• Success with Feima would make it easier for Gino to develop OEM
business• It will help in developing Brand image
Advantages
Range Volume Burner from Gino
Estimated After Getting OEM
Difference
Domestic 1055 350 1055 705Commercial 163 50 82 32
Industrial 71 3 35 32Total 1289 403 1172 769
Advantages
Taking Difference and average Transfer Price
Range Difference Transfer Price (RMB) Average Margin % Average Margin (RMB)
Domestic 705 2500 20 3,52,500Commercial 32 9000 25 72,000
Industrial 32 65000 30 6,24,000Total 769 10,48,5000
Advantages
•Upfront Investment RMB2,00,00•Monthly operation Cost RMB30,000
•Total Cost in First Year RMB5,60,000
Will it be able to give 10% more discount?
• Lets assume the transfer price is $100.
• Base price will 100*12.32= RMB1,232
• So the public price will be 1232*1.6= RMB1,972
• At present Feima is getting 25% discount
• At 35% discount, it will cost 1972*.65 = RMB1,282
• It can charge $104
• 4% higher than what it charges to distributors
How it would affect Jinghua ?
• Jinghua has been placing much emphasis on Feima to develop better business relationship
•Let’s see how much Jinghua would lose…
Feima was customer of Jinghua…..
Jinghua To Feima Average Transfer Price from Manufacturer (RMB)
Domestic 4354 350 2500Commercial 876 50 9000
Industrial 37 3 65,000Total 5267 353
• Cumulative effect factor(including import duty , VAT, shipping , insurance and domestic transportation)= 1.484
• Margin Factor= (1.484*1.6*0.75) -1.484 = .30
Public Price Factor Discount
Jinghua’s margin and loss
LOSS= 3795006352200 = 6%
With 6% loss in profit , Jinghua is less likely to leave Gino.
Jinghua To FeimaDomestic 4354*2500*.3= RMB32,65,500 350*2500*.3=RMB2,62,500
Commercial 876*9000*.3= RMB23,65,200 50*9000*.3=RMB1,35,000Industrial 37*65000*.3= RMB7,21.500 3*65000*.3=RMB58,500
Total RMB63,52,200 RMB3,79,500
Alternative• DO not sign OEM with Feima and allow Jinghua to continue
business with it
• Applying pressure on Distributors to keep larger inventory of Industrial Burner
• Launching sales force to penetrate in Industrial Range
Disadvantage:• Loss of potential OEM• Higher bargaining power of
distributor• Increase in cost in order to launch
sales force
Advantages:• This will also reduce cycle time• Better relationship with
Distributors
Created by Rahee Hardaha,IIT Delhi, during an internship by Prof. Sameer Mathur, IIM Lucknow.
www.IIMInternship.com