2. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Gino Burner Co. was founded in 1931
Headquartered in Paris, France
Wide product line: 50+ models
GINO
In-house production capablity
Well established channel network
International exposure
HANDY TRAITS
3. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Gino had cost advantage and was known for providing “best
value”
Gino was best known for it’s domestic burners
Margins were higher in developing countries
One of the largest manufacturers in the world
SEGMENT
OUTPUT
RANGE(kcal/hour)
GINO PRODUCTION -
1999
MARGINS
DOMESTIC 50,000-300,000 329 <20%
COMMERCIAL 300,000-2,000,000 49 25%
INDUSTRIAL >2,000,000 3 30%
Total 381
4. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Becket is the market leader in U.S.
U.S. market has high entry barrier
China is a rising star
Gino had cost advantage and was known for providing “best value”
The industry does not follow a single standard to classify burners
SEGMENT OUTPUT
RANGE(kcal/h
our)
OUTPUT
RANGE(kcal/h
our)
MARGINS
DOMESTIC 50,000-
300,000
329 <20%
COMMERCIAL 300,000-
2,000,000
49 25%
INDUSTRIAL >2,000,000 3 30%
Total 381
5. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVESCHINA
BURNER MARKET IN CHINA
Before 1990:
China rich in coal-low efficiency and polluting-coal combustion boilers and hence no burners
1990-1995:
Emphasis on pollution control, replaced with oil combustion boilers
Weishaupt (Germany), Baltur & Ridello (Italy), Elco (Germany), Quenod (France), Corona (Japan)
1995-1998:
New applications for burners & demand for commercial range began to increase
Price became an issue-Local manufacturers-only 5000 units-5 years to become a threat-small burners
Gino- price leader in domestic range (reference point for competitors)
Domestic-14% Commercial-8% Industrial-less than 3%
Despite offering 10% to 20% less than Weishaupt low penetration in industrial burners
Post 1999:
Domestic- price wars ; commercial – mainstream market
Industrial burners – growth expected at 20% for next 5 years
6. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVESCHINA
MARKET SEGMENTATION IN CHINA
Domestic Boilers & Water heaters:
310 Major manufacturers; Avg. Price: RMB2,500; Size: RMB194 million
Commercial Boilers & Industrial applications:
Avg. Price: RMB9,000; Size: RMB198 million
Industrial Boilers & Water heaters:
60 Major manufacturers; Avg. Price: RMB65,000; Size: RMB221 million; Weishaupt
ESTIMATED SIZES OF
RANGES
7. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVESCHINA
BURNER CHANNELS IN CHINA
CUSTOMERS MOSTLY DEPEND UPON DISTRIBUTORS FOR PURCHASING THE PRODUCTS
MOJORITY OF THE PRODUCTS
8. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVESCHINA
Most manufacturers relied completely on
distributors
Weishaupt : own sales force and distribution
network
OEM’s often tried to bypass distributors
Manufacturer’s refrained from giving quotations
Issues: Services, spares and pricing going to OEM
OEM Customers and End user customers
CUSTOMER BUYING PROCESS
Decisions made independently – 3 step process
Word of mouth, design institutes and frequency
(1)Price (2)Reputation (3)Service (4)Spare
(5)Supply
(6)Reliability (7)Technical (8) Personal
connections
Commercial and technical
Importance of price inverse relationship with
capacity
Buys boiler and burner separately to negotiate
price
Public tendering – (1)Price (2)References
OEM Customers
End User Customers
9. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Gino, Beijing, 1995
Market research and campaigns, administration of distribution
channels, technical support and counselling, key account and OEM
business development, identifying partners for JV
Gino is an aggressive company with good budget
Field technical training to customers and distributors
Bonus- sales target- RMB8,000 to RMB10,000
Total compensation three times the average
GINO IN CHINA
10. THE ‘ PEOPLE ‘
GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Jean-Guy Picher, Director of Commercial Department
Jean Michael Pierre, Asia Pacific Manager
David Zhou, China marketing manager
Three assistant marketing managers
Peter Wang, Technical manager
Two tech support engineers
11. GINO’S DISTRIBUTORS
GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Three distributors were set up in 1995
Revenue: burners/spares :80/20
Wayip-Gungzhou -100% Gino (HVAC)
Fung-Shanghai-Textile machinery(90% revenue)
Jinghua-Beijing - 50% boilers
DISTRIBUTOR PERFORMANCE STATISTICS
12. DISTRIBUTOR FUNCTIONS
GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Credit Function: line of credit
Stock Function: 10 major
models accounted for 80% of
sales
Sales & Service Function
13. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Transfer price(US$):
Free on board price in
US dollars quoted to
distributors
PRICING
Base Price:
total acquisition cost to
distributors
conversion factor: 12.32
14. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Public Price(RMB):
public customer price
released on market named
“guidelines for price”
Contact Price(RMB):
actual transaction price
distributor reach in a
transaction with customer
15. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
Product line + Geographic coverage
Gino in domestic is unshakable
Achieve annual sales of 15,000 units
Industrial burners >200 units
Optimize the channels to cover more area
2 OEM accounts + 2 End user accounts in 2 years
Improve service and spare supply
Build the brand image
THREE YEAR GOALS DISTRIBUTOR BEHAVIOUR
Demand for better
terms
Stolen Sales
Reluctance to stock
industrial burners
16. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
FEIMA BOILER CO. LTD.
• Leading boiler factory
in China
• Purchased 350 domestic,
50 commercial and 3
industrial burners from
Jinghua
17. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
CURRENT PROBLEM
GINO SAFEIMA BOILER CO. LTD. JINGHUA
Approached Gino
for OEM status to
obtain better prices
18. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
19. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
ACCEPTANCE would mean
➢ this would combat bargaining power of
distributors
➢ good opportunity to break into well
entrenched customer in industrial
burners
➢ could increase sales
➢ could develop more OEM business in
China
20. But Jinghua opposed this because…
➢ it believed Gino should not develop
distributors’ existing customers as OEM
➢ this would set a bad example and could
destroy their confidence in coperating
with Gino
GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
21. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSIS ALTERNATIVES
The best possible solution for Gino is to ask
Feima to remain loyal to Jinghua while
asking Jinghua to sell burners to Feima at
lower prices.
THUS GINO WOULD BE ABLE TO OFFER
DISCOUNTS TO FEIMA BY LOWERING THE
TRANSFER PRICES TO JINGHUA
Do not break the channel as the company can not afford to loose the dealers.
Exception could be negotiated for industrial segment.
The ultimate aim should be to go for long term benefits.
22. GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSISS ALTERNATIVES
The other ALTERNATE
solution is to consider Feima as
OEM and provide Jinhua with
increased benefits like
increasing its territory or the
profit margins
• BUT THAT WOULD ENABLE OTHER DISTRIBUTORS ASK FOR SUCH GRANTS AS
WELL.
• THAT WOULD DELIVER A PARTIAL BIASED IMAGE OF GINO SA TOWARDS OTHER
DISTRIBUTORS
23. TRUST and REPUTATION with dealers is vital in B2B
Channel power is required to negotiate effectively
Customer says “price” but wants “experience”
Look for long term RELATIONSHIPS not immediate profits
GINO SA CHINA GINO IN CHINA CHALLENGES ANALYSISS ALTERNATIVES
26. Anubhab Mondal , B-Tech.
Created by Anubhab
Mondal,IIT Kharagpur
during an internship
under Prof. Sameer
Mathur ,IIM Lucknow
<www.IIMInternship.com>