GINO SA:

CASE

Rohan Gupta
IIT(BHU) Varanasi
Background
Information
 Burners
Burners are electromechanically controlled appliances that provided “controlled flame” for combustion
applications such as boilers and furnaces.
 Burner Market

• Europe is the single largest burner market in the world.

• But the market has now become saturated.
• In emerging markets such as Asia, the Middle East and
parts of Africa, however, the market is growing rapidly.
 Burner Application

Burners are used-

• In household for hot water in shower and dish wash.
• As industrial boilers that generated steam or hot water for
heating buildings.
• In chillers, industrial furnaces and ovens, ceramic kilns, car
painting booths and other incineration appliances.
Market
In

CHINA
 Burner Market
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:
 Price became an issue-Local manufacturers-only 5000 units-5 years to become
a threat-small burners
 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
Table 3: Estimated Sizes of
Ranges in Numbers of Units Sold
Range Market Size
Domestic 79,900
Commercial 20,080
Industrial 2,920
Total 102,900
Distribution

Channel
 GINO Burner Co.
 Gino Burner Co., founded in 1931, manufacturer of burners,
headquartered in Paris, France.
 In-house production capability, a well-established channel network and
international exposure.
 Manufacture over 50 models of burners.
 Known for its domestic Burners.
 Largest burner manufacturers and exporters in the world.
Table 2: Gino Worldwide Production in 1999GINO
(in thousands of units)
OUTPUT PRODUCTION -
Range
SEGMENT Output Range (kcal/hour)
RANGE(kcal/hour) Gino Production in
1999 (thousand 1999
MARGINS

Domestic 50,000-300,000 units) 329

DOMESTIC
Commercial 50,000-300,000
300,000-2,000,000 329 49 20%

Industrial
COMMERCIAL >2,000,000
300,000-2,000,000 49 3 25%
Total
INDUSTRIAL >2,000,000 3 381 30%

Total 381
Gino Competitive Advantage
10-20% Lower Price than
competitor
GINO
in
China
Company
Goals
 Goals for next three years

• Achieve annual combined sales volume (for all type of

burners) of 15,000 units
• Achieve annual sales of industrial burners of over 200 units
• Optimize the distribution channels.
• Develop a minimum of two OEM accounts and two end
user key accounts within two years.
• Improve service and spare supply
• Build the brand image
Gino Distribution Network in
China
 Gino Distribution Network

 Three Distributors
 Wayip Trading Co., based in the south China city Guangzhou;
100% Gino burners
 Fung’s Co., based in the central coastal city Shanghai ,
90%revenue from textile industry
 Jinghua Mechanical Engineering Company, in the northern
city, Beijing; Largest distributor with 40% revenue of total.
Table 4: Distributors’ Performance Statistics In numbers of units sold
— 1999
Jinghua FUNG’s Wayip TOTAL

Domestic 4,354 3,075 3,458 10,887

Commercial 876 433 568 1,877
Industrial 37 48 52 137
Total 5,267 3,556 4,078 12,901
Distributors’ Functions
 Credit Function

Payment is made by the

distributor’s bank as soon as the
goods are Shipped
Stock Function
Sales and Customer Service
 Pricing
• Transfer price
• Base Price
• Public Price
• Contract Price

Transfer price Base Price Publiic Price Contract Price

100$ 1232RMB 1978RMB 1578RMB

B.P=1.484*8.32 TP
P.B=1.6*B.P
C.P=0.8*P.B
1$=8.32RMB
 Revenue from Distributors
Type Transfer Price Base price Jinghua Fung Wayip
Domestic 2500 3710 16153340 11408250 12829180
Commercial 9000 13356 11699856 5783148 7586208
Industrial 65000 96460 3569020 4630080 5015920
Total 31422216(40%) 21821478 30061388

Profits from Distributors

Type Margin Jinghua Fung Wayip
Domestic 20% 3230668 2281650 2565836
Commercial 25% 2924964 1445787 1896552
Industrial 30% 1070706 1389024 1504776

Values IN RMB
Protagonists
of
the
CASE
David Zhou, Gino China
Marketing
Manager
Jean Michel Pierre, Asia Pacific
area Manager
Fiema Boiler Company
Henry Gond, Jinghua’s General
Manager
Current
Situation
 Current Situation

 Gino rely completely on distributors for

sales.
 Gino want to increase its industrial burner
market.
 Weishaupt own sales force and distribution
network.
 OEM are trying to bypass distributors.
 Issues with disributor.
Distribution
Related
Issues
• Distributor Behaviour
 Demand for Better Terms: Bargaining
For more margin.
 Stolen Sales: Poaching other Gino
Distributor.
 Reluctance to Stock Industrial
Burners: Loss of sales due to shortage of
stock.
• No candidates for new or replacing
distributors.
• No warehouse.
Main Problem
Feima Boiler Co. Ltd is a leading boiler factory in
northern China, made over 1,200 sets of boilers.

Last year Feima bought from Jinghua 350

domestic burners, 50 commercial burners and 3
industrial burners.

Jinghua gave an average 25 % discount off the

public list price.

Now Feima is approaching Gino for OEM,

expecting
a 10 per cent greater discount and promising to
buy
50 % of its commercial and industrial burners and
What Decision David Zhou Should
Take
He Should Consider:

1. The possible response from Gino’s other two

distributors.
2.The message that his decision would send to
competitors.
3. The attitude of Gino’s corporate management once
the issue was put forward in April with Picher, the
director of the Commercial Department.
4. Feima’s response.
5. Were there any other solutions that could save face
for both sides?
• Lower Price • Over reliance on
• Good distributors
lll Reputation • No Warehouse
• Reputable • No workforce for
Employee Base Sales & Service

• New OEM Buisness • Loss of Jinghua(40%

• Control over Revenue)
Distributor Power • Loss of Distributor trust
• Increased Profits • Can’t meet Assigned
Goals
 1. Develop Feima as OEM

Devlop Fiema as OEM and give 1-2 % extra discount to

Jinghau on its dealing so that jhingua do not suffer loss.

• Pros
• Profit of about 359% more
than the earlier dealing with
Feima.
• Increased unit sales through
Feima.
• Brand image and potential
end-user channels built.
• New OEM channel
developed.
• Decreasing distributor power
• Cons
• Disappointed Jinghua.
• Fear in distributor channel
may lead to poaching and
exits.
• Industrial stocking remains a
challenge.
• High marketing investment.
• If Jinghua leave 40% loss of
revenue
• No new distributor available
 Values IN RMB

If Fiema is OEM
BASE LIST OEM COST OF PROFIT ON 1
TYPE UNITS PRICE PRICE PRICE 1 UNIT UNIT Total
DOMESTIC 1055 3710 5936 3858.4 2938 920.4 971022
COMMERCIAL 81 13356 21369.6 13890.24 10017 3873.24 313732.4
INDUSTRIAL 35 96460 154336 100318.4 68190 32128.4 1124494
Total 2409248

Earlier
BASE MARGIN ON 1
TYPE UNITS PRICE LIST PRICE OEM PRICE UNIT Profit
DOMESTIC 350 3710 5936 4452 772 270200
COMMERCI
AL 50 13356 21369.6 16027.2 3339 166950
INDUSTRIAL 3 96460 154336 115752 28290 84870
Total 525020
Profit increased= 359%
 2. Accept Fiema as Jinghua’s Customer

• Negoitate with Fiema, that it can buy Industrial

burner directly from Gino at 10% greater
discount and Commercial, domestic burners
from jinghua’s at 5% greater discount, if Fiema
keeps its promise.
• Give 2% discount to Jinghua on its dealing
with Fiema. So that there is no loss to Jinghua.
• Jinghua will be happy as its sales are
increasing and total revenue too.
• Fiema will also be pleased as it is getting a
greater discount.
Gino Enjoys good profit even on giving
3% discount to Jinghua
BASE OEM MARGIN ON
TYPE UNITS PRICE LIST PRICE PRICE 1 UNIT Profit
DOMEST
IC 1055 3710 5936 3858.4 630.7 665388.5
COMME 13890.
RCIAL 81 13356 21369.6 24 2938.32 238003.92
INDUST 10031
RIAL 35 96460 154336 8.4 32128.4 1124494
 • Pros • Cons

• Increase in unit sales. • A little loss in profit

• Relationship with • High Investment
distributors
strengthened.
• Industrial burners
demand increased.
• New OEM.
• Decreasing power of
distributors
• Win Win situation for
both.
• Sales goal are met.
 3. Reject Feima’s Offer

• Pros • Cons

• Relationships with • OEM account lost.

distributors remain • Guaranteed unit sales
undeterred. lost.
• Increase Trust in • Distributor power
Distributor remains.
• No profit increased
• No sales goal met.
 Reccomendations
• By weighing the Pro’s & Con’s the second choice is
best.
• If negotiation fails then choice third should be
chosen, since Gino cannot afford to loose its
distribution network
• A warehouse should be built so that stocking
problem is solved.
• For services, Charge 5% extra from customers, so that
distributors are motivated for giving better service.
• Improve the brand image by advertising, organizing
various events etc.
Created by ROHAN GUPTA,
IIT (BHU) Varanasi,
during an internship by

Prof. SAMEER MATHUR, IIM

Lucknow
www.iiminternship.com