1. .
M600 Case Report
Jeevana Jagat Adusumilli

2. Table of contents
EXECUTIVE SUMMARY 1
PROBLEM/OPPORTUNITY 2
SWOT ANALYSIS 2
ALTERNATIVES
Accept Feima as Jinghua’s customer 3
Develop Feima as OEM 4
Reject Feima 4
ALTERNATIVE ASSESMENT 4
RECOMMENDATION 5
IMPLEMENTATION/ACTION PLAN 5
CONTINGENCY PLAN 6
Appendix-A 7
Appendix-B 8
Appendix-C 9
Appendix-D 10
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3. 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 Gino’s 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 Jinghua’s customer and offering its requested discount is
the best fit. Since the accepted additional discount will eat into Jingua’s 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
Jeevana J Adusumilli | #1192298 | M600 Case Case Report
M600 report | 3
Jeevana J Adusumilli | #1192298

4. closely monitor sales performances to ensure Gino’s success.
PROBLEM/OPPORTUNITY:The impending issue concerning Gino SA is the choice between Feima’s
OEM businesses, which may lead to frayed relationship with existing distributor, Jinghua that constitute
40% of revenue in China and Fiema as Jinghua’s.In the event that the company chooses to accept this
proposal Gino SA needs a pricing strategy for potential OEM’s including Feima. Although Jinghua is not
believed to leave Gino SA, any action that Zhou may perform is bound to influence Gino SA’s brand
equity and recognition in the market andother 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
Increase Industrial Sales
Low
URGENCY
Increase overall unit Sales
Improve service and spare supply
Develop OEM channel
High
Feima Proposal
Optimize Distributor channel
Build brand image
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 significantcontribution 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.WeaknessesExcessivereliance 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
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5. amongst distributors in stealing sales from other provinces and reluctance to stock Industrial burners is
leading to an opportunity loss of at least 50 units.OpportunitiesIncreasing 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.ThreatsPolitical 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 Jinghua’s 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 pricewould be implemented. This will further increase thedistributor’s revenue by 3.6%(appx-a)as
opposed to revenue being lostdue 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 OEM’s bypromoting 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 Gino’s 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
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6. emphasized. New OEMaccounts. 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 Gino’s profit margin by 2%. A slab based price mix is introduced for
all potential OEM’s (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 thatincreases their revenue
by 3.6%. Also Gino will supportits existing channel with an integrated advertising campaigntargeted at
industrial burners to create a brand image through global consumer culture positioning.Advantages:
Increased unit sales through Feima. Brand image andpotential 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
channel’scooperation. But an in-house sales force will be developed that will concentrate on acquiring
OEM’s 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
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7. positioning Gino as a culturally associated, budget product in domestic and a reliable brand in its
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 Gino’s distribution
channel.Risk factor takes into account the possibility of fraying distributor relationships due to the
decision made in the designated alternative.
RECOMMENDATION:
Alternative 1 Alternative 2 Alternative 3
Decision
Weights (Accept Feima as (Develop Feima as
Criterion (Reject Feima)
Jinghua’s 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
Alternative 1poses 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 Gino’s 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 targetswith 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
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8. 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
added which allows Gino to recognize any technical or service issues the customers mayincur 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 Aprilto Julythe 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 anydiscrepancies in unmet roll over sales targets from the previousperiod. 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, inorder 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.
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9. Appendix-A
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10. Appendix-B
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11. Appendix-C
Implementation/Contingency plan:
Phase Timeline Objectives
1 March • Announce and implement service charges for all future accounts
2000 • Form sales force of 36 by region (9*4 regions)
(1 month) • 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.
Apr-Jul • Fully operational warehouse to stock all segments (June)
(4 months) • 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
2 Aug-Dec • Form new targets if necessary
(5 months) • New service contract if necessary
• Continue push strategy
Contingency
Aug • Form new targets (of 520 (1560 total) commercial/domestic burners
(1 month) and 12 (36 total) industrial burners per region)
• Recruit 10 new sales members and assign new targets
• Announce volume discounts for all distributors
Aug-Dec • Asses sales force and distributor performance
(5 months) • Analyze feedback from customers and distributors
• Monthly review of sales performance by sales manager
• Continue push strategy
Proposed Contingency discounts for distributors
Product Range Target Price Dealer Gino
Price Discount
Domestic 1-4000 301 301 0%
4000-4500 301 286 5%
4500-5000 301 271 10%
Above 5000 301 256 15%
Commercial 1-900 1084 1084 0%
900-1300 1084 1030 5%
1300-1600 1084 976 10%
Above 1600 1084 921 15%
Industrial 1-15 7831 7831 0%
15-20 7831 7439 5%
20-30 7831 7048 10%
Above 30 7831 6656 15%
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12. Appendix-D
Proposed OEM pricing
Product Range Base Price OEM Gino
Price Mark-up
Domestic 1-750 3,708 4,450 20%
750-900 3708 4252 15%
900-1050 3708 4079 10%
Above 1050 3708 3896 4%
Commercial 1-40 13355 16026 20%
40-60 13355 15358 15%
60-80 13355 14691 10%
Above 80 13355 14028 4%
Industrial 1-15 96478 115774 20%
15-20 96478 110950 15%
20-30 96478 106126 10%
Above 30 96478 100337 4%
Ware house expenses
Cost Year 1 Year 2
Setup cost $200,000 0
Operation $360,000 $360,000
Capacity $5,000,000 $5,000,000
Expected Rev* 5560000 5560000
Gross Margin 720,000 920,000
* Computed assuming Gino will reach its 15000 annual sales targets
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