Background: GINO has been approached by Original Equipment Manufacturer, Feima to purchase burners at better prices. They want at least 10% more discount on the burner than the regular 25% discount provided by GINO’s largest distributor Jinghua. Jinghua has raised objection as to whether GINO should directly sell the burners to OEM as it could possibly destroy confidence in co-operating with GINO in future.
Response from Distributors: Given that GINO has only three distributors in China, and that they are trying to form an alliance for a common cause of defending their current business, we can expect these distributors to react strongly against any attempt made by GINO to sell directly to existing customers. Given the situation, as Zhou senses correctly, bypassing distributors might be like touching a landline. This could have the following implications 1.
Distributors could stop doing business with GINO and this could affect GINO China’s ambition of selling 15,000 units. In trying to achieve higher penetration in the industrial space, GINO could threaten its leadership position in domestic & commercial business. 2.
Feima would not receive any service & spare parts support from Jinghua and this would affect both Feima and GINO. 3.
Since there are no standard pricing directions set by GINO for direct selling, any new direct sale after Feima would create confusion and may not necessary lead to profitable growth in the future. If the company has to develop an industrial business, it should do this by having a dedicated direct sales force which acquires new customers rather than hijacking existing customers from its distributors. It can then give the service & spare parts contract to a distributor in the region. This way the distributor would also be happy since he gets an incremental high margin services business while not having the trouble to stock high value industrial burners.
Corporate Management Response: We believe that it will be a very difficult...
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