Gina SA: Distribution Channel Management

Distribution Channels
Gina, and other manufacturers of burners, maintains a standardized distribution channel. With the exception of one competitor that maintains a direct sales force, manufacturers (including Gino) maintain a distribution structure utilizing distributors only. Distributors current utilize three approaches to moving inventory:
1. They sell to VARs (dealers)
2. They sell to OEM customers
3. They sell direct to the end user

Gino and its distributors have a focus three distinct segments that usually dictate the channel direction for the distributor:
1. Domestic boilers and water heaters
2. Commercial boilers and other industrial applications
3. Industrial boilers

Recommendations
The situation that Gino has found itself in with regard to Feima would not exist if Gino had appropriately planned for such a scenario. To solve the current problem and to keep future scenarios from getting out of hand, Gino should adopt a policy of demarcation that stipulates that any OEM, deal or end-user purchasing over X number of units automatically becomes classified as a direct customer. This would mean that Gino will need to develop a direct sales team to handle future direct customers. These accounts would be the largest of all customers.

Developing this sort of direct channel has the potential to alienate current distributors and dealers. To solve this problem, Gino needs to grandfather all current accounts and leave them in the current distribution structure.

With the development of a direct channel and the grandfathering of current accounts, Gino will need to satisfy the requested of Feima by working with Jinghua to offer a new price model that will allow Jinhgua to maintain this large account while offering Feima larger discounts so they are being treated, on a price basis, as a direct account.

Channel Control Strategies and Incentives
Push or pull? That is the question. Within the very successful European market Gino has been able to utilize a pull strategy in recent years due to the high level of market penetration and brand recognition. As Gino enters the China market the company will need to initially employ a heavy push strategy backed by their traditional pull strategy.

The pull strategy focuses on building demand and brand recognition and potential customers through the use of media advertising such as trade publications that serve Gino’s target segments, promotions, superior customer support and other actions aimed at developing the Gino brand. Because Gino is relatively new to the China market, the pull strategy will need to play a backup role to a more aggressive push strategy.
The push strategy focuses on building the new distribution channel. A key ingredient will be to add the direct sales channel and recruit additional large scale distributors. Most of the marketing budget should be allocated to a push strategy for the first couple of years in order to allow preferential treatment while recruiting new channels in China.

The process of implementing a push strategy in new markets will need to include an incentive strategy for new channel members. Gino will need to focus on 2 types of channel incentives; incentives to increase channel member purchase and inventories and incentives to increase channel member local promotional efforts.

Incentives to increase channel member local promotional efforts are designed to stimulate the sales of Gino burners through any given channel partner in the short term. This type of promotion is often accomplished by offering rewards to the channel member for meeting unit or dollar value sales quota’s or through other quota driven incentives such as cash, additional purchase discounts and prize giveaways.

Incentives to increase channel member purchase and inventories are designed to entice new channel members to purchase and stock larger volumes of Gino burners. Inventory incentives can be accomplished though actions such as temporary volume pricing discounts, limited or permanent product exclusivity and multiple product line volume purchase discounts.

Add comment July 25th, 2005