A distributor for Jaipur?
Before the decision
Independent cafés have begun ordering the brand after a series of local tastings. A distributor offers broader access before the summer selling period, but its proposed contract would lock up the whole city. The sales lead needs to put a value on keeping a direct route open.
The problem
Give a distributor citywide exclusivity or expand a smaller direct route?
Decision owner: A beverage maker’s regional sales lead.
Decide within four weeks. Your ₹4 lakh setup budget cannot support both options at full scale.
Option economics
Scroll the table to see all figures.
| Option | Volume (packs) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Direct | 60,000 | 12 | ₹3 lakh | ₹4.2 lakh |
| Distributor | 90,000 | 6 | ₹1 lakh | ₹4.4 lakh |
Make the call
- What would the distributor’s volume promise need to be worth?
- What terms would limit the cost of a wrong choice?
Reveal the worked solution
Direct yields ₹4.2 lakh after setup (60,000 × ₹12 − ₹3 lakh). Distribution yields ₹4.4 lakh (90,000 × ₹6 − ₹1 lakh). At 80,000 distributor packs, direct leads by ₹0.4 lakh. The base-case ₹0.2 lakh premium is thin compensation for citywide exclusivity.
- Frame the decision
Separate demand you can reach from demand you can serve reliably. Test reorder behaviour before using the full-year forecast.
- Calculate both options
Direct launch: 60,000 packs × ₹12 less ₹3 lakh in fixed costs gives ₹4.2 lakh. Distributor: 90,000 packs × ₹6 less ₹1 lakh in fixed costs gives ₹4.4 lakh.
- Stress-test the forecast
Distributor leads by ₹0.2 lakh in the base case. If Distributor delivers 10% fewer packs (81,000) at the same margin and fixed cost, it contributes ₹3.86 lakh. Holding the other option constant, the stressed result falls behind. This isolates volume risk. Check whether both options would respond to the same change in demand.
- Set a decision threshold
Holding the other option’s result fixed, Distributor needs at least 86,667 packs to match or beat it under the model. Expand the distributor territory after observed reorder data supports at least 86,667 packs annually at ₹6 per pack net contribution.
Offer the distributor a territory-limited trial with a right to expand, or retain the direct route if the distributor insists on a long lock-in.
What if the whole market moves?
The worked solution tests a change to one option at a time. Here, both options gain or lose the same percentage of volume. Unit contribution and fixed costs stay constant.
| Volume scenario | Direct launch | Distributor | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹3.48 lakh | ₹3.86 lakh | Distributor |
| Base assumptions | ₹4.2 lakh | ₹4.4 lakh | Distributor |
| Both gain 10% of volume | ₹4.92 lakh | ₹4.94 lakh | Distributor |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.
Practise this case as an interview