The Indore entry decision
Before the decision
The snack maker built a repeat business in its home market through relationships with independent retailers. When an Indore distributor offered warehouse space and a sales route, the sales team saw a shortcut to shelves. Finance wanted proof that the first dispatch would turn into repeat consumer demand.
Read the companion story: The order after the first order
The problem
Launch directly, use a distributor or run a pilot before committing?
Decision owner: A regional snack company’s general manager.
You have ₹8 lakh for setup and 90 days to recommend whether to scale. Compare first-year contribution after channel setup, excluding shared overhead.
Option economics
Scroll the table to see all figures.
| Option | Volume (packs) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Direct | 1,00,000 | 16 | ₹8 lakh | ₹8 lakh |
| Distributor | 1,20,000 | 10 | ₹3.2 lakh | ₹8.8 lakh |
Make the call
- Which model assumption matters most?
- What first-year volumes justify a direct launch?
- How would you verify that retailers reorder?
Reveal the worked solution
At 1 lakh direct packs, direct contributes ₹8 lakh and distribution ₹8.8 lakh after setup. Distribution trades ₹6 per pack of contribution for ₹4.8 lakh lower setup and 20% more reach. The channels tie at 1.2 lakh direct packs at the assumed reach multiplier.
- 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: 1,00,000 packs × ₹16 less ₹8 lakh in fixed costs gives ₹8 lakh. Distributor: 1,20,000 packs × ₹10 less ₹3.2 lakh in fixed costs gives ₹8.8 lakh.
- Stress-test the forecast
Distributor leads by ₹0.8 lakh in the base case. If Distributor delivers 10% fewer packs (1,08,000) at the same margin and fixed cost, it contributes ₹7.6 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 1,12,000 packs to match or beat it under the model. Switch to direct if reorder evidence supports more than 1.2 lakh direct packs per year at ₹16 contribution per pack, given the other assumptions.
A six-week pilot costs ₹0.75 lakh upfront and trades launch time for demand evidence. Use it if repeat demand is unresolved or the distributor will not share outlet-level sell-through.
Check whether your answer names the trade-off, cites a number from the exhibit and specifies a reversal condition.
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 | ₹6.4 lakh | ₹7.6 lakh | Distributor |
| Base assumptions | ₹8 lakh | ₹8.8 lakh | Distributor |
| Both gain 10% of volume | ₹9.6 lakh | ₹10 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