2 - The business of getting products and services to market

Question 1

What proportion of the price paid by a customer is typically absorbed by distribution activities?

Answer 1

Around half

This proportion has increased significantly over the past 15 years as production costs have fallen.

Question 2

What factors have contributed to the fragmentation of markets?

Answer 2

Trends in consumer and business demographics

This creates additional and more distinct customer segments.

Question 3

What types of intermediaries are commonly involved in distribution routes?

Answer 3

• Wholesalers
• Distributors
• Dealers
• Brokers
• Aggregators
• Retailers
• Influencers

Question 4

What is the challenge companies face regarding their routes to market?

Answer 4

Very few companies can determine the costs to sell through particular routes to market

This includes direct, one-tier, or two-tier distribution.

Question 5

Why is it critical to understand and manage the distribution business model?

Answer 5

Due to significant costs, complexity, dependencies on external partners, and market variety.

Question 6

What is the direct distribution model?

Answer 6

The supplier owns and manages all resources in the value chain through to the customer.

Question 7

What are the advantages of one-tier distribution?

Answer 7

• Easy access to defined customer segments
• Leverage investments made by intermediaries

Question 8

What is a disadvantage of one-tier distribution?

Answer 8

Dilution of focus due to intermediaries selling multiple brands.

Question 9

What is two-tier distribution?

Answer 9

A structure involving two sets of intermediaries to reach the end customer.

Question 10

What is an aggregator in the context of distribution?

Answer 10

A player who forces vendors to do business with them by aggregating customer demand.

Question 11

What does OEM stand for and what does it describe?

Answer 11

Original Equipment Manufacturer; it describes a situation where one supplier makes a product embedded inside another.

Question 12

What challenges do one-tier and first-tier intermediary businesses face?

Answer 12

They are exposed to long-term fixed costs and short-term visibility of revenues.

Question 13

What are key performance measures for distributors?

Answer 13

• Gross margin
• Operating margin
• Net margin
• Inventory turn
• Return on capital employed

Question 14

True or False: Distribution businesses typically deliver high returns.

Answer 14

False

Very few distributors make a return on capital above 20 percent.

Question 15

What is a significant risk for final-tier intermediary businesses?

Answer 15

Volatile profitability and awkward cash flow due to high fixed costs and project-based revenues.

Question 16

Fill in the blank: Routes to market control ______.

Answer 16

brand

Question 17

What does the term ‘vendor.com’ refer to?

Answer 17

A direct sales channel established by suppliers.

Question 18

What is a key factor for companies to succeed in distribution?

Answer 18

Mastering their channel partners’ business models.

Question 19

What role does the local agent play in foreign markets?

Answer 19

They are responsible for generating demand and achieving sales targets.

Question 20

What can happen if a company fails to manage stock levels effectively?

Answer 20

Major market share losses and share price falls.

Question 21

What is the primary differentiator for Dell in the computer industry?

Answer 21

Its online direct channel.

Question 22

What percentage of the market does Arrow Electronics hold?

Answer 22

15%

Question 23

What is the market share of Electrocomponents?

Answer 23

51%

Question 24

Which company has a market share of 29% in pharmaceuticals and healthcare products?

Answer 24

Henry Schein

Question 25

Fill in the blank: Many companies use a mix of distribution models to cover the market completely and reach different _______.

Answer 25

customer segments

Question 26

True or False: Channel conflict can occur when multiple channel players sell the same product to the same customer.

Answer 26

True

Question 27

What is a potential negative outcome of multiple distribution channels?

Answer 27

Some channels may gain an unintentional advantage or 'freeload' on the work of others

Question 28

What is often a key aspect of a business model that influences a supplier's value proposition?

Answer 28

Product margin

Question 29

What are some factors that intermediaries consider regarding a product's business proposition? List at least three.

Answer 29

* Cost to sell and support * Probable life cycle * Level of returns and warranty claims

Question 30

How do oil suppliers like BP Castrol and Shell persuade dealers to choose their products?

Answer 30

By understanding the dealers' business models and offering financial incentives

Question 31

What is a common challenge faced by suppliers when trying to work with catalogue retailers?

Answer 31

High upfront investment in producing and printing catalogues

Question 32

Fill in the blank: Suppliers must understand their own business model and identify unique _______ that competitors cannot match.

Answer 32

strengths

Question 33

What is a strategic advantage that Coca-Cola has over Pepsi in grocery chains during major holidays?

Answer 33

Ability to replenish stocks more frequently

Question 34

True or False: Successful suppliers do not need to understand whether they are a drag or enabler on their channel's business model.

Answer 34

False

Question 35

What kind of approach should suppliers adopt to position their value proposition effectively?

Answer 35

A structured approach

Question 36

Why is it important for partner account managers to understand the business model of their channel partners?

Answer 36

To effectively sell new products and terms

Question 37

What can happen if suppliers do not understand their channel's business model?

Answer 37

Programs may fail to be adopted or may harm the channel's business

Question 38

What is the health warning regarding comparisons in the text?

Answer 38

Use comparisons to raise questions, not to provide answers

Question 39

Fill in the blank: Comparing two companies' financial results can be misleading due to differences in _______.

Answer 39

accounting practices

Question 40

What issue arises when comparing Tesco and Sainsbury?

Answer 40

Different business models and operational scales

Question 41

True or False: Year-on-year comparisons for the same business are always straightforward.

Answer 41

False

Question 42

What can result from changes in management teams regarding risk and judgement?

Answer 42

Different attitudes towards business performance

Question 43

What is the key lesson when interpreting business and financial measures?

Answer 43

Be armed with as much understanding as possible about the underlying business.

Question 44

Why are year-on-year comparisons for the same business not always straightforward?

Answer 44

Changes in management teams can lead to different attitudes to risk and judgement.

Question 45

What often occurs when a new chief executive is appointed?

Answer 45

A 'kitchen sink' approach to revisiting previous judgements, often resulting in significant write-downs.

Question 46

What can disrupt year-on-year results comparisons?

Answer 46

Changes of ownership and application of new parent company's accounting policies.

Question 47

What is the golden rule when using financials, benchmarks, and comparisons?

Answer 47

Use them to help ask smart questions, not to jump to conclusions.

Question 48

Fill in the blank: Comparing year-on-year results can be a _______.

Answer 48

minefield.

Question 49

What should the rest of the book help you to do?

Answer 49

Ask the right questions and understand/anticipate the answers.

Question 50

True or False: Different accounting policies applied by a new parent company do not affect previous years’ results.

Answer 50

False.

Question 51

What is a common effect of a new management team on financial results?

Answer 51

An enormous write-down of values.

Question 52

What is a potential outcome of revisiting previous judgements by new management?

Answer 52

Improvement in future years' results.