The Job of an investor is becoming very difficult with each passing day. Information has become the most loosely held commodity, thanks to google. Today talking to management gives hardly any edge because most of them will give you the same tonic which Investment bankers/ Research Analyst would have given them. Judging the capability of the management becomes very tricky in an hour’s meeting and when you have the pressure of making a decision based on that one hour of discussion then the situation becomes prone to misjudgment which in turn is a solid recipe for disaster 🙂
So what should one do to gain an edge in understanding a company/product? In my last few years of experience in the Indian stock market, the advice which helped me a lot in building my mental repository of various industries is – Going out in the market and spending time with our dear retailers, dealers, and distributors (‘Distribution Leg’)
What can ‘Distribution leg teach you?
- Overall market sentiments: Growth, key drivers, seasonality in business etc.
- Brand reputation: which brand is better and why, If brand A is better than B then why? – Every dealer will have their own version of the story. As an investor, our job is to hear all versions of the story, bring them back home, put it on whiteboard, connect the dots and then see whether it gives you any incremental insight
- Strategy and key focus of each player: If there is a shift in focus or change in strategy, the dealers and distributors are the first few sets of stakeholders who are called in a Company’s meet where all the new products in the pipeline are showcased
- Insight on Customer Behaviour:
- WHO is the customer?
- WHY is the customer purchasing the product or the service?
- WHEN does the customer purchase? – Time (Daily, weekly etc.)
- HOW MUCH does a customer purchase?
- HOW FREQUENTLY (or what occasions) does a customer purchase?
- WHERE does the customer purchase? – Is it more of a Modern Trade product or a General Trade?
- Insight on Customer Decision making:
- What is the PURCHASE PROCESS?
- Who are the PURCHASE INFLUENCERS?
- Who makes the PURCHASE DECISIONS?
- DRIVERS of purchase decision
- What is the POST PURCHASE BEHAVIOUR?
- Feedback of the management team – Indirect feedback about the quality of the management & organisation culture
The ‘Distribution Leg’ strategy should be used as a complementary tool to enhance the entire evaluation process. Kindly note, it’s just one of the ways to gather insights about a product/company and not the only way. If you found this article relevant then I would urge you to figure out any distributor/dealer (within your network – it’s easy) and talk to them keeping the above points in mind and see the difference.
“Customers & their behavior don’t sit on excel sheets and Research Reports”