Identifying factors relating to predicting profitability of product lines for industrial distributors

Abstract

The primary objective of this study was to identify methods of predicting the profitability of product lines by successful industrial distributors. Secondary objectives were to: (1) identify and rank those factors considered most important by successful industrial distributors and (2) test the validity of the checklist by having existing product lines reviewed by a stratified random sample of distributors. The study utilized two phases to achieve the stated objectives. Phase one involved the use of a modified Delphi technique to solicit factors for determining profitability from 16 successful industrial distributors representing five national distributor associations. These same experts were then asked to rank and weight these factors in order to produce a hierarchy and relative value. Twenty-two factors were identified in the first round. These were analyzed and reduced to two lists. Fifteen factors were selected for further input from the panel who placed them in descending order of priority. Twelve items were selected for weighting from those 15, based on frequency of listing and consistency. This prioritized and weighted list was used to develop a questionnaire that was sent to a random sample of industrial distributors for verification with both profitable and nonprofitable products. Statistical descriptions of the data collected in the second phase were used to compare results with that of the Delphi panel, and to compare differences among the five associations sampled. Differences in variances on profitable and nonprofitable products were significant on 5 of the 15 factors identified. These differences suggested discrepancy in the usage of these factors in the model. Those five factors included: market potential, gross profit potential, product quality, training required, and customer acceptance. Further analysis showed even wider differences between associations. The differences in variances could indicate differing views on product selection, differing values on business success, and differing product emphasis among the different association members. The model contains factors that both the Delphi panel and the cross section of distributors agree to be most important to consider when selecting new products. Further research is needed to refine the model for each of the associations that participated in this study.