16 May 2023
Understanding Exclusive Distribution: Definition and Examples
Introduction:
Exclusive distribution is a distribution strategy where a manufacturer or supplier grants exclusive rights to distribute its products or services to a single reseller or a select group of resellers within a specific geographic area or market segment.
Implicit in this definition is that the exclusive distributor also agrees to not sell any competing products. Although, depending on who has the power in the relationship, occasionally this is not the case.
However, also implicit in this arrangement is through having exclusive distribution (in a specified territory) the distributor is expected to put the effort into selling into that territory not just servicing enquiry generated by the principal's pull through marketing.
This arrangement aims to overcome the main problem with non-exclusive distribution arrangements being the lack of focus on the principal's products or services. Most distributors re-sell a portfolio of products made by a number of manufacturers. Their main business objective is to sell some-thing not necessarily your-thing.
In this article, we will delve deeper into the concept of exclusive distribution and provide examples to illustrate its application in different industries.
Definition of Exclusive Distribution:
Exclusive distribution involves a contractual agreement between the manufacturer or supplier (the principal) and the reseller (the distributor). The agreement outlines the specific territory, product range, and duration of exclusivity. It restricts the principal from appointing additional distributors or selling directly within the designated territory, ensuring the distributor has sole access to the products or services.
Examples of Exclusive Distribution:
Luxury Fashion Brands:
Luxury fashion brands often employ exclusive distribution to maintain their brand image and control the customer experience. They carefully select high-end retailers and grant them exclusive rights to sell their products within specific regions or countries. For instance, Chanel may choose to exclusively distribute its products through a single luxury department store in a particular city, creating a sense of prestige and limiting access to their brand.
Automotive Industry:
In the automotive industry, manufacturers may implement exclusive distribution to ensure consistent customer service and brand representation. Luxury car brands often establish exclusive dealer networks, granting specific dealerships the sole rights to sell and service their vehicles within designated territories. This strategy enables manufacturers to maintain brand standards and provide a cohesive customer experience across different locations.
Technology and Electronics:
Companies in the technology and electronics sector also utilize exclusive distribution. For example, Apple Inc. employs an exclusive distribution model by partnering with select authorized retailers and carriers to sell their products. These retailers have the exclusive privilege to offer Apple products, such as iPhones and MacBooks, within their stores, reinforcing the brand's premium positioning and maintaining control over pricing and customer experience.
Pharmaceuticals and Healthcare:
In the pharmaceutical industry, exclusive distribution is prevalent for prescription drugs. Pharmaceutical companies often grant exclusive rights to a specific pharmacy chain or distributor to distribute their medications. This arrangement helps ensure proper handling, storage, and regulatory compliance, as well as streamlines the supply chain for these critical products.
Conclusion:
Exclusive distribution allows manufacturers and suppliers to strategically control the distribution of their products or services by granting exclusive rights to a select group of resellers. This approach can foster brand image, provide better customer service, and create a competitive advantage for both the manufacturer and the chosen distributors. The examples mentioned above highlight how various industries implement exclusive distribution to strengthen their market presence and achieve their business objectives.