What is Exclusive Distribution?
How do you legally define it?
What are the important elements you should know!
In this article, we will break down the legal definition of Exclusive Distribution so you know all there is to know about it!
Keep reading as we have gathered exactly the information that you need!
Let’s dig into our legal and contract knowledge!
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Table of Contents
Exclusive Distribution Basics
Exclusive distribution is a type of relationship where one party is designated by a manufacturer as the sole distributor of a product or service within a given territory.
For instance, you’ll have exclusive distribution when a manufacturer enters into an exclusive distribution agreement with a distributor.
Typically, the sole distributor’s main role is to sell the goods, products, or services to wholesalers and retailers who in turn will sell directly to the end-customer.
In business and particularly with luxury brands, it’s common to see exclusive distributors appointed by a manufacturer.
When an exclusive agreement is entered into, the manufacturer agrees not to sell its product through other distributors whereas the distributor agrees not to sell other competitive products.
Exclusive Distribution definition
How do you define exclusive distribution?
Fundamentally, exclusive distribution is a marketing strategy adopted by manufacturers when looking to sell their products in the market.
Manufacturers may be highly specialized in producing a specific good or product but not as much in the distribution of their product around the world.
In that case, they may adopt an exclusive distribution strategy as a means to get their products in the hands of their target market within a location, country, or geographical location.
Some companies have a business model where their objective is to have their product sold by every single store around the world and their products accessible to all (Coca-Cola is a great example).
Some other companies look for the opposite!
Rolex does not want its products sold by anyone or accessible to all.
As a competitive strategy and to set itself apart, Rolex will adopt an exclusive distribution model to cherry-pick the companies it feels best to represent the brand and who can sell the products “exclusively” to an “exclusive” market.
Not only this strategy creates an aura of prestige for Rolex but increases the desirability of their products.
Some distribution strategies involve carving out an exclusive territory where the sole distributor is authorized to sell the product.
The manufacturer may also impose conditions that limit how much a distributor can supply retailers so it can better control market supply.
Advantages and disadvantages
What are the advantages and disadvantages of adopting an exclusive distribution?
Adopting channel exclusivity may be suitable for some companies but hurt others.
Let’s look at the benefits and drawbacks to see how it works.
The benefits of having an exclusive retailer or exclusive distributor are:
- Possibility to improve sales when all your marketing efforts are focused and aligned with one exclusive distributor
- More qualified staff selling your product as exclusive distributors or retailers are the only ones able to sell the product and will therefore acquire much greater knowledge about the product
- Ability to command a higher price when limiting supply in the market
- Increase in the manufacturer’s brand equity
- The manufacturer can better control the supply of its products in the market
- Exclusive distributors are capable of stocking inventory aligned with their marketing strategy
On the flip side, here are some of the possible drawbacks when adopting an exclusive strategy:
- Manufacturers working with one distributor will inherently start depending on the distributor to get their product out to market creating a potentially unwanted commercial dependency
- In case of disagreements with a sole distributor having a great market share, the manufacturer can suffer tremendous losses or even lose an entire market
- Selecting the right distributor to sell your product is key to ensuring that your brand and image is not going to suffer or be adversely affected
Intensive or selective distribution
What is the difference between intensive, selective and exclusive distribution?
In the case of an intensive distribution, the manufacturer will use more than one channel to distribute its products.
The idea is to get their products to as many end-clients or end-users as possible.
Manufacturers aspire to have their products be available in abundance so anyone has the possibility to purchase their goods.
Examples of businesses using intensive distribution are:
- Coca Cola Company
Selective distribution, on the other hand, is a distribution approach where the manufacturer selects a few companies, outlets or distributors.
The idea is for the manufacturer to limit the distribution of its products or sell them to the market based on specific rules and guidelines.
This type of distribution strategy limits the availability of the product on the market and limits competition between distributors and retailers.
What is a non-exclusive distribution?
When a manufacturer can sell its goods and products to different distributors, we are looking at a non-exclusive distribution model.
It’s non-exclusive as no single distributor is designated to be an “exclusive” or “sole” distributor of the product authorized to sell.
In this type of model, the manufacturer’s goal is to ensure that its products are sold through different distribution channels to satisfy the market needs.
What are some examples of exclusive distribution?
In most cases, manufacturers may prefer to deal with distribution partners in areas where the distribution process is complex, costly to set up, or requires specialized skills.
There certain types of businesses and industries where the exclusive distribution model is leveraged quite often, such as:
- Technology and high-tech
- Automobile and vehicles
- Luxury clothing and designers
- Expensive mobile phone brands
Let’s look at a few exclusive distribution examples to better illustrate the concept.
- Apple may appoint AT&T as its sole distributor to sell iPhone
- Rolex may appoint Tourneau or Maison Birks as its exclusive distributors
- Lamborghini may appoint specific dealers to sell its cars exclusively
- Samsung may choose to sell its products only through Best Buy
- BMW or Mercedes-Benz can appoint specific dealers in different territories
- Gucci may appoint specific companies as exclusive distributors in a given country
- HUL and P&G may appoint a combination of distributors and exclusive distributors
The possibilities are endless.
Depending on the manufacturer’s distribution strategy, it can choose to work with a single exclusive distributor worldwide or with a few around the world.
Other companies may engage many exclusive distributors but all within a given territory.
So what is the legal definition of Exclusive Distribution?
Let’s look at a summary of our findings.
If you enjoyed this article on Exclusive Distribution, we recommend you look into the following legal terms and concepts. Enjoy!
Related legal terms
Exclusive distribution agreement
Exclusive license agreement
Sole distributor agreement
Unique selling proposition (USP)
Value for money (VFM)