Exclusive distribution, as the name suggests, is a type of distribution where the company ties up exclusively with a distributor. If you have read the article on difference between wholesalers, retailers and distributors, then you will note that the work of a distributor is to reach the retailers and wholesalers and sell the products to end customers through them.
But while companies like HUL, P&G appoint many distributors, companies like ROLEX, LAMBORGHINI, MERCEDES, BMW will appoint only a handful of distributors in a region and regularly enter exclusive distribution.
Exclusive distribution is an agreement between a distributor and a manufacturer that the manufacturer will not sell the product to anyone else and will sell it only to the exclusive distributor. At the same time, even the exclusive distributor has to enter the agreement that he will only sell the products of the manufacturers exclusively and will not sell those of the competition. This ways, the market is an open ground for the manufacturer and the distributor and they have complete control on the distribution of the product.
Example of Exclusive Distribution
Rolex watches wants a distributor in region A. Now, Rolex knows that it cannot have showrooms everywhere in Region A because it will dilute the brand equity. So ROLEX appoints an exclusive distributor for Region A. This exclusive distributor starts his own exclusive ROLEX shops and also sells the brand through only the cream outlets of Region A.
Now, Rolex is satisfied with this concept of exclusive distribution and repeats it when it wants to enter Region B. Rolex might use the same distributor as Region A or it might give the exclusive distribution to another dealer. However, because Rolex does not want to dilute the brand equity, it will not enter in the region directly and won’t hire too many distributors so that it has “premium” and “exclusive” positioning of the brand.
A similar model is observed in many different industries. Even in the industrial machinery segment, many a times exclusive distribution is given to distributors who are good at selling and have good relations in the local market and who can focus on selling the brand more than the competitors.
Such exclusive distributors might cover a large region or a small region. Nonetheless, within their appointed territory, no one else but them can distribute the product for the brand they have tied up with. These distributors can in turn bill the product to other smaller distributors, wholesalers and retail shops.
Advantages of Exclusive Distribution
Focus – Exclusive distribution helps in keeping the focus simple for the firm. The brand need not worry of losing its own distributor to the competitor. The brand has a trustworthy alliance and hence it is more focused on winning over competition rather than deciding on its distribution base.
Control – Because the exclusive distributor is himself dependent on the company, the company is very much in control. Besides distribution, the company can concentrate on marketing and advertising activities to increase the pull of the brand.
Availability – A key characteristic of Exclusive distributors is that they are financially capable of stocking huge amount of inventory. As a result, material is easily reachable to retailers and wholesalers and thereby distribution is increased.
Financial advantages for company – The brand’s cash crunch is averted as distributor is expected to have good cash in hand and is expected to carry the inventory and provide payments. As a result, the risk is mainly on distributor rather than the company and company’s finances are safe. This is off course if the distributor they have chosen is ethical and financially stable.
Penetration becomes easier for the company – Because the company does not need to cover its own back and does not need to spend manpower in finding, convincing and maintaining the distribution channel, the company can completely concentrate on building the brand and doing promotional activities so that its penetration in the market becomes much better.
Localisation – One of the major advantages of exclusive distribution is localization. If a company is entering a foreign country, there are many things which the company won’t know. At such time, entering a exclusivity agreement with a local distributor who is trustworthy is excellent for the firm because the local distributor will have relations with existing retailers and wholesalers. As a result, he can cement the brand in his market.
Disadvantages of Exclusive distribution
Trust – As can be seen in the advantages above, we mentioned the word “Trust” several times. There is a reason for this. Your business will be successful in distribution only if the exclusive distributor is trustworthy. Otherwise, he might take marketing and advertising budgets from use and use it to fill his own pockets rather than helping the brand rise.
Dependency – If your brand is new or is not as popular as a Rolex or a BMW, then you will find that there is a dependency created on the exclusive distributor. Brands like Rolex and BMW can sell regardless of what type of distributor is selling them. Besides that, known brands have a line of distributors ready to tie up with the company. However, unknown brands becomes highly dependent on their exclusive distributors and will have to do as the distributor advices.
Disputes cause huge losses – When considering regular distribution, a dispute with one distributor means that the single distributor wont perform but the distribution will go one through some other distributor.
However, if there is a dispute with your exclusive distributor then you might lose the whole market. This exclusive distributor might have very good relations in local market so it becomes difficult for another distributor to create the same relations. Thus, in exclusive distribution, if there is a major dispute then it means huge losses might be incurred, not only in terms of money but in terms of time lost too.
Choosing the right exclusive distributor – It is very important that you choose the right distributor who is well aligned with your brand and is aggressive with regards to the sale and marketing of your brand. Otherwise, you might miss chance of tying up with even better distributors because your exclusive ones are not ready to budge.
As can be seen, there are several advantages to exclusive distribution and till date there are many companies which utilize exclusive distribution to good affect. However, it must be said that this type of distribution is good upto the point that the product is in average demand. Once the product has mass demand, then exclusive distribution becomes difficult and you enter different types of agreements with different distributors.