Before we delve into selective distribution, let us understand what intensive distribution and exclusive distribution mean.
Intensive distribution is the method where every possible outlet is serviced and the company’s product is made available in that outlet. This is done especially for products where more availability leads to more sales. Example, cigarettes. Another reason for doing this is because some products are such that if one brand of it is not available, the consumer will simple choose another brand. This induces competition and hence a company uses all outlets possible to make its products available to the customers.
Exclusive distribution as the name suggests is the model where in a particular locality a company has just one dealer or retailer. This makes the brand more exclusive and gives the dealer exclusive rights for the sale of the product in that particular vicinity. This dealer also deals only in one particular brand and does not sell brands of competitors. Maruti has recently launched its ‘Nexa’ showroom that is for its slightly higher end cars. This is an example of exclusive distribution model.
Now let us come to selective distribution.
Selective distribution is a distribution approach where selective and few outlets are chose through which the product is made available to the customers.
Unlike intensive distribution, not all available outlets are targeted and neither is it like exclusive distribution where there is only one outlet. A few outlets with calculated potential are identified and then they are given the rights to stock and sell the offerings of a company.
A good example for products for which selective distribution is used is cars. This need not be the case for high end luxury cars, for which, more often than not, exclusive distribution is used. For the low-end range and mid-level range cars, selective distribution is used. You would have observed that multiple, but not all, dealers in a certain locality deal in certain cars.
Another example for this could be clothing. If you observe the availability of brands like Louis Philippe or Van Huesen, you will see that these brands are available in the exclusive show rooms of these brands and also in a few high end stores in malls. But if you talk about Raymond, then Raymond has selective distribution because besides selling in its own exclusive outlets, Raymond is sold via franchise’s as well as in other other multi brand outlets. Watches of Titan are also selectively distributed because besides being sold in “World of Titan” they are also sold in selected outlets.
Take an example of Smart watches like Samsung Gear 2 or Iwatch or Titan’s Xylys. All of these brands are present in the outlets which are owned and operated by the company. However, they are also available in other outlets which are famous for their turnover and the number of customers they serve. Hence, when these brands advertise, then use the words “Select outlets only”. This is done to show that the brand is using selective distribution. It also adds to the premium feel of the brand.
The dealers in such a type of distribution network may or may not store other brands. They are not always obligated legally to confine themselves to just one brand.
Selective distribution can also limit the competition faced to a certain extent. This can happen if there is a legal agreement of some sort between the producer and the retailer. If the retailer agrees not to stock multiple competing brands or to limit the number of competing brands, this can reduce the competition within the store which is good for the brand.
Also if the store is one of the big ones in the locality and more popular and more frequently visited, then this kind of an agreement will create an advantage in the entire locality.
But caution needs to be paid to the assortment of brands that are available at a retailer. Based on this, a company should choose its retailers whom it wants to make as its selective distributor.
Selective distribution is gaining importance as it provides an optimal mid way solution between intensive and exclusive distribution.