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What Is Exclusive Distribution?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 15 September 2014
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Exclusive distribution is a situation in which only certain dealers are authorized to sell a specific product within a particular territory. The legality of an exclusive distribution agreement can vary depending on the specifics of the case. In some instances, such agreements are entirely legal, while in others, rivals may create legal challenges. If a firm can show that an exclusive distribution agreement harms competition in some way, it may be able to argue that the agreement is not legal.

This type of distribution agreement is usually seen with high end and luxury products. In an example of an exclusive distribution agreement, a car manufacturer might only agree to allow three dealers to sell its cars in a specific country. Dealers other than these three who attempted to sell new vehicles from that manufacturer would be doing so without authorization; one consequence of this might be that the manufacturer would refuse to honor warranties or provide support for cars sold at unauthorized dealers.

The structure of an exclusive distribution agreement favors both the manufacturer and the distributor or retailer. From the point of view of people moving the product to consumers, having an exclusive contract means that consumers must come to them if they want the product. For example, if a cell phone provider has an exclusive deal with a manufacturer of cell phones, people who want to use cell phones made by that manufacturer must go through that cell phone provider.

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Manufacturers may appreciate having control over how their products are merchandized, marketed, and branded. Exclusive distribution allows companies to tightly control brand image, which can be especially important for luxury products. In fact, exclusive deals can add to brand image by reinforcing the idea that a product is special, rare, and difficult to obtain, thereby making it more desirable to consumers. If something can be bought at any store, it is viewed as mundane, whereas if it can only be bought at certain stores, this adds a scarcity component which can make it more appealing.

Exclusive distribution is often mentioned in product advertising. When an ad says something like “only available at the following stores” or provides a list of stores where a product can be purchased, it may indicate that the manufacturer has an exclusive agreement, and the product cannot be obtained elsewhere. This type of agreement tends to be less favorable for low end products, because the goal with such products is to saturate the market and move units quickly, something which would be hindered by limiting distribution sources.

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sunshine31
Post 2

@Comfyshoes - I understand why a high end handbag company would resort to a waiting list, but to me it seems silly. But then again, I would not pay $5,000 for some of these handbags that do have waiting lists.

I wanted to add after my many years of working in department stores I have noticed that certain brands carried in the department store are not allowed to be discounted.

They have to have a premium price over other brands which are part of the exclusive distributor partnership agreement.

This is also to give the image of a premium product that is better than the competition. A Swedish memory foam mattress company falls into this category. While the retailer cannot discount the price of this particular mattress they can offer other incentives like free delivery and haul away.

comfyshoes
Post 1

It makes a lot of sense for luxury brands to offer selective distribution because if the product was offered everywhere it would not be seen as special and would not be as sought after.

Part of the reason why high end products offer exclusive distribution rights to retailers that meet their specifications are so that the brand remains elusive and something that people will want to have one day.

These products are like status symbols which is why the distribution has to be tightly controlled. Some of these high end handbag companies even have waiting lists for some of their most popular handbags.

This type of buzz feeds into the exclusive image of the brand which is why the company resorts to a waiting list and does not manufacture more to the same handbag.

The shortage of the handbag creates an image that you are somehow missing out on this popular trend which is why the handbag becomes even more popular once it is sold out.

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