Exclusive distribution definition is a kind of distribution a manufacturer or supplier authorizes only one distributor to carry out within a definite region. Such a distributor becomes the sole authorized seller of the manufacturer's specific products. An example of exclusive distribution is Apple solely authorizing AT&T to be the distributor of the iPhone to end users.

Exclusive Distribution Overview

The function of a distributor is to engage wholesalers and retailers in order to sell the products to end users. How many distributors a company appoints depends on the company and its purposes and goals. For instance, companies such as P&G and HUL deal with several distributors, while companies like Lamborghini, BMW, Rolex, and Mercedes appoint just a few distributors to cover a region. Moreover, they're known to typically enter into exclusive distribution agreements.

When there's an exclusive distributor agreement between a manufacturer and a distributor, the manufacturer isn't allowed to sell the product to other distributors except the exclusively authorized one. In the same vein, the distributor given an exclusive right to distribute a manufacturer's products isn't allowed to distribute or sell the products of the manufacturer's business rivals.

Businesses That Mostly Use Exclusive Distribution

Typically, exclusivity is used for distributing technically complicated or high-quality products that need a specialized level of skill. Employees may require specific training to enable them to sell the goods. An example is the sale of pharmaceutical products. When buying goods such as electronics and cars, the customers may need specialized, aftersales maintenance or repair services, which exclusive distributors are expected to be able to provide.

The industries that often engage in exclusive distribution are:

  • High-tech electronics companies.
  • Women's clothing manufacturers.
  • Automakers.
  • Major appliance manufacturers.

Some companies that often use exclusive distribution are:

  • Samsung
  • Gucci
  • Lamborghini
  • Apple
  • BMW
  • Mercedes.

An Illustration of Exclusive Distribution

Suppose that Rolex needs a distributor in a certain region. Rolex is aware that having showrooms everywhere in that region will lower its brand equity (the prestige associated with its brand). Therefore, Rolex gets an exclusive distributor for the said region. The exclusive distributor then starts its own exclusive Rolex sales centers and also sells the Rolex watches via the sales centers located in the elite neighborhoods of the region.

Rolex is happy with the result of appointing an exclusive dealer. Therefore, it decides to do the same with a second region. This time, however, Rolex has the options of maintaining the first exclusive dealer it used for the previous region or appointing another one for the new region.

Because Rolex is avoiding the decrease of its brand equity, it won't go into the new region directly, and it won't appoint many distributors in order to maintain exclusive and premium positioning of its brand. These kinds of business psychology and marketing strategies are seen in diverse industries.

Manufacturers' Advantages of Exclusive Distribution

The use of exclusive distributors is employed in the industrial machinery segment as well. Many times, exclusive distribution is assigned to dealers who are efficient sales entities and relate effectively to the local market. Such distributors are typically able to focus on the sales of the brand more than the company's competitors.

An exclusive distribution contract might cover a small or a large region. However, no one else is permitted to distribute the brand or product that the exclusively appointed distributor is assigned to distribute within a given region.

Exclusive distribution helps to:

  • Keep the firm focused.
  • Secure the distributor of the brand for the firm.
  • Save the firm the fear of losing the distributor's loyalty.

Once the company's focus is off the worry of distribution, it can effectively explore other means of increasing the publicity and sale of the brand, for instance, through advertisements and other marketing strategies.

An outstanding attribute of exclusive distributors is that they're financially able to stock large quantities of the product. For that reason, the product is readily available to wholesalers and retailers, which increases distribution. Furthermore, since exclusive distributors usually have substantial amounts of money to pay for the products, the manufacturer's cash situation is improved by the payments made by the distributors to stock the product.

As a result, the distributor takes the risk away from the manufacturer, keeping the manufacturer's finances safe. However, that is only possible if the manufacturer appoints an ethical and financially stable exclusive distributor.

If you need help with exclusive distribution, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.