Exclusive distribution is when only certain resellers are authorized to sell a product in a specific territory. The legality of such agreements varies, but they are often used for high-end and luxury products to control brand image and add a component of scarcity. This type of arrangement is less favorable for low-end products.
Exclusive distribution is a situation where only certain resellers are authorized to sell a specific product in a certain territory. The legality of an exclusive distribution agreement can vary depending on the specifics of the case. In some cases, such deals are entirely legal, while in others, rivals can create legal challenges. If a company can demonstrate that an exclusive distribution agreement harms competition in any way, it may be able to argue that the agreement is not legal.
This type of distribution deal 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 dealerships to sell their cars in a particular country. Dealers other than these three that attempted to sell new vehicles from that manufacturer would do so without authorization; a consequence of this could be that the manufacturer refuses 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 perspective of the people moving the product to consumers, having an exclusive contract means that consumers have to come to them if they want the product. For example, if a cell phone provider has an exclusive agreement with a cell phone manufacturer, people who want to use cell phones made by that manufacturer must go through that cell phone provider.
Manufacturers may appreciate control over how their products are marketed, marketed and branded. Exclusive distribution allows companies to tightly control brand image, which can be especially important for luxury products. Indeed, exclusive offers can add to the brand image by reinforcing the idea that a product is special, rare and hard to obtain, therefore making it more desirable to consumers. If something can be bought in any shop, it is considered mundane, while if it can only be bought in certain shops, this adds a component of scarcity which can make it more attractive.
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 can indicate that the manufacturer has an exclusive deal and the product cannot be obtained elsewhere. This type of arrangement tends to be less favorable for low-end products, as the goal of such products is to saturate the market and rapidly move units, which would be hampered by limiting sources of distribution.
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