What Are the Advantages of Giving Exclusive Distribution Rights to a Supplier?
There are benefits to both the distributor or retailer and the manufacturer when exclusive distribution rights are granted. Manufacturers have greater control of how the products are sold, and they can control costs more effectively. The benefit for the supplier is that there is no competition.
Exclusive distribution rights are typically granted by manufacturers based on geographical area. The main reasons for doing this, from a manufacturer point of view, are control and costs, as explained in a publication from the American Bar Association. Also, the distributor often agrees not to sell products made by the manufacturer’s competitors.
With fewer distributors to manage it is easier for manufacturers to control the way their products are presented to consumers. This could be control of merchandising, sales price or advertising material. It is also cheaper to contract with fewer distributors than it is to contract with many. The relationship developed through an exclusive distribution arrangement can also reduce manufacturing costs. The American Bar Association outlines this as well. It is because production runs, distribution and warehousing can be better managed.
Retailers and distributors benefit from exclusive distribution deals because they do not have competition in their geographical area, as stated by AllBusiness. These sorts of arrangements often result in a greater sales commitment from the retailer or distributor, something which benefits both parties. This applies in particular when the exclusivity works both ways.