Selective distribution

Selective distribution is a policy of a manufacturer who selects a limited number of wholesale or retail distributors and works closely with them to further the sale of his merchandise. Generally, this is done on a carefully worked-out plan. Selective distribution can be used on any type of product, even with convenience goods, but, of course, such a policy will restrict the distribution. The idea is to select the best distributors available, concentrate effort on them, and thus obtain a greater selling effort for the manufacturer's products.
Naturally, the volume of business desired is important in appointing selective distributors. Fewer distributors may mean fewer sales, fewer contacts with prospective buyers. There are distinct advantages, however, in appointing selective distributors. The manufacturer can pick the outlets he wants. He can concentrate on them, and eliminate some of the marketing headaches which beset almost all sellers who sell on a wide regional or national basis. Some of the problems include such things as small orders placed by buyers with limited volume sales, the credit risk in dealing with everybody, limited or negligible services rendered by the dis tributor, and excessive return of goods because of the inability of some distributors to dispose of the merchandise.
Generally speaking, selective distribution lends it self better to shopping goods, which carry a higher unit price, and which are not purchased as frequently as convenience goods. Goods which require service are often sold through selective distribution outlets. This is the case with some household appliances and office- type equipment.
Exclusive distribution refers to the practice of selecting and giving a distributor an exclusive territory. The manufacturer agrees to sell to no one else in that territory. This is called an exclusive selling agreement. The distributor in turn often (but not always) agrees not to handle or to deal in any competing product. This is called an exclusive dealing agreement.
Naturally, an exclusive distributorship limits the contacts with the buying public, and thus the total volume of possible sales. In return, however, the manufacturer gains by knowing that his products will be featured and, if the dealership has been chosen with care, the manufacturer acquires a degree of prestige because of having an exclusive dealer.
In turn, it is to the advantage of the exclusive distributor to push merchandise, because he is not only protected as far as competitors in the area are concerned, but also he is protected against any price cut ting. If price reductions are made, the manufacturer makes them, fully protecting the dealer's margins and profits as he does so. The exclusive dealer, buying with greater confidence, often places larger orders. His credit risk is minimized as is the manufacturer's.
There is some doubt about the legality of many exclusive distribution agreements. While still widely used in industry, there is growing agitation on the part of governmental agencies to examine and condemn such agreements on the grounds that they restrict trade.