As an industrial manufacturer, you have a lot of distribution models to choose from to take your products to market. One option is to enter into an exclusive agreement with a distributor to sell your products solely through them.
This go-to-market strategy is called an Exclusive Distribution Model, and it has its advantages—and disadvantages.
Read on to learn more about what an Exclusive Distribution Model involves, how it works, and the pros and cons of adopting this model for your business.
The Exclusive Distribution Model: Pros and Cons
First, let’s get straight on definitions:
“The Exclusive Distribution Model is a product-supply method in which a manufacturer authorizes only one distributor to sell products within a territory or territories,” says Rick Star, CEO of Engman-Taylor (an industrial distributor and Durrie Sales customer).
“Because the relationship between the manufacturer and the distributor is exclusive,” Star adds, “The manufacturer is not permitted to sell its stipulated products in the stipulated territory through any other channel than the distributor that is party to the agreement. And no company or individual other than the distributor is allowed to sell those products in that particular territory.”
Pros
The primary advantage of the Exclusive Distribution Model for manufacturers is streamlining. When a manufacturer gets an inquiry or becomes aware of an opportunity with an end user, they don’t have to spend a lot of energy trying to figure out which of their distributors throughout the territory to give the opportunity to, because they have an exclusive agreement with just one distributor.
“The primary advantage of the Exclusive Distribution Model for distributors is higher profit margins,” says Star. “When distributors do not have to worry about their business being price-cut, the distributor maintains needed profit margins and is motivated to sell more product.”
Cons
Before exploring this option, know that Exclusive Distribution Agreements may be illegal in some jurisdictions, or subject to challenge by competitors under anti-competition or anti-monopoly laws.
If another manufacturer can argue that it suffers in the marketplace because an Exclusive Distribution Agreement hinders competition, the courts may decide that the Agreement is not legal.
Additionally, Exclusive Distribution Agreements don’t work particularly well between manufacturers and small distributors. As a manufacturer, you need to make sure any distributor you give an exclusive territory to is big enough to reach all the end users in that territory that you want to reach. They must have the people and resources needed to service the entire territory in the agreement.
How IMRs Can Support Exclusive Distribution Agreements
Industrial Manufacturers’ Representative (IMR) help keep you top of mind with the distributors you have an Exclusive Distribution Agreement with, explains Star:
IMRs also offer product training to distributors. During sales meetings, your IMR can help the distributors learn how to sell your products more effectively to end user customers.
The Future of Exclusive Distribution Models
Industrial manufacturing is changing, as is the business of Exclusive Distribution Agreements, and new trends are emerging.
The COVID-19 pandemic has put tremendous pressure on global supply chains. We are noticing manufacturers reshoring some of their production and sourcing parts and materials from domestic suppliers, as well as more end users adopting integrated supply models.
This means fewer exclusive distributor agreements in the future. “In a world where any end user can buy anything from any distributor or manufacturer, distributors are increasingly offering value-added services, such as Engman-Taylor’s 3D printing and e-Taylored Tool Optimization Services, that create stronger value propositions and differentiate them from competitors,” says Star.
Exclusive distribution is less common today among industrial manufacturers, but there are key advantages for both manufacturers and distributors to this model, compared with open-line distribution models.
If the advantages outweigh the disadvantages for your business, you should be able to make an exclusive distribution agreement work for you.
In the meantime, if you have questions about the pros and cons of outsourcing your industrial sales to an industrial manufacturers’ representative agency like Durrie Sales, check out Why Outsource Sales.
