Selective Distribution Strategy and Other Types of Distribution

Selective distribution is a system and strategy by which a company sells its goods through a select group of intermediaries. Various block exemption and competition laws regulate these sorts of vertical agreements between companies to ensure no one company has an unfair advantage over another. As an example of selective distribution, picture a major food chain that sells franchise stores to individual owners who meet specific criteria for the parent company. Alternatively, think of an e-commerce giant that allows a qualified group of vendors to sell on their platform.

There are two main types of distribution strategies: exclusive and intensive distribution. Selective distribution, which relies on a select network of distributors, borrows elements of each of these two strategies.

In an exclusive distribution strategy, a company sells its goods and services via only its own stores. By retaining these exclusive rights over their products, the company pursues a more limited (but hopefully effective) form of market penetration. To illustrate, imagine a luxury cosmetics brand that sells only through its own website or stores instead of selling wares through third-party vendors.

Intensive distribution, on the other hand, relies on maximizing the number of additional distributors. This means companies reach out to as many available outlets as possible to also sell its goods. As an example, think of the many brands of products you can find in nearly any grocery or drug store.

In the selective distribution model, companies posit they can better target customers in a specific geographical area or demographic group of end users through a select and limited number of outlets. Selective distribution agreements aim to take the best of both worlds from the exclusive and intensive approaches, wedding the focused outreach of the former to the broader scope of the latter.

The selective distribution strategy has many benefits. Here are just three of its potential advantages:

1. 1. Reduced costs: In contrast to intensive distribution, selective distribution means a far lower price point when it comes to distributing your company’s products. Since your selling efforts will be more modest, you’ll save money by targeting your consumers more directly than you would by casting the widest net possible.
2. 2. Targeted marketing: By forming an intimate network with individual vendors, selective distributors can learn what works best for advertising and marketing in each location. A good working relationship with these distribution channel members goes a long way to increasing profitability at both ends of the supply chain.
3. 3. Wider availability: Exclusive distributors have a harder time gaining greater market share over competing brands than selective distributors do. Product placement with the right large retailers or even in small retail outlets means greater availability of your goods to consumers and more likelihood to turn a profit as a result.

Every marketing strategy comes with a few potential downsides. Here are three possible disadvantages of selective distribution systems:

1. 1. Dilution of premium status: Compared to an exclusive distribution strategy, selective distributors might have a harder time keeping up a high-end brand image if that’s their goal. Luxury goods derive their value from their rarity, so the more distributors you permit to sell your products, the more that scarcity value goes down.
2. 2. Less control: You’ll have less control over some aspects of your distribution network once you take the selective approach. By doing so, you vest power in the hands of third-party vendors and franchisees to define your brand either positively or negatively in some people’s eyes.
3. 3. Loss of some sales: Selective distribution hopes to obtain optimum market coverage through a more disciplined strategy than intensive distribution does, but the latter has a greater opportunity for sales just in terms of its breadth. Choosing only select outlets to sell your products means fewer customers will see them than if you had pursued a broader and more intensive strategy.

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