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The Perils of Exclusive Marketing Agreements
by Wendy Priesnitz
Q: How do you feel about exclusive rights? My small business manufactures a personal care product and have been approached by a distributor who wants me to give him exclusive rights to wholesale this product. I'm worried that this will ultimately limit my sales, although we could use the help.
A: I believe you are right to be wary about granting exclusive rights to a distributor. Often, "exclusive" is another word for greed and paranoia.
There are two traditional reasons for creating exclusive territories. One is that the dealer with exclusive rights will work harder because the exclusivity is an incentive to promote the product. The second is that a higher price is possible where there is less competition.
The first reason is, in my experience, often not true. Many exclusive distributors get lazy and don't market enough. Your product is just one in their line. If it sells on its own, fine; if it doesn't, they have other products that generate their income. From your perspective, if it's a winning product, then it will sell better with more distributors, not fewer.
The second reason is usually true. Exclusive rights do seem to lead to higher prices. Although your price will be lower without exclusive rights, your potential for more sales, and thus more profit, will probably be greater with a variety of distributors.
If you have a huge advertising budget and can provide sophisticated marketing support to your one rep, you might take the chance of granting exclusivity. However, if you're operating on a shoestring, having more stores or more reps selling your product will expose it to more people at a lower cost.
There aren't very many occasions when it's wise to put all your small business eggs in one basket...and this definitely isn't one of them.
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