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.
