Limited distribution

From CEOpedia | Management online

Limited distribution is an agreement with the main assumption that manufacturer sells products, services, materials etc. to only one or limited number of buyers [1]. Another definition explains, it is marketing strategy when independent specialists and chains are encouraged to promote special, unique products or private label products. It leads toexclusive dealing [2]. Burnett J. J. describes that limited distribution strategy together with support of promotional mix would bring quite unpredictable results. It might be surprisingly beneficial, especially when there are other marketing mix factors existing and there is big promotional effort such as personal selling or mass selling [3].

Example of limited distribution item

Contact lenses is example of the product that limited distribution strategy was used[4]:

  • It was expected that prices of such products would be different (higher) in comparison with national branded types, however both private label and limited distribution versions were not much different from products delivered to market with other marketing strategy,
  • For limited distribution, very little consumer promotional activities and advertising was created,
  • Product was firstly promoted to professionals who later on promoted it to customers and sell on the market. It caused increased competition among sellers. For example, there might be online outlet, when prices of such items are very attractive. In such case, other channels would need to invest in advertising to be more competitive on the product and attract the customer.

Advantages of Limited distribution

Limited distribution has many advantages, including:

  • It allows for stronger relationships between the manufacturer and the buyers, creating more loyalty and trust. This means that the buyers are more likely to remain loyal to the manufacturer and their products.
  • Limited distribution helps the manufacturer to have better control over their product and how it is marketed, since they don't have to worry about competing with other buyers.
  • It can help to reduce costs since the manufacturer can negotiate better deals with the buyers due to their exclusive access to the product.
  • It can also help to increase the brand value of the product and the manufacturer, as buyers may associate the product with the exclusive access provided.
  • It can also help to create a higher perceived value of the product, since buyers know that the product is only available from certain sellers.

Limitations of Limited distribution

Limited distribution has some limitations to consider when utilizing it as a marketing strategy. These limitations include:

  • Limited reach: As the name implies, limited distribution limits the number of outlets that can carry a product which can lead to fewer potential customers being reached.
  • No control: Limited distribution means that the manufacturer has no control over how a product is marketed or advertised by the outlets. This can lead to a lack of a unified message and brand recognition.
  • Poor customer service: With limited distribution, there is less incentive for outlets to provide good customer service as there is little competition between them.
  • High cost: As the outlets may have exclusive rights to the product, they can often set the prices higher than the manufacturer desires. This can lead to a higher cost for the customers and lower profits for the manufacturer.

Other approaches related to Limited distribution

In addition to the limited distribution agreement, there are several other approaches related to the strategy. These include:

  • Exclusivity agreements - These agreements involve allowing only a single retailer or distributor to sell a product in a particular geographic area.
  • Tiering agreements - These agreements involve setting up different levels of distribution for a product. This creates an incentive for retailers to sell higher-end products, as they can receive greater discounts or other incentives for reaching certain levels of sales.
  • Private labeling - This involves creating a unique product that is sold exclusively through a certain retailer or distributor. Private labeling allows companies to differentiate their products from competitors, while also increasing the value of the product by associating it with a particular retailer.
  • Cross-branding - This involves partnering with other companies to promote a product or service. For example, a company may partner with a restaurant chain to promote a new product.

In summary, there are many approaches related to limited distribution that can be used to create a competitive edge in the marketplace. These include exclusivity agreements, tiering agreements, private labeling, and cross-branding. By implementing these strategies, companies can create a unique product or service that stands out from the competition and provides greater value for customers.

Footnotes

  1. ↑ Van Bael & Bellis, (2010), p. 235
  2. ↑ United States. Federal Trade Commission, (2005), p. 32
  3. ↑ Burnett J. J., (1984), p. 144
  4. ↑ United States. Federal Trade Commission, (2005), p. 17-32


Limited distribution — recommended articles
Aggregator model — Skimming pricing strategy — Prestige pricing — Exclusive distribution — Differential pricing — Imitator strategy — Push money — Preventive pricing strategy — Price and non-price competition

References

Author: Katarzyna Żurek

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