Selective distribution

From CEOpedia | Management online

Selective distribution - it is a term, which refers to the type of distribution of products to the retail stores. Typically, this system is used when sales process require a professional pre-sale service or after-sale service, what is inherent in the case of luxury goods or technically complex products. In other words, it is about creating a cooperation network between producers and retailers who share similar goals and values.

Characteristics

Generally, selective distribution is the appropriate strategy for those suppliers who create the brand image as less available and who provide additional sale service during the sales process. Moreover, the introduction of this system is aimed at increasing the efficiency of the cost structure. Sometimes this approach is also caused by a limited amount of local knowledge. In addition, it allows to maintain a higher level of control for suppliers over their products. The point is that suppliers choose only those retailers who meet their requirements, both qualitative and quantitative. However, it should be mentioned that the selection of distribution is usually based on two factors (Marsden P., Whelan P. 2009, p. 26):

  • quality of the retailers,
  • store location.

While the role of the chosen retailers is to sell the supplied goods to final consumers or only to selected distributors, it can be concluded that sales restrictions affect only unauthorized distributors. It is necessary because otherwise it could damage the brand image and also pre-sales services may not be made in accordance with the requirements of the distributor. Furthermore, this system is also applied to prevent the situation when the consumer after using the free pre-sale service purchase the product from an unauthorized retailer at a lower price due to the lack of this service (Marsden P., Whelan P. 2009, p. 26).

Competitiveness issue

It has to be highlighted that selective distribution in terms of competitiveness has both advantages and disadvantages. Among pro-competitive factors, the following should be mentioned (Faveri C. 2014, pp. 167-168):

  • guarantee of maintaining the manufacturer's certainty to the high quality of the sales service, consistent with the company's image;
  • avoiding costs generated in case of other types of distribution related to the preparation of specialist analyzes of the local market as well as financial and commercial hazard;
  • focusing on the requirements of the sophisticated clients what allows to meet their requirements, which in turn increases demand and sales;
  • protection of the distributor's interests against sudden changes in the manufacturer's sales conditions.

On the other hand, anti-competitive aspects include such factors as (Faveri C. 2014, pp. 166-167):

  • a threat to economic freedom caused by a ban on the sale of products at unauthorized outlets;
  • the closed character of this distribution network stiffening the price level;
  • lack of standardized rules in the international legislation and predictability of selective distribution operations.

What is more, selective distribution is not suitable for online sales due to insufficient possibilities of product presentation via Internet (Galarza A. F., Gissler C. 2009, pp. 4-5).

Examples of Selective distribution

  • Luxury Goods: Selective distribution is commonly used in the luxury goods industry, including fashion, jewelry, and beauty products. Companies that produce luxury goods use selective distribution to control the quality of the products and the amount of customer service provided by retailers. For example, Louis Vuitton limits its distribution points to stores that are specialized in luxury products, have a high level of customer service, and are well-maintained. By using a selective distribution strategy, Louis Vuitton can help maintain its brand image and the quality of its products.
  • Technically Complex Products: Selective distribution is also used for products that are technically complex and require a certain level of expertise. For example, electronic components and products such as computers and smartphones require a certain level of technical knowledge to be properly installed and maintained. Companies that produce these types of products use selective distribution to ensure that retailers have the necessary level of expertise to provide the best service to customers.
  • Pharmaceuticals: The pharmaceutical industry also uses selective distribution to ensure that its products are distributed to the right channels and that customers receive the correct medications. In many countries, pharmacies are the only retailers authorized to distribute pharmaceutical products, and they must adhere to strict standards to ensure that their products are safe and effective. By using selective distribution, pharmaceutical companies can ensure that their products are distributed safely and in compliance with all applicable regulations.

Advantages of Selective distribution

Selective distribution has many benefits for producers and retailers alike. Some of these advantages include:

  • Increased control over the sales process, with producers able to select retailers who share similar values and goals. This ensures that customers are provided with the highest quality of service, as the retailers are well-educated in the products they are selling.
  • Retailers are able to benefit from higher margins as they are the only providers of the product in their area. This helps to create a more profitable business model for retailers.
  • Producers are able to maintain higher standards in terms of product quality and customer service, as the retailers are more likely to adhere to the producer’s expectations.
  • Producers are able to build stronger relationships with their retailers, as the retailers are more likely to cooperate and work together in order to increase sales.
  • Selective distribution can create more value for the consumer, as the product is more likely to be sold at a fair and reasonable price.

Limitations of Selective distribution

Selective distribution has certain limitations which should be taken into consideration:

  • Costly for producers - implementing a selective distribution system may be costly for producers as they will have to invest into establishing and maintaining a cooperation network with retailers.
  • Difficult to find suitable retailers - as the system requires specific criteria to be met, it may be difficult to find suitable retailers who are willing and able to meet the requirements posed by the producers.
  • Limited availability of the product - as the product is only made available in specific locations, the availability of the product may be limited and customers may find it hard to access it.
  • Limited geographical reach - selective distribution restricts the geographical reach of the product as it can only be sold in specific locations, which may not be suitable for customers who live in other areas.

Other approaches related to Selective distribution

Selective distribution is not the only approach when it comes to product distribution. Other approaches include:

  • Exclusive distribution - it is a distribution strategy, in which the manufacturer allows only one company to distribute its products in a given market. This approach helps to maintain product exclusivity, which is important when it comes to luxury goods.
  • Intensive distribution - this approach requires that the product is available in many outlets. This type of distribution is typical for products with low price and high demand.
  • Differential distribution - this approach allows for different distribution channels to be used for different products. The aim is to reach the most suitable customers and to provide them with the most convenient way to buy the product.
  • Reverse distribution - it is about acquiring components that have remained after using the product and using them again in the next production.

In summary, there are several approaches to product distribution, including Selective distribution, Exclusive distribution, Intensive distribution and Differential distribution. Each approach has its own advantages and disadvantages and should be selected according to the specific needs of the product.


Selective distribution — recommended articles
Product line pricing — Distribution policy — Resale price maintenance — Price-Taker — Exclusive distribution — Certificate of approval — Factors affecting pricing — Sole distributor — Retail strategy

References

Author: Agnieszka Wierzba

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