Selective distribution

Selective distribution
See also
Make or buy decision Types of supply Augmented product Pricing strategy Price and non-price competition Cost advantage Custom production Importance of brand Product line pricing

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).

Others

It should be also noticed that beside selective distribution, there are also the following types of distribution (Gherasim A. 2014, p. 85):

• exclusive distribution - there is a single distributor, who deals with high value products;
• intensive distribution - this distribution chain is rather beyond the control of the producer and it consists in supplying products with all available means;
• reverse distribution - it is about acquiring components that have remained after using the product and using them again in the next production.

References

• Buettner T., Coscelli A., Vergé T., Winter R. A. (2009), Selective Distribution by Luxury Goods Suppliers: A Response to Kinsella et al, "European Competition Journal", Vol. 5, Issue 2, pp. 1-8
• Faveri C., (2014). The Assessment of Selective Distribution Systems Post-Pierre Fabre, "Global Antitrust Review", pp. 163-197
• Galarza A. F., Gissler C. (2009), Selective Distribution of Branded and Luxury Products and the Conjuncture of Online and Offline Commerce in the Light of the European Commission's Revision of the Vertical Restraints Regime, "The Online Magazine for Global Competition Policy", Issue 1, pp. 1-8
• Gherasim A. (2014), Distribution on the International Market, "Economy Transdisciplinarity Cognition", Vol. 17, Issue 1, pp. 84-89
• Marsden P., Whelan P. (2009) Selective Distribution in the Age of Online Retail, "European Competition Law Review", Issue 1, pp. 25-36

Author: Agnieszka Wierzba