What is selective distribution?

Often, a certain product or service is available on the market for a long time (a few months or a few years). This causes progressive saturation and decreases demand. As a consequence, the price war begins with an aggressive price decrease among competitors. This process is called price erosion and it is losing for producers because resellers gradually decrease their margin and impose it on providers. This can lead to worsening producers’ financial condition. Are they unprotected to gradual price erosion? No, because there is a tool or rather a strategy called selective distribution. What is it? What are the main rules? Let’s find out in this article.

What is a selective distribution?

To define selective distribution in the right way, let’s get to know the possible ways to sell products that certain brand retailers use. These are:

  • Exclusive distribution – the sales happen only in own outlets or in one of the authorized retailers

  • Intensive distribution – used in case of products that have a high rotation that depends on the launch of a certain product to offer of as many shops as possible

  • Selective distribution – it is a strategy that lowers the competition by a special selection of key clients that will be able to sell a certain product

The selective distribution consists of the first two types and is the best option because it guarantees a high level of security and is effective.

 

 

What are the rules of selective distribution?

The main slogan of this strategy is “available in selected outlets only”. It creates the unavailability in the client’s and reseller’s minds. They think that there are special terms they need to fulfill to buy a certain good. This increases the prestige of the brand. Keep in mind that in most cases there are still other producer’s products available on the market that have similar quality and the specification can be also good enough so the product is competitive.

Despite this model being comprehensive and can assure big profits for the producer some law issues have to be fulfilled. Only with this, the model can be implemented. These are:

  • The offered product has to demand such a distribution model to stay in the right quality and proper use

  • The distributor has to follow quality criteria – the right technical qualification of staff and the venue conditions

  • Criteria on how to choose provider have to be value-neutral and involve all the companies that operate on the market

 

Benefits and drawbacks of the selective distribution

The selective distribution strategy has a lot of benefits but still, it is not the perfect solution. The benefits are as follows: bigger market coverage with simultaneous reduction of costs rather than an intensive option. With the strategy, it is easier to price and monitor the availability of the goods – because of the relatively small number of retailers. Also, it assures the strong arguments in the negotiation process because it increases the offer exclusiveness and its value.

The feature that can be considered as a drawback is the bigger dynamics when compared to intensive and exclusive variants. It is more time and energy-consuming because it imposes often and thorough monitoring of what competitors do. It is surely possible to do with one of the commercial platforms to monitor prices.