Brands often reach their target audience online and offline through a Selective Distribution strategy. This means a business will select distributors that are authorized to stock, market, and sell their product to consumers.
Selective Distribution can sit as a core pillar within your Brand Protection strategy, allowing you to maintain greater control over pricing, brand image, and the online consumer experience.
Maintaining compliance among your distribution network will enable Selective Distribution Strategy success. Collaboration and alignment between internal departments dealing with these commercial and legal agreements is also a critical component.
Part 1: Selective distribution overview
Businesses have different avenues to go to market. They can sell directly to consumers, use exclusive or selective distribution agreements, or set no stipulations on whom can sell their products.
There are four core distribution models:
- Intensive – There are no set limits or rules on stocking a businesses’ products. Anyone can distribute them, provided they do not infringe IP or are otherwise non-compliant with local regulation.
- Selective – A business selects a limited number of authorized distributors that can sell to the products to consumers based on a set of rules. These distributors are selected because they satisfy certain criteria that the brand owner has set, and because they have agreed not to sell to other dealers outside that network in their given territory.
- Exclusive – A business selects an individual distributor as the sole party allowed to sell the product to consumers
- Direct to consumer – The brand owner does not permit distributors to stock its product. Instead, it sells directly to consumers through official channels such as the company website and physical stores.
What is selective distribution?
Selective distribution is a distribution model where the brand owner only supplies its products to a limited network of authorized distributors. These distributors are selected because they satisfy certain criteria that the brand owner has set, and because they have agreed not to sell to other dealers outside that network in their given territory.
Selective distribution sits in between an ‘intensive’ approach on the one hand, where the brand owner’s objective is simply to maximize volume by getting its products to market through as many channels as possible, and a direct to consumer or exclusive distribution arrangement where the brand owner or a single exclusive distributor is responsible for a given territory.
Why use a Selective Distribution model?
An effective Selective Distribution system allows the brand owner to get the benefit of a greater market reach operated by a network, whilst at the same time keeping better control over brand and product presentation and image as well as customer service and support.
Selective Distribution systems need to ensure that there is a strong relationship between the brand owner and the distribution network, which itself can reap further additional benefits such as better forecasting and inventory control.
Businesses should be wary that competition law differs from territory to territory – there are fair competition regulations in the EU that you must have adhere to, for example. Part of an effective Selective Distribution strategy is being adaptable in your approach in different geographic territories.
Part 2: Preparing for success
How you prepare for success will depend on which type of distributor you are dealing with under your agreement. However, whether it’s a retailer or a wholesaler, the provisions around the manner in which your products are sold are going to be important.
These provisions will cover:
- Presentation of the product itself, or product images, perhaps mandating the use of approved imagery only
- Quality of showrooms/retail experience – in terms of presentation, location, situation etc.
- Sales staff, training, availability etc.
- Nature and methods of advertising
You need to think hard about any proposed restrictions around online selling – competition authorities can be very hot on this, although this position is somewhat relaxing in territories such as the EU.
You’ll also need to have a holistic view across various types of agreement, not just wholesale and retail distribution agreements. Others such as product category licenses and franchise agreements need to be monitored regularly. There needs to be a consistent approach and message throughout.
Audit rights and the requirement to seek brand approval for sales to sub-distributors are both critical. A key challenge once agreements are signed is trying to force sub-distributors to comply.
Beyond this, it is also important that the Selective Distribution Policy does not include criteria that are too qualitative or loosely defined – this could lead to lengthy debates with the distributor on whether they are compliant.
Platforms pose the biggest challenge. Often, they are unwilling to cooperate, especially in disputes with sub-distributors – platforms do not believe this to be a legal issue.
Sellers can also pose issues by using different commercial names on platforms. Therefore, a distributor who is not allowed to sell on platforms could mask their identity. Without monitoring and investigation of platform activity, this infringement of the agreement will not be apparent.
Part 3: Selective Distribution compliance
Your business first must decide whether the priority for enforcement is marketplaces or your distributors’ own websites.
Then, you will need to scope all territories to identify the geographies that need priority enforcement. This can be done considering both the level of non-compliance but also any pre-existing necessity to review existing agreements.
To be successful the enforcement strategy should be customized for the different territories, taking into account the legal framework in each region.
To set the overall strategy and deliver maximum impact, it is crucial to involve the commercial managers in each territory. This helps build greater understanding of the market and nature of relationships with the local distributors.
Design an effective strategy to align with your business goals
Start by setting priorities and involving the commercial managers as well as building a full picture of the problem through a scoping analysis. You should also decide whether you are focusing on the latest products and collections or whether to enforce on the entire back catalogue.
Thereafter, it is important to concentrate on certain territories at a time. This ensures the highest compliance rate as the distributors see their competitors also going through the exact same process and therefore do not feel singled out. In that context it is also important to have agreed a specific timeframe within which we aim to achieve compliance and to have set follow up steps which might include the involvement of the legal department if all other enforcement actions do not succeed.
Finally, also consider adding a list of authorized sellers to your website explicitly state that large platforms are not authorized. This should reduce traffic to marketplaces and at the same time make distributors more likely to comply with the agreement.
Part 4: Devialet’s success story
Based in France, Devialet is a leading audio technology company that produces an exclusive line of speakers and amplifiers. Over the last 10 months, Devialet has worked with Corsearch to refine its Selective Distribution strategy and monitor for network compliance.
Core to Devialet’s success is the methodical approach to agreements – selecting territories; choosing distributors; monitoring compliance (also in regards to product import); including clauses to inform Devialet of any changes in the regulation of products; and product certificates. The business also takes preventative measures to ensure products remain compliant.
At the beginning of each year, Devialet ask its sales and marketing team to provide feedback on relationships with distributors over the past 12 months – the types of issues encountered, what needs to be improved, and what’s missing in contracts are all topic areas covered off.
After this data is collected and synthesized, meetings are organized with all sales teams worldwide (EMEA, APAC, Americas).
Discovering and enforcing against breaches
Devialet actively monitors distributor compliance. When a distributor is found to be non-compliant, a soft notice is sent that reminds them of the agreement terms.
If after the first soft notice the distributor remains unresponsive or non-compliant, it turns into a legal matter with a further notice sent by the Devialet team.
The third step is termination if no effort is made by the distributor. Devialet then ensure that they can buy back any stock with a restocking charge. If there is any territorial leak, the business tries to obtain compensation on behalf of the affected distributor.
Selective Distribution doesn’t exist formally in the US. However, Devialet applies the same criteria to this region as they do within EU to harmonize all distributors under the same rules. These contract contain very similar terms but are not labelled Selective Distribution agreements – instead, they come under compliance.
The benefits for Devialet in taking this approach
Through this Selective Distribution strategy, Devialet has managed to facilitate cross-team collaboration across sales, marketing, legal, and all well aligned and help each other to make it successful.
- Maximize control over service level/output
- Enhance product’s image
- Promotes dealer loyalty, better forecasting, better inventory and merchandising control
- Restricts dealers from carrying competing brands of lower quality
Brand Protection technology critical for monitoring compliance
Brand Protection technology can be used to monitor platforms, marketplaces, and individual distributors for selective distribution compliance. It can locate where your products are being sold, flag any price changes, and indicate the territories that products are being sold into.
Request a personalized demo of our Corsearch Brand Protection Platform to see how our advanced monitoring and prioritization capabilities can ensure compliance among your distribution network and ultimately ensure your selective distribution strategy is successful.
This blog was originally published on the Incopro website. Incopro was acquired by Corsearch in 2021, with the two organizations combining their technology and expertise to better serve the market.