CE Supply arrangements

Part
01
of two
Part
01

Consumer Electronics - Supply Arrangements (Part 1)

The types of agreements that can be entered into by a manufacturer to distribute and market his/her products through intermediaries are exclusive, selective, sole, and non-exclusive distribution agreements.

1) EXCLUSIVE DISTRIBUTION AGREEMENT

  • Distributors who sign exclusive distribution agreements can only distribute the products in a particular territory and cannot go beyond that area or sell goods directly to customers that are not located in the territory.
  • As part of the exclusive distribution agreement, suppliers are not allowed to directly sell their goods in the territory covered by the agreement or through other agents and distributors.
  • Consumer electronics manufacturers in Europe that have signed exclusive distribution agreements include Royal Philips and TE Connectivity.

2) SELECTIVE DISTRIBUTION AGREEMENT

  • Signing selective distribution agreements allow manufacturers to select their distributors based on a specific set of criteria.
  • According to a survey conducted by the European Commission in 2017, 20% of the manufacturers in Europe have opted to sign selective distribution agreements.
  • Consumer electronics manufacturers in Europe that have signed selective distribution agreements include Bang & Olufsen, Asus, and Denon & Marantz.

3) SOLE DISTRIBUTION AGREEMENT

  • As part of the sole distribution agreement, only one distributor is allowed to sell every product provided by the manufacturer.
  • Similar to the exclusive distribution agreement, suppliers are also not allowed to directly sell their goods in the territory covered by the agreement.
  • Consumer electronics manufacturers in Europe that have signed sole distribution agreements include BOSE, Canon, and SENS.

4) NON-EXCLUSIVE DISTRIBUTION AGREEMENT

  • As part of the non-exclusive agreement, manufacturers are allowed to sell directly to anyone and also select a distributor within the same territory.
  • Distributors do not have any exclusive rights to the products, which allows manufacturers to select multiple distributors.
  • Consumer electronics manufacturers in Europe that have signed non-exclusive agreements include Accutone and Elecraft.

Part
02
of two
Part
02

Consumer Electronics - Supply Arrangements (Part 2)

The pros and cons associated with each sales arrangement differ from one another with the exclusive distributor agreements having more advantages compared to the rest.

1. EXCLUSIVE DISTRIBUTION AGREEMENT

Advantages

  • An exclusive distributor has to agree that he will exclusively sell the products of the manufacturers and will not sell those of the competition. This way, the market becomes an open ground for the manufacturer.
  • Exclusive distribution helps to keep the focus simple for the firm. The brand does not need to worry about losing its own distributors to the competitor because of the established contract.
  • As such, retailers and wholesalers can more easily access the manufacturer's products, which, in turn, increases distribution as well.
  • The financial risk also falls mainly on the distributors rather than the manufacturer but the distributor needs to be ethically and financially stable.
  • Penetration in the market becomes much better because the manufacturer does not need to spend manpower in finding, convincing and maintaining the distribution channel.
  • The manufacturer has a chance to create a genuine working relationship with a single real estate agent, which will ensure that the price of the property will be the highest possible.
  • Exclusive listings tend to attract better offers than open listings.

Disadvantages

  • For the manufacturer to be successful, the exclusive distributor must be trustworthy otherwise the distributor may spend money budgeted for marketing to other personal uses.
  • The manufacturer is highly dependent on their exclusive distributors.
  • If there is a dispute with a well-placed exclusive distributor there is a high chance of losing a big market share in the specific market as it will be difficult for another distributor to create the same relations.
  • If the signed contract gives the distributor exclusive rights, the manufacturer will not be able to find another agent until the expiry of the contract.

2. SELECTIVE DISTRIBUTION AGREEMENT

Advantages

  • Since a number of distributors are handpicked by the company, consumers are likely to benefit from better quality services and products.
  • Manufacturers also have better control in terms of how the product is handled by distributors.
  • Manufacturers are able to establish good working relationships with channel members because there are only a few outlets to oversee.

Disadvantages

  • "Since products sold via selection distribution aren’t available everywhere, you may not be able to achieve increased market penetration."
  • Disputes with distributors can lead to big losses for the manufacturer.

3. SOLE DISTRIBUTION AGREEMENT

Advantages

Disadvantages

  • The sole distribution agreement implies that the supplier retains the right to personally distribute products in the protected territory by only giving up the option to appoint third parties to sell in that marketplace.
  • Manufacturer cannot set a minimum price for the sale of the products by the distributor.

4. NON-EXCLUSIVE AGREEMENT

Advantages

  • "With a non-exclusive agreement, the business seller may work with multiple business brokers if they are not satisfied with the performance or believe that working with multiple brokers will improve the odds of making a successful sale."
  • "The seller may not have to pay a commission if they find a buyer on their own, assuming the seller is able to handle the negotiations, due diligence, paperwork and escrow without assistance."

disadvantages

  • The distributors willing to work on non-exclusive basis are either inexperienced or will invest only a minimal amount of time and resources.
  • Keeping the sale of a business confidential with a non-exclusive agreement is nearly impossible.

Sources
Sources

From Part 01
From Part 02
Quotes
  • "Exclusive distribution, as the name suggests, is a type of distribution where the company ties up exclusively with a distributor."
Quotes
  • "On the surface, an open listing may seem like a better option. You pay a lower commission than an exclusive listing and can do your own marketing and advertising"
Quotes
  • "Selective distribution allows companies to garner optimum market coverage, that too at a relatively lower price."