Exclusivity - Why?!

More and more products are coming to market with exclusivity agreements attached.

Increasingly, we are hearing about exclusivity in agricultural markets when it comes to distribution of new products. Why and when does exclusivity work or why and when does it not?

What is exclusivity?

This is a concept usually brought to the table by resellers or distributors. They believe having an exclusive product line will enhance their value in the market, to wit they convince manufacturers they are the horse to win the race to the market. Exclusivity is not private labeling. That is another market mechanism with its own trappings and models for massive success. Exclusivity as it applies to this discussion is when one, and only one, reseller can market a product in a predetermined geographic area.

When and why does exclusivity work to enter and own a market?

Usually this only happens in luxury items. We usually hear terms like “for limited release” or “limited-edition.” Craft liquors are big in this right now. They have a limited item that can only be purchased at a specific liquor chain. Same is true with Chanel handbags,

Rolex watch releases in certain jewelry chains, Apple iPhone model release with AT&T,

and so on. This works because the design is to drive value for both the brand and the

reseller. As long as the product has an attribute with a genuine perceived value both

parties win using the scarcity tactic and FOMO principles. Exclusivity also works in

pharmacology but for very different and market driven reasons. Suffice it to say,

exclusivity works in a very specific application.

When and why do similar concepts fail?

This is something we are seeing in the agricultural sector more often. Exclusivity is high risk result in utilitarian markets, like agriculture. A new product wants to come to market and the resellers in that sector want “exclusivity”. This is a loser for both parties, especially the manufacturer.

First, the reseller loses credibility in the market due to the “manufactured scarcity” principle*. The reseller loses the trust of the clientele. If there is a “sold-out” mechanism in marketing, it generally fails massively by alienating clientele. Forcing consumers to buy from only you only angers them and creates more returns, bad reviews, one star experiences and the like.

Second the manufacturer loses on every front. A large portion of the potential market is alienated because they don’t have access to it. Further, if the product doesn’t live up to expectations, disappointment spreads like wildfire and potential buyers are sidelined to wait and see what changes. When logistics aren’t aligned you create confusion, long wait times, or ordering system failures. Next, you can only grow within the resellers ecosystem, never scaling beyond their reach. They will not achieve more reach with your brand. That’s a myth as old as they come – one deficient distributors use repeatedly to convince you to do the deal. This is just the tip of the iceberg that goes on to include missed revenue opportunities, reputation risks, scalping on a secondhand market, and channel conflicts. As a last attempt to cover up for poor customer service, resellers use this mechanism to remain relevant in the market. The risk is too high to use exclusivity as a go to market strategy for your new product.

When might it work?

If you want to assume the risk, or feel the market is forcing you choose a broken horse, then get assurances in the contract. Force the reseller to provide 20% of expected sales revenue to marketing only your product. If you want $1 million in sales, they must commit $200,000 to marketing and promotion. Next, make sure the reseller provides the line items for the 20% investment monthly. Agree on the seasonal push, when and how it will be executed in writing. Finally, set quarterly benchmarks as an exit strategy to any exclusivity deal. Meaning, if they don’t meet quotas, the agreement is null and void. Keep lines of communication open and crystal clear. The day the reseller fails to return a call or respond to an email is the day you begin negotiations with others to prepare for when the deal no longer exists.

There are volumes of market data on this topic. If you want more guidance or

references on this or other go-to-market methods, contact AgLine Strategies to begin

planning your next move.

*Harvard Business School (https://www.library.hbs.edu/working-knowledge/how-to-profit-from-scarcity