The Advantages of an Exclusivity Strategy
An exclusivity strategy involves adopting a business practice that minimizes or eliminates competition. Exclusivity strategies can be difficult to pull off, depending on the size of the business and the nature of the market. But when successful, exclusivity strategies offer advantages in many business areas — for example, by allowing a company to make unilateral decisions.
A company that dominates a market can make the most of exclusive distribution advantages. For example, big-box retailers have extensive resources and distribution capabilities, so they can negotiate favorable terms with suppliers that smaller retailers could never achieve. Small businesses can not compete on that level, but they can dominate smaller markets.
For example, a successful restaurant might be able to negotiate exclusive deals with local farmers. The farms might agree to supply only that restaurant in exchange for being prominently featured on the restaurant’s menu. The advantage for the restaurant is that its competitors can not easily mimic its menu and steal its customers. Advantages for the farm, meanwhile, include a steady account, branding and advertising.
Companies often use an exclusivity strategy during product development and marketing. Patents, for example, make imitating a product difficult for competitors. When patenting a product is not possible, companies can use branding to create an illusion of exclusivity.
Typical product exclusivity examples include luxury items such as handbags, scarves and cosmetics. Top fashion designers, for instance, develop brand identities that make their products seem exclusive when in fact many other options would fill the same practical purpose. A purse with a famous designer’s trademarked logo, for example, might cost much more than similar-looking purses from less prestigious brands.
An exclusive distribution channel allows a business to optimize its supply chain and achieve maximum efficiency. For example, suppose a manufacturer currently contracts with a third party to deliver its products to retail stores. If the manufacturer wants to speed the shipping process, it can not make changes to the shipping company’s practices without negotiating new terms.
But if the manufacturer instead implements its own distribution channel, tasking it to exclusively carry its own products, it will gain direct control over the shipping practices. If the manufacturer is large enough, it might be able to create exclusive deals with many third-party shippers, which also increases its power.
Retail stores often use exclusivity strategies to increase their competitive edge. For example, a boutique shop might strike a deal that designates it as the exclusive retail provider of a fashion designer’s products.
Similarly, art galleries often ask artists to cede exclusive rights to selling works in the surrounding region. In both cases, the retail outlets gain protection: Exclusivity allows them to set profitable price points without being undersold by nearby competitors carrying the same products. The exclusive deal also has advantages for the suppliers. Being associated with a prestigious retail outlet might give a designer or artist credibility, increasing the value of their work in outside regions.