Posted in Marketing and Strategy Terms, Total Reads: 479
Definition: Buying Distribution
Buying distribution is paying additional amount of money to the distributor for not handling competitor’s products and for the marketing efforts he/she makes for the company’s products. This is usually done when the products can be easily substituted for the competitor’s product. This is done in order to maintain company’s monopoly over the distributor. The company selects and pays the distributor keeping in mind how good the distributor is in his/her field (i.e. considering the effectiveness, efficiency, profits etc).
Buying distribution is generally done for substitutable products because ruling out the competitor’s product in the distribution phase gives monopoly to the company. Selecting a good distributors serves the company’s purpose. In case of non-substitutable products, this is not required as the product does not have threat of competitors or being substituted.
For e.g. a company which manufactures soaps would indulge in buying distribution as its product is easily substitutable. The company would prefer a distributor who is highly proficient, has a good reach in his area (i.e. is able to reach maximum amount of people in his/her area) and is able to generate revenue for the products. A company which makes nuclear instruments (considering it is the only company making nuclear instruments) will not require to indulge in buying distribution. As it does not face a threat from being substituted and its products are bound to sell when demand arises.