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What is Selective Distribution?

Malcolm Tatum
By
Updated: May 16, 2024

Selective distribution is a retail strategy that involves making a product or group of products available only in certain markets. This is the opposite of open distribution, where a product line is distributed to as many markets as possible. There are several reasons for employing this approach, including the potential for limiting competition and minimizing distribution costs so that net profits are higher.

The selective distribution process focuses on identifying specific markets where a company’s products are highly likely to be favored by consumers in the area, while avoiding distribution to areas where there is less of a chance of gaining a significant market share. Often, this situation comes about because a number of similar products are already available through certain markets, and the level of competition is higher. By choosing to distribute goods through handpicked retailers within certain geographic regions, it is possible to avoid some of this competition, while still tapping into the demand for products of that type.

One approach that some businesses take is to contract with a limited number of retailers that will sell the products in their stores. For example, a company making a specific brand of cologne may choose to only allow their product to be sold at a few high-end department stores and withhold distribution to supermarkets, drugstores, and discount retailers. The idea is that, by focusing on consumers who are more likely to shop at one or more of the high-end stores, the product begins to be seen as somewhat prestigious and will command a higher price per unit.

Along with the selection of retailers, a company may choose to limit distribution of its products to specific geographical areas. This is sometimes the case where there is a strong demand for a given product, but very few opportunities to purchase the product locally. In this scenario, the manufacturer may identify specific retailers with stores in those geographical areas and make arrangements for those products to be carried on their shelves. The retailers benefit from being able to offer a product that is not widely available in the area, while the manufacturer stands to increase sales by having little to no competition from similar products within that area.

It is important to draw a distinction between exclusive distribution and selective distribution. An exclusive model would involve the identification of a single retailer to offer the product within a particular market and would also call for the retailer to not carry competing brands. This is not often the best approach for the manufacturer or the retailer, in that it limits options to reach consumers. A selective model does not prevent retailers from selling at least one similar product, and does not limit the manufacturer from working with other retailers in the area to carry the product line. Under normal circumstances, the selective approach is much more likely to maximize profits in a given market than the exclusive approach.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By anon241542 — On Jan 19, 2012

Selective distribution means the company selects some shops like x,y,z to sell a product.

By BambooForest — On Feb 24, 2011

Often, if a product does really well under selective distribution, it might be released more widely, though that can be a tricky thing. Sometimes distributing more widely can lower a product's perceived value, though it can please people who really like it and have a hard time finding the product.

By mitchell14 — On Jan 31, 2011

Another example of selective distribution can be seen through the movie industry. Many "indie", or independent, movies are distributed very selectively. This relates both to these movies' smaller distribution budgets and also their niche customer bases. A documentary on something like graffiti, for example, like the recent movie Exit Through the Gift Shop, is going to do best at smaller theaters in more artistic communities than small towns or shopping mall multiplexes.

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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