By Vanessa Ting
Exclusives is a tactic retailers use to gain (and defend) market share from their competitors. It’s a distant-relative of channel management. Both concepts endeavor to minimize sales cannibalization, fuel category growth, and grow market share.
All retail buyers love exclusives – whether it is in the form of exclusive brands, exclusive SKUs, exclusive designs or exclusive packaging. They’ll take exclusives however way they can. They’ll ask for as much as they can get, whether they need that level of exclusivity or not. Regardless, they will always ask for exclusives – because they can. Your job, as the smart vendor, is to determine if it makes good business sense for you to provide exclusives. And to negotiate the terms so that it is mutually beneficial.
Like I always say, everything is negotiable.
When a buyer asks you for exclusivity, do the following:
- Consider the factors below
- Prioritize these factors based on importance to you
- Determine your BATNA (Best Alternative To No Agreement), otherwise known as your bottom line before walking away from the deal. And then,
- Define the exclusivity in YOUR terms. Don’t make assumptions on what the retail buyer wants. Decide what your opening offer will be, and begin negotiating. This is a conversation. Not a mandate from the retailer. So take control over defining the exclusivity!
Exclusivity: 6 Factors to Consider
- Your opportunity cost: What business will you be giving up as a result of giving this retailer an exclusive? Think about that as you read the rest of this list. I even encourage you to run the numbers on the “lost sales” as a result of an exclusivity.
- Product: What level of exclusivity are you willing to give? Are you willing to give the retailer exclusive rights to sell your brand? Or just a certain SKU? How about limiting it to a style (such as a colorway, certain pattern or maybe a specific fragrance or variant)? Or maybe it’s a certain pack-size or piece-count?
- Distribution channel: Is it an exclusivity for all of brick and mortar retail? Or is it just for the channel (e.g., Grocery channel exclusivity or independent boutiques exclusivity, etc.) or geography (e.g., region of the US or country, etc.).
- Length of time: It can be six months, one year, or two years. Obviously the retailer will ask for as much time as they can get. To determine how much time you’re willing to give, look at your internal operations and timelines. Depending on internal factors, giving a retailer 6 months exclusivity may not be a big deal (although you can act like it’s a big deal). Likely it would take you 6 months just to open up another retail account, so maybe 6 months is not too huge of a sacrifice. Maybe the opportunity cost of one-year, while not ideal, is a manageable sacrifice. Figure out at what point the exclusivity becomes prohibitive to your business and based on those factors, come up with your ideal outcome.
- Quid Pro Quo: What will the retailer give you in exchange for this exclusivity? In my opinion, there should be something. Whether it is giving you prime real-estate like on an endcap, advertising/marketing support, or maybe a guarantee they will not issue chargebacks for markdown liability on the exclusive designs (final sale). If this inventory cannot be resold elsewhere, I highly suggest you enforce the “no markdown relief” policy. Or maybe it’s a commitment to keeping you in their POG for a certain amount of time. This is one place you can get creative. Just like the buyer is “aiming high” with their exclusivity request, “aim high” with your quid pro quo request.
- Financial Cost To You: Obviously a huge factor is how this exclusive request drives your costs. If you are having to create exclusive packaging in addition to an exclusive product design, the costs will start adding up. But if this is an item you have in your pipeline already and you have plans to roll this product out to other channels in the future, maybe the costs are minimal relative to the upside.
Remember, even though you agree to an exclusivity, that doesn’t preclude you from pitching it to other retailers. As long as those retailers are not selling that exclusive item nor marketing it, you can go as far as setting it up so that it’s ready to ship once the exclusivity is over.
Truthfully, the buyer will take whatever they can get. Any exclusivity is an advantage for the retailer. Letting them claim “exclusive” to shoppers is almost more important than the exclusive itself. After all, if no one knows it is an exclusive, the retailer doesn’t get credit for it in the eyes of the shopper. Remember, the retailer is using exclusives as a way to drive shoppers into their stores and prevent them from shopping at their competitors. And thereby drive category growth and gain (or defend) market share. So knowing this, shape your proposal in a way that meets retailers’ need to claim “exclusivity” as well as the needs of your brand. Win-win.