TALES FROM THE ROAD 34 – SO YOU WANT EXCLUSIVITY? PART 1

I am sure you have heard it before. You start discussions with a potential distributor and almost the first thing they say after ‘Hello’ is ‘Of course we would want exclusivity’. Now presumably your market research indicated that the people you are speaking to are good candidates or you would not have approached them, right? And it isn’t always just an opening gambit. Very often they are absolutely serious, and you need to be able to handle that.

So start by putting yourself in their shoes. They are approached to distribute your range of products, the first time they have been introduced to their market. You offer something new, and maybe they can gain reputation by being the first to have access to it. It may give them competitive advantage, and they will want to protect that. What would you ask for if you were them? Exclusivity I imagine!

Spain had proven to be a very difficult market to penetrate as I strove to carpet as many of Europe’s offices as possible with premium quality carpet tiles. The climate in most of the country doesn’t really lend itself to their use, and my modest successes in the first three years were through retail stores. I travelled to Madrid, Barcelona, and Bilbao, to gather market information, visiting the British Embassy in Madrid and the Consulates in the latter two, and making appointments with a number of distributors in each city with very capable interpreters in tow. Our competitors were doing well there, embedded in fact, so why weren’t we?  For the whole trip I felt like I was missing a trick.

For about a year prior to that trip, I had been working in collaboration with a manufacturer of raised access flooring, and a manufacturer of adhesives, on the principle that we could offer our products together as a package: carpet tiles adhered to raised access flooring panels was the jist of it. We met every few months to discuss opportunities, and in one of those meetings, the panel manufacturer suggested he introduced me to a number of his distributors around Europe, with the deal being that I would reciprocate. One of their most successful distributors was based in Spain with offices in both Madrid and Barcelona, and as only an occasional seller of carpet tiles for a competitor, they had crept under my radar. Here were three dynamic guys, supported by a great team, and I had somehow missed them!

My main problem was that I was starting from a position of weakness. The distributor knew I was finding it hard to enter their market because the panel manufacturer had told them, so they knew they could play hardball. Their position was that they wanted exclusivity, and my position was that I really didn’t have an alternative other than to concentrate on other markets and leave Spain out of my portfolio. However, at the time there were a large number of major construction projects across the country, and if I didn’t get our products specified then our competition certainly would. And it wasn’t as if I was going in blind. The company I was talking to had a track record with the panel company and some experience of getting carpet tiles specified in the commercial sector.

In this case I knew before meeting them that exclusivity would be the deal breaker, and I was prepared to take a calculated risk and offer it to them, on certain conditions:

1.    If they wanted exclusivity, then I did not want them selling any competitive products.
2.  I required a full list of ongoing projects where they had specified the competitive products, and the company should try to change specification to our products where possible.
3. I would give them six months free reign In the market without contacting any other potential distributors, and I would refer any enquiries from Spain directly to them.
4. That they accepted my payment terms of 30 days from the date of invoice.
5. That the distributor took a certain amount of stock, albeit at discounted rates to get the relationship started.

Well they were okay with points 1 and 2! I knew that point 3 was fairly meaningless because they knew I hadn’t found an alternative, but it was important to give notice that they would have to perform. Specification selling doesn’t happen overnight because you can’t change the timescale for the construction of a building, so it would have been pointless to also insist on a sales target for the six month period. I also knew they would ask for 90 day terms, so we agreed on 60 with a commitment to review based on performance, but taking stock was not an option for them because they would then have to second guess what products and colourways would be most likely to be specified. So in the end we met half way I suppose.

It actually took the best part of six months to formalise a contract between us, and I was glad to have been introduced because their performance for the next few years was fantastic, to the point where when I left the company, they became the official office in Spain for our recent new owners. This is one occasion where it was the right thing to accede to their demand for exclusivity, and the reputation they had gained with the raised access company provided a good degree of confidence, and smoothed the negotiation process.

In this case, the answer to ‘So you want exclusivity?’ was ‘Oh alright then!’, and it was absolutely the right decision. The next Tale is of an opposite experience.