Question

Topic: Other

Exclusive Distributorship: Contractor Relationship

Posted by Anonymous on 1/12/2014 at 1:38 AM ET 250 Points
Hello everyone,

For a company that has exclusive distributorship for brand A, does the company act as if they are brand A themselves?

I'll use a fictional example to set the background:

Nanotech sells computer monitors and is the exclusive distributorship for Boss Audio products in North America. Boss is a fairly new brand, and they want to use Nanotech's well established distribution channel in North America to sell their products. Nanotech signed the contract because Boss is a well known brand in Europe and feel that this brand could make them a lot of money.

Boss Audio has its own website called www.bossaudio.co.uk.

Since Nanotech is the exclusive distributor in North America, they also created a website for Boss Audio called www.bossaudio-usa.com

Here's my question:

1. In this exclusive distributor relationship, does Nanotech see themselves as if they are Boss Audio?

2.) When going to trade shows (for example, CES), do they represent Boss Audio? Meaning their booth name, their outfit, etc, all say "Boss Audio" and not Nanotech?

3.) In the "Company Info" section on Boss Audio USA's website (the website created by Nanotech), would they put the company info of Boss Audio, or would they put the company info of Nanotech?

4.) Can Boss Audio USA say that they are the manufacturer and exclusive distributor of Boss Audio products? By saying that they are the manufacturer, they are basically saying they are Boss Audio (the original one)... But then again, they're not "really" Boss Audio since they are the exclusive distributor and their parent is Nanotech .. And they really have no ties with Boss Audio besides the rights to distribute the products....

I do have more questions that I'd like to ask later :)
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RESPONSES

  • Posted by saul.dobney on 1/12/2014 at 10:00 AM Accepted
    The simple answer is no. In the example above Nanotech act for themselves to maximise the value of the exclusive dealership for themselves. It may include how much Nanotech want to invest in promoting or supporting the Boss brand (often the distributor will still expect Boss to do, or to pay for, the marketing). This may mean not stocking or running lines that Boss would like them to stock. For Nanotech, Boss may be only one of several brands that they have or hold exclusive arrangements for. They will have other products and priorities they want to meet beyond Boss.

    The exclusivity comes in that no-one else can sell Boss and within the exclusivity deal, Boss will have negotiated a certain level of marketing support and a certain set of pricing agreements and service levels and possibly minimum purchase volumes from Nanotech. Within the negotiated marketing agreements it may be that Nanotech is allowed to operate a Boss-trademarked website or to represent Boss at a tradeshow, but this will be within the distributor agreement. Nanotech cannot operate this without Boss's say so.

    It's important that the businesses are demarcated and separable, as in the future there may be disputes or issues around change of ownership or strategy. If there is a really close relationship then it may be better to work as a joint venture than just via a distributor-supplier agreement.
  • Posted by Peter (henna gaijin) on 1/12/2014 at 3:25 PM Accepted
    I vote maybe. Companies can do whatever they want on this - as rarely are there legal rules requiring a company to be named one way or another.

    The relationship is how the two sides want it to be. Many companies do function as local versions of a manufacturer in other geographies, even though there is no business ownership connection. Think of many franchises - that local McDonalds is independently owned and operated, but acts just like the company owned McDs (does the company still own retail outlets - if not, substitute any of the other franchises that have both company owned and independent retailers as the example). Others act as different company names and like totally different companies, even though there is an ownership relationship. Depends on what the two companies want and what they feel will best maximize both businesses.

    Big problems can arise when the two parties are not working together to determine what the level of name connection/disconnection should be. So this really should be set up front.

  • Posted on 1/12/2014 at 6:52 PM Accepted
    I'm with Peter. If both the manufacturer and distributor are comfortable with the naming and representation, they can do whatever they agree to do.
  • Posted by saul.dobney on 1/13/2014 at 3:50 AM Member
    For clarity, there's a big difference between being a distributor and being a franchisee. Franchises imply a very different type of business relationship for instance because of the licensing of IP, fees on turnover etc. A franchisee typically can only sell the franchisor's products. while a distributor will most often be selling more than one suppliers' products and services.
  • Posted by Moriarty on 1/13/2014 at 4:47 AM Accepted
    To my mind you've answered your question yourself: "Boss is a fairly new brand, and they want to use Nanotech's well established distribution channel in North America to sell their products. Nanotech signed the contract because Boss is a well known brand in Europe and feel that this brand could make them a lot of money. "

    You are using Nanotech and they are using you - profitably in both instances. They know their market, they know their job, so my point is to leave them to get on with it.
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