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What Is an Exclusive Distribution Agreement: Best Practices For Creating Distributor and Dealership Agreement

what is exclusive distribution agreement

When a consumer hops inside a supermarket and buys a pair of jeans at a 40% discount, then what happens is the result of a long chain of events and processes, called the supply chain.

Here is a brief overview of the supply chain process for those jeans:

Step 1: Manufacturers produces it

Step 2: Manufacturer then ships the product to the Distributor.

Step 3: Distributor ships the product to the Dealer.

Step 4: Dealer either sells the product from their end, or ships to the Retailer.

Step 5: Retailer then sells the same to the consumer

As we can see, distributors and dealers are the two most important links which connect the retailers to the manufacturer, and in turn, the retailer sells them to the consumer.

There are agreements and MoUs signed between the manufacturer and the distributors and the distributors and the dealers to smoothly process and executive this supply chain.

This article will share some interesting details about the exclusive distribution agreement and share the Distributor agreement format and Dealership agreement format to understand the process better.

But first, let’s understand who a dealer is, who is a distributor, and their roles in the overall supply chain.

Who Is A Distributor?

A distributor is a direct link between a manufacturer and the dealer/retailer. Distributors are also known as the mediators between manufacturers and dealers/retailers.

When a manufacturer produces a product, say television or mixer-grinder, they will appoint distributors to distribute their products in specific regions.

In most cases, a distributor is exclusive to one region, and they are bound by a financial contract to distribute the products of the manufacturer and increase the sales.

For example, there can be only one Exclusive Distributor A for a product in the entire Delhi region. 

In that case, there will be no other distributor in Delhi except distributor A. That Distributor A won’t distribute any competitor’s product via their channels (based on the agreement between manufacturer and Distributor).

Distributors may buy products of various types, albeit from the same manufacturer.

Services like repair/replacement and technical support are also Distributor’s responsibilities. 

The manufacturers themselves appoint distributors; hence, there is significantly less competition due to the business’s exclusive nature.

Who Is A Dealer?

Dealers are more flexible and not bounded by any exclusive agreement with anyone.

There are two types of dealers: One who directly inks a pact with the manufacturer and sells their products via retailers or themselves.

And the one who buys products from the distributors and then sells them to the retailers or end-users directly.

Dealers often stock a particular type of product from various manufacturers and distributors. The competition in their niche is more vigorous since dealers are flexible to get the best deal for any specific product, which directly impacts the final price, which the customer is paying at the retail end.

Distributor Agreement Format: Key Ingredients

We will share a Distribution agreement sample for more clarity.

Note here: In most agreements between a Manufacturer and the Distributor, it’s an exclusive distribution agreement. Since the manufacturers themselves appoint distributors, they make it exclusive for one region or a large area. 

As explained above, a typical manufacturer may appoint one Distributor for an entire country or state, or district, depending on the audience demographics, and the product’s reach. 

Some of the key pointers which an exclusive distribution agreement should have:

  • Nature Of Exclusivity: If the agreement between the manufacturer and the Distributor is exclusive, the nature of exclusivity should be clearly mentioned. Both the manufacturer and the Distributor need to put forth their expectations in case of such an exclusive contract. For example, the manufacturer is assured of a minimum number of units sold; and the Distributor is assured of every unit’s fixed-rate, if they fulfill their part of the deal.
  • Territory: The exact areas/regions of exclusivity should be mentioned, to avoid overlapping of distributors.
  • Pricing: The specific and exclusive price for distributors, based on the exclusivity clause.
  • Other Pointers May Include: Can the Distributor make enhancements and changes to the product? How many claims can the Distributor make over the product’s exclusive features and representations? Scope of Intellectual property use, ownership and infringement, marketing rights, trademark licensing, termination, and more.

Here is a sample of an exclusive distribution agreement for a software product.

Dealership Agreement Format: Key Ingredients

This section will share a Dealership agreement sample for more clarity into understanding the nature of business between dealers and distributors or manufacturers. 

But first, let’s discuss a few important features of the dealership agreement:

  • Details of the goods involved in the agreement
  • Territory involved in the dealership
  • Tenure of the agreement 
  • Obligations and duties of the Dealer: What percentage of the profit can be given as commissions, team size, size of the office, etc.
  • When will the products arrive from the distributors?
  • Process of return of defective goods
  • Marketing and promotion schedule, budget, and content ideas
  • Payment process: When can the invoices be raised, the date of the payment schedule, a penalty in case of late payments, etc
  • Exclusivity clause: Is the Dealer an exclusive entity for the Distributor? If yes, then what are the provisions of this exclusivity clause?
  • Confidentiality clause: Is there any confidential information which the dealers are not supposed to reveal? 
  • Price of the products, and the discounts which the Dealer is expected to provide
  • In case of any dispute, which jurisdiction will be accepted; Governing laws

Here is a Dealership agreement sample between a dealer and a distributor.

Need more clarity and information on the formulating agreements between dealers, manufacturers, and distributors? 

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