Isn't it kinda dumb that a manufacturer will give retailer exclusive rights?

[Iamme]

Behr Paints does that with Wal*Mart. Wouldn't they sell more if they also sold their product line to Lowes, Menards, etc.? I can't figure this one out. Do they think people are going to drive out fo their way to go to HD to get their paint?

Behr is not the only one doing this. Lowes has exclusive rights to this power tool company. There is similarly an ad running on tv about this.

And so it goes in the industry.

School me on this one folks.

[HarryKeogh]

I always thought The Home Depot owns Behr Paints (I think you meant to say Home Depot instead of Wal Mart in your OP...that's the only place I've seen Behr paint) so that's why you only see it there (like Sears owning the Craftsmen and Kenmore brands)

And in terms of power tools...many men (and I'm sure a few women) have a strong brand loyalty to their brand of tools. That can be a strong selling point to a store so they may be willing to pay their supplier a nice premium or fee to ensure they are the only distributor.

[Iamme]

(I think you meant to say Home Depot instead of Wal Mart .

Oops. Yes. Oddly I was thinking Home Depot, but typed Wal*Mart. The devil made me do it. Also, read my sig.

[Iamme]

That can be a strong selling point to a store so they may be willing to pay their supplier a nice premium or fee to ensure they are the only distributor.

A fee? How much of a fee to offset the gain from selling it at Lowes, Menard's...Wal*Mart even, etc. ?

[HarryKeogh]

A fee? How much of a fee to offset the gain from selling it at Lowes, Menard's...Wal*Mart even, etc. ?

hmmm, I don't know. In fact, now that I think of it I think my first response to you is probably wrong. Maybe it's just a good strategy for Behr. They get into the #1 home repair/supply retailer in the country, are given tons of shelf space, prominently mentioned in their ads and in-store displays. If they weren't exclusive maybe they would be less prominently displayed like the Ben Moore and Ralph Lauren paints. Also, by partnering with Home Depot they are given instant legitimacy. I never heard of them before Home Depot put them in their stores.

It also probably takes a lot of the marketing strain off of them as Home Depot takes care of it.

Anyway, pure speculation on my part. But an interesting question you raised.

[Gazpacho]

It's a cross-promotion. Behr enters the exlusivity arrangement in exchange for Wal-mart advertising Behr's product at its own expense. This isn't about Wal-mart strong-arming Behr, it's about making sure that Wal-mart's advertising benefits Wal-mart.

[rjh01]

What Gazpacho said.

Plus the same manufacturer might be making similar products for other people.

[Foolmewunz]

Paint is a different sort of product for a multi-purpose store. Even before the giants came along and you could find affiliates like Ace Hardware, most stores latched onto a single brand.

Behr was probably approached by HD to become their exclusive provider. Behr has a good reputation but was not the size of the major name brands, and when OD can give 1500 retail outlets type clout to a purchase, they have the power to ask for an exclusive. I wouldn't be surprised if Behr had to get such a deal to increase production to serve such a huge chain, possibly with up-front money from HD, or with bank financing based on their contract with same. If you get a chance to take a huge market position you think about it seriously. From out of almost no where, Behr became one of the leading national brands.

HD also has a differing philosophy from Lowe's. HD relies heavily on private branding, and likely signed up an exclusive with an idea to perhaps buying them out. But they're a retailer, and it's a lot easier to convince the owners to make it a de facto private brand (the company is owned by Masco, who are in the private brand merchandise business, so that says a lot), than to go buying up producers for every product in your huge retail empire.

HD pays some of the leading manufacturers to make a stripped down version as their private brand. It wouldn't be uncommon to find, for instance, a table saw or drill that came out of a Makita or Bosch or Black & Decker plant.

Lowe's also has a big tie-in with Valspar and Olympic. Each sells to other outlets, but Lowe's gets prime billing in their ads and store locators. Lowe's does a much smaller percentage of PB products than HD, but they're growing into it.

The big name in exclusive PB is, of course, Sears. They own the Craftsman brand, outright. It's a product developed for them. They also own the Kenmore line of appliances. I'm not familiar with Sears' structure so not aware if they out-source to manufacturers or actually own the plants, though.

[fuelair]

Behr Paints does that with Wal*Mart. Wouldn't they sell more if they also sold their product line to Lowes, Menards, etc.? I can't figure this one out. Do they think people are going to drive out fo their way to go to HD to get their paint?

Behr is not the only one doing this. Lowes has exclusive rights to this power tool company. There is similarly an ad running on tv about this.

And so it goes in the industry.

School me on this one folks.
Good reason if it increases profit for the company giving exclusive rights.
Bad idea if the company getting the exclusive rights tanks (many customers will assume the exclusive line was part of the failure - especially if the two have been associated for a while so people have had time to forget when the line was independant.).

[fxm]

The big name in exclusive PB is, of course, Sears. They own the Craftsman brand, outright. It's a product developed for them. They also own the Kenmore line of appliances. I'm not familiar with Sears' structure so not aware if they out-source to manufacturers or actually own the plants, though.

They out-source for the Kenmore label to, for example, Whirlpool and GE (the two major US large-appliance manufacturers). But as Foolmewunz mentioned, Sears owns the Kenmore and Craftsman brands, so it's a different story than a manufacturer and retailer having an exclusive distribution agreement.

As for why a manufacturer might do this, it's typically because the manufacturer would get a distribution channel that they could not easily establish on their own -- it costs money and takes effort to build one.

[Rocko]

It depends on the terms of the deal. For example, the distributor may pay a higher price/unit for the goods under an exclusive deal than they would under a non-exclusive.

Similarly, they may pay a premium upfront. Or they may agree to better terms - not just on the price, but for example on shelf-space and positioning. They may agree to shoulder the advertising burden, to run regular promotions, or to fund the freight costs etc.

Also, as others have commented, you may find that the paint company isn't forbidden from producing paints for other distributors, just from producing that brand.

[Wolfman]

Exclusivity deals generally have to do with penetrating a new market.

Let's say you have a decent product, but you are moving into a new market where your product is relatively unknown, and/or you have significant competition from other brands (some of which are much better known and more popular than your own).

The cost of marketing in such a situation is really high...and the larger the target market, the higher the cost to you. You have to develop brand awareness, build brand loyalty, etc. And all the time you are doing this, your competitors are doing exactly the same thing.

Now, add one new component -- a retail company that is already well established in your target market, that has a good reputation, and strong brand recognition. Cooperating with them gives you automatic penetration into the market, with their pre-existing reputation and experience.

What you'd really like would be for that retailer to actively promote your product. But what incentive is there for them to spend their own marketing budget on your product? If you are also selling your product in their competitor's stores, they absolutely will not do any special marketing or advertising for your product, because there is every possibility that after they spend money on building up your brand's reputation, people will simply go to a competitor, and buy it from them. Its a waste of money.

An exclusivity agreement, in this situation, benefits both parties. For the manufacturer, their product gets automatic market penetration, piggy-backing on the reputation of an established retailer. For the retailer, they know that spending money to promote your product benefits them, since if people want to buy that product, they can only get it from their stores.

The more successful the retailer is in marketing that product, the more they benefit from the exclusive relationship (ie. if Home Depot is successful in convincing people that Behr Paints are the best, then their sales will increase, since people cannot buy Behr Paints anywhere else). This is a far greater benefit to them than a non-exclusive relationship, where they have to compete with other retailers who sell exactly the same product, and therefore give no special reason why people should go to Home Depot, rather than someone else.

I've had some experience with this; during my time in China, I've developed several training programs that became fairly popular (particularly one for Cross Cultural training in multinationals). However, we pretty much only worked in Beijing. We wanted to sell our product in other cities, but were not prepared to open our own offices there. So we contacted training companies in those cities, and offered them licensing deals to sell our product in their territories.

From their point of view, they absolutely wanted exclusive contracts -- they were going to be spending their time and money to promote this program, what was the benefit to them if they spent all the money to make people aware of it, and then another company actually sold them the program?

From our point of view, we also wanted exclusive agreements, but only if they could demonstrate significant market penetration with their own company/brand. Most of the businesses we talked to failed to meet this standard. However, we found one training company in particular that had offices in ten Chinese cities, and whose clients were exactly the types of companies that our training targets. We gave them exclusive rights, and they proceeded to market our product across China.

The result for us? At zero cost to us, our product got national exposure, and we simply took a royalty from the sales. Increased profits with no overhead...who can object to that?

And the result for them? They had a high quality, proven product that no other company could offer. They increased their sales and their revenue, more than justifying the additional money they spent to market our product.