Designing Selective Distribution Agreements to Prevent Secondary Wholesale Margin Distortion
Structure selective distribution contracts with audited back-end rebates and serial tracking to eliminate secondary wholesale margin leakage completely.
Passive Sales Rules
Meaning
Regulatory frameworks govern the circumstances under which a distributor is allowed to fulfill unsolicited orders from customers located outside their assigned territory. These standards, known as passive sales rules, protect the distributor’s right to respond to customer requests that are received without any proactive marketing or solicitation. They apply within selective and exclusive distribution networks where active marketing is restricted.
They cease to apply if the distributor actively targets the customer through regional advertising or localized outreach.
Customer Protection
Consumer choice expands when buyers are free to seek out the best prices across different regions. Under passive sales rules, a manufacturer cannot penalize a distributor for simply accepting an order from an out-of-territory customer. This freedom prevents the creation of artificial regional monopolies.
It helps to keep retail prices competitive across different countries.
ECommerce Integration
Online commerce relies heavily on these rules because a website is generally viewed as a passive form of advertising. Unless the site is specifically targeted at a restricted territory through localized language or regional domains, orders received through it are protected. This interpretation prevents manufacturers from forcing distributors to block out-of-territory visitors.
Contractual Compliance
Drafting agreements requires careful attention to avoid antitrust fines. Manufacturers must ensure their contracts do not contain hidden bans on unsolicited sales.