• THE-COFFEE-GUIDE.gif 
  • QA 027
    Question:
    What are the pros and cons of exclusive marketing arrangements?
    Background:
    A specialty coffee importer in the United States is interested to market our coffee provided we sign an exclusive arrangement. Would this be in our interest?
    Asked by:
    Producer/exporter - Cameroon
     
    Answer:

    We cannot reply 'yes' or 'no' to your question because each case must be judged on its own particular merits. Nevertheless we can offer the following general comments:

    There are times, especially with a new and limited coffee, that a producer agrees to sell this coffee only to a particular company, or to only a few companies who do not compete in the same geographic region. Importers and roasters at times like to have such an arrangement because it prevents their competitors from marketing the identical name at a different price in the same market place. They can then create a marketing strategy that sets them, and the coffee, apart from the competition. 

    Potential benefits for the producer include 

    . The agreements are usually long-term and as such can help create price stability, thus allowing producers to focus on the coffee rather than the marketplace, whereas the expectation of premiums assists them to pay for the extra effort it takes to maintain the quality;

    · An exclusive arrangement generally means roasters will be spending marketing dollars in introducing the coffee to their clients, i.e. a roaster will promote this particular coffee rather than just blend it. Promotional dollars behind the coffee mean increased consumer awareness, which can lead to longer term loyalty;

    · Exclusivity creates a certain sense of loyalty and communication between the producer and the importer/roaster that may otherwise not be possible. It is also in the best interest of the receiving company that the quality is optimal - as such it may provide technical help and other assistance that would otherwise not have been available to the producer.

    Potential disadvantages for the producer include 

    · An exclusive arrangement may limit the coffee's exposure. And if it is with a smaller company or companies with limited market share, then the chance to create a broader consumer base is lost. This could imply that when the agreement comes to an end the producer is left with a coffee that enjoys only limited awareness and requires further effort to build market share;

    · An exclusive arrangement usually contains price constraints. Sometimes beneficial for the producer but, depending on market movements and the demand for this particular coffee, this could also have negative effects. One can find oneself locked in with one buyer when in reality a better price might be available elsewhere;

    · The producer is relying on one or a few companies to promote his coffee but, generally, has no guarantee this will in fact happen, or that it will be enough to be effective. Even though it is also in the buyer's best interest to ensure this, he may in fact not do so.

    In conclusion 

    Producers entering into such arrangements must make every effort to know their business partner. There certainly are companies that are less than serious, that make promises they cannot keep, and that sometimes may even forego the agreed payment structure when this suits them. It is imperative therefore that all contractual arrangements are reviewed by a legal adviser, both in the producer's own country and in the buyer's country. 

    In order to be effective these agreements must be true partnerships. The producer must do his share to deliver the quantity and quality the buyer requires. The buyer must do his share to pay a timely, fair price and to promote the coffee to his consumer base in a way that ensures ongoing demand. In other words, create relationships that can be formalized in a marketing agreement.

    Posted 22 June 2005

    Related chapter(s):
    Related Q & A:
    QA 018