In our journey in past columns to explore the characteristics that make up solid co-packing and co-manufacturing (CP/CM) arrangements, we’ve touched on a lot of topics. One topic that doesn’t always come up, but seems to fit our discussions to date, is exclusivity. I have often been asked about exclusivity opportunities by internal folks, and I’ve also had partners that indicated the existence of exclusivity agreements in their businesses. So, how big of a deal is exclusivity?
Why consider exclusivity?
As I mentioned, I have been asked about exclusivity for certain products at certain co-manufacturing operations on regular basis. One of the driving reasons behind the desire for exclusivity is that many of us in the innovation space often believe our next idea is going to be “the one”—the idea that we ride for years to come. So, we naturally begin to sense a need to protect the idea, the concept, or the application. While there are legitimately new applications of ideas or technology to certain concepts, my experience is that we sometimes get ahead of ourselves talking about exclusivity. Arriving at suitable contract language to support exclusivity is not easy, and the energy expended can often precede the actual “proof of concept” that drives our expectation of success.
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My recommendation, therefore, is that we discuss whether there would be openness to exclusivity early in a project effort, but we hold off on negotiating the details of what that could look like until we know the size of the prize we are talking about. Plus, if you put yourself in your manufacturing partner’s shoes, you’ll understand why that size-of-the-prize conversation is so important to them!
What does exclusivity require?
To develop an exclusive agreement around a new product or technology idea or discovery, many factors come into play. I’ll address a few I’ve experienced here; I’m sure many readers can think of others. However, in my experience, conversations around exclusivity have centered on the following:
1. There must be a uniqueness about the proposition. Something about the product form, function, or manufacturing process supporting a new “provision” by the product needs to be pretty new to the world, or at least to the industry or consumer base.
2. There should be a promise of value. Whether it’s size of the prize, added value through new technology implementation at the partner, or just a secure level of capacity commitment, the opportunity has to provide a value to the manufacturing partner if it’s going to become exclusive.
3. Timing is everything. Sometimes, the ideas in #1 and #2 are uncertain, or they can only be provided in terms of potential and are not guaranteed. In such instances, I have found it helpful to discuss a timing aspect of exclusivity. For instance, maybe the brand owner needs time to sell-in and distribute to key retailers required to reach a size-of-the-prize expectation. Perhaps a certain amount of time will be needed to fully commercialize a new technology. This can be due to the need to understand the technology, or it can happen because the technology is so new that sufficient scaling of manufacturing process equipment is still being addressed.
4. Incentives can help. When timing, or even the promise of opportunity is uncertain, it can help to discuss incentives. In my experience, most of these discussions can center on milestone achievements in volume or successful product testing by a certain date. Such arrangements can also include a discussion of extensions, usually involving a fee to extend.
What about existing exclusivity?
Sometimes when we reach out to a potential CP/CM partner with a new idea or project, we find some kind of exclusivity situation already in place with another customer. While I have found these occurrences to be infrequent, it’s still wise for a brand owner to ask the question. Like considerations of complexity and fit, clarity around exclusivity at the outset of a project discussion can be important.
I have seen projects progress through developmental activities and approach an ongoing production situation only to have the CP/CM involved realize they had an exclusivity conflict that should have halted the engagement at the start. It’s not great to find out a project cannot go forward in the early stages. But it’s truly frustrating—if not maddening—to discover such a conflict when the whole effort is ready to hit go on ongoing production volumes! This is truly a no bueno moment!
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The subject of exclusivity can clearly encompass several factors. Like many of the other factors in sound CP/CM and customer relationships, it comes down to developing a plan that leads to a win-win for both parties involved. If you’re a brand owner that has an idea you want to protect, I hope this column helps you with some of the key considerations involved in protecting that idea. When coupled with our earlier discussion of confidentiality, really new-to-the-world or new-to-the-industry ideas can be given the time they need to become successful.
Robby Martin is Engineering Specialist for Bush Brothers & Company.
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