demand. A company selling business products may have a longer distribution channel
involving more intermediaries.
The relationship between a company and its channel partners can be dramatically
altered by the opportunities afforded by the Internet. This occurs because the Internet
offers a means of bypassing some of the channel partners. This process is known as
disintermediationor, in plainer language, ‘cutting out the middleman’.
Figure 2.7 illustrates disintermediation in a graphical form for a simplified retail chan-
nel. Further intermediaries such as additional distributors may occur in a
business-to-business market. Figure 2.7(a) shows the former position where a company
marketed and sold its products by ‘pushing’ them through a sales channel. Figures 2.7(b)
and (c) show two different types of disintermediation in which the wholesaler (b) or the
wholesaler and retailer (c) are bypassed, allowing the producer to sell and promote direct
to the consumer. The benefits of disintermediation to the producer are clear – it is able
to remove the sales and infrastructure cost of selling through the channel. Benjamin and
Weigand (1995) calculate that, using the sale of quality shirts as an example, it is possi-
ble to make cost savings of 28% in the case of (b) and 62% for case (c). Some of these
cost savings can be passed on to the customer in the form of cost reductions.At the start of business hype about the Internet in the mid-1990s there was much spec-
ulation that widespread disintermediation would see the failure of many intermediary
companies as direct selling occurred. While many companies have taken advantage of
disintermediation, the changes have not been as significant as predicted. Since purchasers
of products still require assistance in the selection of products this led to the creation of
new intermediaries, a process referred to as reintermediation. In the UK Screentrade
(www.screentrade.co.uk, Figure 2.8) was established as a broker to enable different insur-
ance companies to sell direct. While it was in business for several years, it eventually
failed as online purchasers turned to established brands. However, it was sold to an exist-
ing bank (Lloyds TSB) which continues to operate it as an independent intermediary.CHAPTER 2· THE INTERNET MICRO-ENVIRONMENT
Disintermediation
The removal of
intermediaries such as
distributors or brokers
that formerly linked a
company to its
customers.
Figure 2.7Disintermediation of a consumer distribution channel showing:
(a) the original situation, (b) disintermediation omitting the wholesaler, and
(c) disintermediation omitting both wholesaler and retailer(a)Producer Wholesaler Retailer Consumer(b)Producer Wholesaler Retailer Consumer(c)Producer Wholesaler Retailer ConsumerReintermediation
The creation of new
intermediaries between
customers and
suppliers providing
services such as
supplier search and
product evaluation.