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Disintermediation of theMarketplace Mandar Ghanekar SCIT ExMBA 2011
Disintermediation – What is it ? The removal of organizations or business process layers responsible for intermediary steps in the value chain is called disintermediation Usually applicable for business processes that use the internet for B2B and B2C transaction processing thereby reducing their concomitant costs.
Drivers of Disintermediation Cost containment - For example, Dell Computer has been successfully competed in an industry with frequent margin squeezes by eliminating the traditional retail model and instead selling directly to consumers Competitive response – For example, the rapid growth of Amazon.com as an on-line bookseller appears to be the major motivation for the Barns & Noble bookstore chain starting to sell books on-line Greater Value Offering - Another way to consider the success of the Dell on-line model is to see that perhaps their prices are not much better than many brick and mortar retailers, but that Dell offers custom configurations of more state-of-the-art models
Drivers of Disintermediation cont’d Relationship capturing - For example, Oakley fashion sunglasses can be purchased at retail locations, but can also be purchased on-line directly from Oakley. The on-line sales directly from the company allow Oakley to gather customer data that may potentially be the best target market they could have The importance of product choice - The consumer is now in charge: researching specifications, configuring and customizing solutions, getting peer reviews and advice, comparing prices, and “buying now. Benefits of a direct customer/supplier relationship – Faster feedback, problem resolutions.
Extent of Disintermediation For example, Compaq Computer Corp. offers to sell consumers direct to end consumers, which previously were available through wholesale-retail channels. Hypothetically, the wholesalers may have added 10%to the overall product price, and the retailers may have added another 20%. By selling direct, we might say that the extent of disintermediation is 30% – the portion of sales price that was eliminated. However, part of the disinter mediated process was distribution, which is now accomplished by previously external entities such as United Parcel Service and Federal Express. Those third-party logistics companies add value–in the form of “place” utility–but at a cost which inflicts a 15% increase in the overall price to consumers. So, the 30% disintermediation might be considered to include a 15% reinter mediation.
Impact of Internet-related disintermediation uponvarious industries Strong impact Computer hardware and software Travel agencies Bookstores and music stores Stock Purchasing Still in progress (due to legal or structural obstacles) Alcoholic beverages Real estate Health Care Video rental and distribution Failed and became niche ancillary services Furniture Groceries Pet supplies (especially dog food)
Effects of Disintermediation Death of the Salesman ?? - A decade ago, it was in the hands of the sales person. Today, the buyer has it too. Buyers now engage sales people far later in the sales cycle or not at all. Reduced profit margins/loss for organizations who fail to adapt to the internet explosion. Cause of conflicts between many companies and their business partners, including salespeople, rep firms, distributors, dealers, and retailers. Information Overload - Buyers are distracted by too much information
Effects of Disintermediation cont’d Some companies failed to identify the kind of infrastructure required for handling fulfillment online. For E.g. The problem with dealing direct with the customer is mainly the customer. Problems with handling small orders, (which are more often than not in large volumes), handling returns, shipping and all the other customer service issues. Keeping thousands of people who have placed orders for a single pair of jeans happy was harder than keeping a few large retail chains supplied and under control.
DisintermediationA Disaster or a Discipline ??