Reintermediation is where changes in the current business model or advances in technology result in the emergence of new types of intermediary than can create more value than possible in the previous channel structure. In some cases, a new element of a supply chain simply replaces a single displaced element, such as Amazon replacing retailers. In other cases, a reintermediating entity replaces multiple supply chain elements.
These new intermediaries do one of two things:
- Provide customers with new, important value-added services not provided in the new direct customer-supplier relationship. An example is Kelkoo, which is a shopping/ price comparison search engine.
- Provide customers with more efficient means of transacting business.
The ever-increasing number hubs, portals, aggregators, clearing houses and exchanges shows that entirely new ways of doing business are being created.
Reintermediation in the automobile industry
Some infomediaries are developing additional services, such as the supply of general information about a particular product category or products meeting a series of different needs based around general life events. For example, Autobytel.com, a web-based car sales intermediary, started by offering customers general information about cars, which helped them in identifying their search criteria, and the ability to research dealers from whom they could purchase the specified vehicle. The company now assists customers with financing, insurance and service scheduling, increasingly performing many of the functions previously undertaken by dealers and taking ownership of the long-term relationship with the customer.
The implications of reintermediation
There are four implications of reintermediation:
- First, it is necessary to make sure that your company, as a supplier, is represented with the new intermediaries operating within your chosen market sector. This implies the need to integrate, using the Internet, databases containing price information with those f different intermediaries. Forming partnerships or setting up sponsorship with some intermediaries can give better online visibility compared to competitors.
- Second, it is important to monitor the prices of other suppliers within this sector (possibly by using the intermediary web site for this purpose).
- Third, it may be appropriate to create your own intermediary to help budding DIYers, but is positioned separately from its owners. Such tactics counter or take advantage of reintermediation are sometimes know as countermediation.
- Screentrade is another example of countermediation, except that here the strategy of Lloyds TSB was to use the lower-ski approach of purchasing an existing online intermediary rather than creating its own intermediary. A further example is Opodo which has been set up by nine European airlines including Air France, BA, KLM ans Lufthansa. Such collaboration would have been conceivable just a short time ago.
Examples of Reintermediation
- E-commerce: With the emergence of e-commerce platforms such as Amazon, eBay, and Alibaba, the traditional retail model was disrupted. These new intermediaries allowed for the sale of products directly to consumers without the need for traditional brick-and-mortar stores.
- Online Travel Agencies (OTAs): OTAs, such as Expedia and Booking.com, allow customers to compare prices and book flights, hotels, and rental cars online. This has resulted in a reintermediation of the travel industry, as travelers can now book their own trips without the need for a travel agent.
- Third Party Logistics (3PL): 3PLs such as UPS and FedEx act as intermediaries between shippers and consumers, providing logistics and transportation services to facilitate the delivery of goods. This has allowed businesses to outsource their logistics operations and focus on other areas of their business.
Advantages of Reintermediation
Reintermediation offers a number of advantages, such as:
- Increased efficiency in the supply chain, as the middleman is removed and the process is streamlined.
- Lower costs, as there are fewer intermediaries to pay.
- Improved customer experience, as there is less friction in the process and customers have more direct access to goods and services.
- Increased control and transparency, as customers can make more informed decisions and track their orders more easily.
- Increased opportunities for innovation, as new technologies can be adopted for more efficient processes.
- Greater access to markets, as new channels are opened up and competition is increased.
Limitations of Reintermediation
Reintermediation of a business model or technology can bring both advantages and disadvantages to the supply chain. The limitations of reintermediation include:
- Increased costs: Reintermediation can add additional costs to the existing supply chain structure, such as the cost of investing in new technology or the cost of creating and maintaining relationships with new intermediaries.
- Complexity: Adding new layers to the supply chain structure can make the overall system more complex and difficult to manage.
- Lack of trust: Establishing trust between the new intermediaries and other members of the supply chain can be difficult and time-consuming.
- Disintermediation: Reintermediation can also lead to disintermediation, where intermediaries are removed from the supply chain structure. This can lead to decreased efficiency and reduced value for customers.
- Fintech: Fintech is a technological disruption of the financial services industry, utilizing new technologies to provide more efficient financial services. Fintech companies are making use of new technologies such as artificial intelligence and machine learning to provide financial services more efficiently and cost-effectively.
- Disintermediation: Disintermediation is the process of eliminating the middleman in a transaction. This can be done through the use of technology, such as online marketplaces, where buyers and sellers can interact directly.
- Re-aggregation: Re-aggregation is the process of forming larger and more powerful entities through the acquisition of smaller entities. This approach can be used to access new markets, new customers or new technologies, as well as to gain a competitive advantage.
- Platform-based business models: Platform-based business models are those that leverage digital and mobile technologies to create a platform for buyers and sellers to interact directly. Platform-based models are becoming increasingly prevalent in the digital age, as they enable companies to reach more customers, and to provide more tailored services.
In summary, Reintermediation is the process of replacing an existing supply chain element with a new intermediary, which can create more value than the previous structure. Other approaches related to Reintermediation include Fintech, Disintermediation, Re-aggregation and Platform-based business models. Each of these approaches has the potential to create value and provide competitive advantages to companies that leverage them.
- A. Payne, P. Frow 2003, p.304
- ACCA Business Analysis 2017, p.329
- A. Payne 2012, p.175
- D. Chaffey 2007, p.47
|Reintermediation — recommended articles|
|E hub — Lateral integration — Horizontal marketing system — Horizontal diversification strategy — Vertical diversification strategy — Centralized purchasing — Extended enterprise — Indirect sales — Business model innovation|
- ACCA Business Analysis, (2017), BPP Learning Media, London.
- Chaffey D., (2007), E-business and E-commerce Management: Strategy, Implementation and Practice, Pearson Education, Edinburg.
- Payne A., (2012), Handbook of CRM, Routledge, Amsterdam.
- Payne A., Frow P., (2003), Strategic Customer Management, Cambridge University Press, New York.
Author: Karolina Morga