Know-How Exchange : Student Questions

The value goes up

Hi HaHa,

What happens to the value of distribution channel functions when they become Internet based largely becomes a manner of disintermediation and reintermediation.

As Michele said, values shift, however I would say that it is more along the line of tectonic plate activity!

For example, in an Internet B-to-C, disintermediation happens when the manufacturer bypasses the wholesalers and retailers directly selling to consumers.

So clearly, the wholesalers and retailers now have no value - and no business.

Typically this will happen were you find inefficient layers of supply/distribution networks. This varies greatly between industries and even more so between different countries.

When manufacturers connect directly with consumers and shorten the supply/distribution chain, inefficiencies can be eliminated, product delivery time can be decreased, and manufacturers can build closer relationships with consumers.

The result - their value skyrockets because this building relationships is a real benefit!

The type of businesses that can benefit the most and add the most value are those that can use the Internet as a replacement for the information channel from consumers back to manufacturers, so that demand can still be gauged and orders can be placed.

In addition, value is also added to those players in the supply/distribution chain when the Internet can also provide the opportunity for manufacturers to directly contact consumers to provide product or order information.

This reduces if not eliminates the need and therefore the value for traditional intermediaries - there goes their business again!

However, consumers still need to select among a large group of manufacturers online, which is not an easy thing to do.

So, there is now an opportunity to add value back in and this in the form of online assistance which has emerged and which replaces the value and role of traditional intermediaries.

They are known as reintermediaries, they fill new value-adding intermediary roles in the electronic/digital environment. For the reintermediaries, the Internet offers new ways to reach new customers, new ways to bring value to customers, and new ways to generate revenue.

Some reintermediaries are rivals to traditional retail store, while others are operations established by the traditional retailer. Other reintermediaries cooperate with the manufacturer or retailers to provide a needed service and value to the seller or distributor in the online environment. Other reintermediaries are pure-play e-tailers who fill a unique niche.

Examples: Online retailers such as Walmart.com, shopping portals (shopping.com, bizrate.com. nextag.com) comparison-shopping agents (pricingcentral.com, pricegrabber, bestshopperschoice) and directories such as Yahoo.

I hope that helps.