Countermediation Example

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Figure 2.7 Disintermediation of a consumer distribution channel showing: (a) the original situation, (b) disintermediation omitting the wholesaler, and (c) disintermediation omitting both wholesaler and retailer

Reintermediation

The creation of new intermediaries between customers and suppliers providing services such as supplier search and product evaluation.

At the start of business hype about the Internet in the mid-1990s there was much speculation 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 insurance 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 existing bank (Lloyds TSB) which continues to operate it as an independent intermediary.

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Figure 2.8 Screentrade insurance intermediary (www.screentrade.com)

Countermediation

Creation of a new intermediary by an established company.

Figure 2.9 shows the operation of reintermediation in a graphical form. Following dis-intermediation, where the customer goes direct to different suppliers to select a product, this becomes inefficient for the consumer. Take, again, the example of someone buying insurance, to decide on the best price and offer, they would have to visit say five different insurers and then return to the one they decide to purchase from. Reintermediation removes this inefficiency by placing an intermediary between the purchaser and seller. This intermediary performs the price evaluation stage of fulfilment since its database has links updated from prices contained within the databases of different suppliers.

What are the implications of reintermediation for the Internet marketer? First, it is necessary to make sure that a 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 that of different intermediaries. Secondly, it is important to monitor the prices of other suppliers within this sector (possibly by using the intermediary web site for this purpose). Thirdly, long-term partnering arrangements such as sponsorships need to be considered. Finally, it may be appropriate to create your own intermediary to compete with existing intermediaries or to pre-empt similar intermediaries. For example, the Thomson Travel Group set up Latedeals.com (www.latedeals.com) in direct competition with Lastminute.com (www.lastminute.com). A further example is that, in the UK, Boots the Chemist set up its own intermediaries Handbag (www.handbag.com) and Wellbeing (www.wellbeing.com). This effectively created barriers to entry for other new intermediaries wishing to operate in this space. Such tactics to counter or take advantage of reintermediation are sometimes known as countermediation.

Company

Intermediary

Customer

Company

Disintermediation <-►

Customer

Company

Countermediation

Intermediary

Countermediation

Customer

Figure 2.9 From (a) original situation to (b) disintermediation or (c) reintermediation or countermediation

Market mapping and developing channel chains is a powerful technique recommended by McDonald and Wilson (2002) for analysing the changes in a marketplace introduced by the Internet. A market map can be used to show the flow of revenue between a manufacturer or service provider and its customers through traditional intermediaries and new types of intermediaries. For example, Thomas and Sullivan (2005) give the example of a US multi-channel retailer that used cross-channel tracking of purchases through assigning each customer a unique identifier to calculate channel preferences as follow: 63% bricks-and-mortar store only, 12.4% Internet-only customers, 11.9% catalogue-only customers, 11.9% dual-channel customers and 1% three-channel customers.

A channel chain is similar - it shows different customer journeys for customers with different channel preferences. It can be used to assess the current and future importance of these different customer journeys. An example of a channel chain is shown in Figure 2.10.

Offline journey

Awareness of agent

Search and select agents

Negotiation

Viewings feedback

Local property paper

Go to agents

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Responses

  • shannon
    What is countermediation?
    7 months ago

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