What is a Disintermediary
BREAKING DOWN Disintermediary
Consumers who are price savvy — that is, they know the differences in pricing from various dealers — are often able to make purchases directly from the supplier or producer, and are able to successfully cut out the middleman.
Disintermediation has typically been used in finance to describe the process of withdrawing funds from intermediary financial institutions, such as banks and savings and loan associations, to invest in them directly. But the idea became associated with the general economy in the 1990s and the reduction of people in the supply chain.
The concept of disintermediation, or cutting out the intermediary, is also synonymous with "factory-direct," a popular term used in retail marketing.
Pros and Cons of Disintermediation
There are several different advantages of cutting out an intermediary and going directly to the supplier to make a purchase. By doing so, it allows producers to cut out the traditional distribution channel and deal directly with the customer. A business can then establish a one-on-one relationship with its client base. This helps ease communication about products and services, and can open up opportunities for marketing for the business as well as for new products ready for purchase by the consumer. It also cuts down on costs; the business will have no need to pay a middleman, a cost that ultimately gets passed on to the consumer. That means that consumers can enjoy lower prices, while businesses can increase their profit margins. All in all, disintermediation increases efficiency because there are fewer transactions taking place and fewer processes involved.
While it may seem that being able to buy directly from the manufacturer is a great idea, there can be some pitfalls, including the potential of job loss. Since we are cutting out the middleman to act as a seller of a product or service, that position in the supply chain is no longer needed. It could also lead to a lack of transparency in the market and a rise in prices. Because there is no one in the middle, producers can increase their prices for their products, making the market susceptible to predatory pricing.
Examples of a Disintermediary
If you have ever bought anything online, then you have used a disintermediary. Most companies now offer their products through online catalogs, where customers are able to purchase directly from online stores and save on time spent shopping in retail stores and talking with sales representatives. Amazon is a great example of an online marketplace that is cutting out the middleman. But disintermediation is also taking place in traditional brick and mortar stores. Wal-Mart is a good representation of a big-box retailer that has tried to reduce prices for consumers by cutting out the number of middlemen.