reintermediation

What Is Reintermediation? Reintermediation In A Nutshell

Reintermediation consists of the process of introducing again an intermediary that had previously been cut out from the supply chain. Or perhaps by creating a new intermediary that once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players within the supply chain are born as a result.

Reintermediation as a business strategy

Almost any company that wants to sell direct-to-consumer (D2C) can now do so thanks to the near-total prevalence of the internet. The D2C model is attractive to many companies since removing the intermediary increases profits and affords greater access to consumer data. 

However, this scenario does not always play out in practice. For the business, cutting out the middleman is often associated with a whole new set of problems. Some find the fulfillment of very small orders problematic, while others must take on customer service duties that were once the purview of the retailer.

Reintermediation describes the reintroduction of a supply chain intermediary between producers and consumers. It is mostly used by companies that, for whatever reason, decide that the D2C approach is not for them. Other businesses use reintermediation to reassemble buyers, sellers, and intermediaries in new and profitable ways.

The rest of this article will be devoted to discussing some specific reintermediation examples.

Case study: Amazon last-mile delivery

last-mile-delivery
Last-mile delivery consists of the set of activities in a supply chain that will bring the service and product to the final customer. The name “last mile” derives from the fact that indeed this usually refers to the final part of the supply chain journey, and yet this is extremely important, as it’s the most exposed, consumer-facing part.

As Amazon tried to figure out last-mile delivery, the company might also over time disintermediate the old delivery industry, which suddenly might be cut out from the supply chain.

disintermediation
Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all can produce products that customers want.

As this process happens, and the new market is defined by Amazon, new intermediaries, that have learned to play according to Amazon rules will form.

Creating a whole new intermediary

For instance, as Amazon has been figuring out the last-mile problem it also approached it with a new program, launched in 2018, called Delivery Service Partner.

Or simply put, a startup that gets helped by Amazon to become an independent contractor (under the rules of Amazon) that delivers packages for the company. Thus, Amazon disintermediates the old carriers, builds up a new system, which is comprised of new intermediaries.

Yet those will follow Amazon’s rules and policies.

The loop of intermediation and disintermediation

The evolution of the Internet moves from phases of disintermediation, extremely helpful to remove old logic, that does not work anymore in current market conditions, to establish new systems.

As those new systems are established though, reintermediation might take place for several reasons. First, it might be the key player, once disintermediating, now to incentivize reintermediation, to gain more control over the market. Second, as the market adjusts to this new reality new intermediaries learn the logic of this new market and try to capture some value within the supply chain.

Other Case Studies

Deliveroo

Online food delivery company Deliveroo partners with restaurants across thousands of cities around the world. In so doing, it manages the entire process from pickup at the restaurant to delivery at the customer’s door.

Deliveroo created a more efficient supply chain for restaurants that were previously handling their own food deliveries. Reintermediation has created a new market for eateries that found the cost of delivering food themselves prohibitive. Without Deliveroo, in other words, the restaurant would be required to invest in vehicles, drivers, insurance, and logistics planning, among many other things. 

Deliveroo and many similar companies have made the supply chain more efficient through reintermediation. From the point of view of the restaurant, food delivery is now no different to a customer picking up an order from their premises.

Autobytel.com 

Some intermediaries provide general information about various product categories and how they meet different consumer needs. Web-based car sales intermediary Autobytel started with searchable information about vehicles based on several criteria and also allowed consumers to locate dealerships that sold the car they wanted.

The company has now transitioned into selling ancillary services such as servicing, insurance, and finance to build long-term relationships with customers. In the D2C model, these are services once exclusively offered by the dealership or car manufacturer.

Amazon

Amazon is also a significant proponent of reintermediation. The Amazon.com homepage features an intuitive user interface that provides customised product recommendations. This is paired with similarly tailored email marketing and proprietary product fulfillment systems.

Amazon understands that consumers purchase many of the products it sells direct from the manufacturer and in fewer steps. To maximize its success as an intermediary, the intuitive user interface and personalized product recommendations shorten the time a consumer needs to spend to find the correct item. 

In essence, Amazon is creating a cohort of users that are dependent on its product recommendations – not only to streamline the purchase process but also to discover new products they may be interested in. This level of detail is something traditional manufacturers in the D2C model have been slow to replicate.

Key takeaways:

  • Reintermediation describes the reintroduction of a supply chain intermediary between producers and consumers.
  • Deliveroo created a more efficient supply chain for restaurants that were previously handling their own food deliveries. Reintermediation in the food delivery context has created a new market for eateries that found the cost of food delivery prohibitive.
  • Companies such as Autobytel started by providing general information about product categories and then moved into offering ancillary services that a manufacturer would normally handle. Amazon also uses tailored product recommendations to make the process of purchasing through an intermediary more attractive to consumers.

Connected Business Concepts

pirate-metrics
Venture capitalist, Dave McClure, coined the acronym AARRR which is a simplified model that enables us to understand what metrics and channels to look at, at each stage for the users’ path toward becoming customers and referrers of a brand.
north-star-metric
A north star metric (NSM) is any metric a company focuses on to achieve growth. A north star metric is usually a key component of an effective growth hacking strategy, as it simplifies the whole strategy, making it simpler to execute at high speed. Usually, when picking up a North Start Metric, it’s critical to avoid vanity metrics (those who do not really impact the business) and instead find a metric that really matters for the business growth.
marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
network-effects
network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.
platform-business-models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
negative-network-effects
In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 
virtuous-cycle
The virtuous cycle is a positive loop or a set of positive loops that trigger a non-linear growth. Indeed, in the context of digital platforms, virtuous cycles – also defined as flywheel models – help companies capture more market shares by accelerating growth. The classic example is Amazon’s lower prices driving more consumers, driving more sellers, thus improving variety and convenience, thus accelerating growth.
amazon-flywheel
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.

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