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 provides greater consumer data access.
However, this scenario does not always play out in practice.
Cutting out the middleman is often associated with a whole new set of problems for the business.
Some find the fulfillment of minimal 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 mainly 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’s last-mile delivery
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.
As this process happens and Amazon defines the new market, 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 and builds up a new system, which is comprised of new intermediaries.
Yet those will follow Amazon’s rules and policies.
The tension between intermediation and disintermediation
The evolution of the Internet moves from phases of disintermediation, which is 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, reintermediation might occur for several reasons.
First, it might be the critical player, once disintermediating, now incentivizing 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
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 intermediation.
From the point of view of the restaurant, food delivery is now no different to a customer picking up an order from their premises.
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 is also a significant proponent of intermediation.
The Amazon.com homepage features an intuitive user interface that provides customized 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 directly 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 consumers spend finding the correct item.
In essence, Amazon is creating a cohort of users dependent on its product recommendations to streamline the purchase process and discover new products they may be interested in.
Traditional manufacturers in the D2C model have been slow to replicate this level of detail.
- 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 Economic Concepts
Positive and Normative Economics
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