What are the benefits of intermediaries

Marketers and business writers have been talking for ages about disintermediation – cutting out the middle man or intermediary – in a bid to achieve more direct and economically efficient relationships. But the battle between Hachette and Amazon reminds us there are still very powerful players mediating between customer and producer.

So, why in a world where direct contact seems so easy and where brands are so keen to cultivate communities do some intermediaries continue to thrive – and what lessons can others who stand between maker and end buyer learn from these successes?

Surprisingly perhaps, the answers to adding value as a bridging party in the digital age (and therefore not being squeezed out) seem to come down to three critical but very simple factors that still count for a lot: influence; time; and relationships.

Influence

1. Be the platform – these powerful intermediaries are aggrandizers. The brands that supply to them are stronger and more credible for being seen in their company than they would be if they went it alone. These intermediaries in essence act as platforms for the brands they support, elevating the value of everything associated with them. But whereas more traditional intermediaries look to stock and supply, these intermediaries treat their brands as assets and in magnifying their perceived value they also increase their worth. In so doing, they establish a ‘virtuous circle’, where the brands are more powerful for being in their company, and the company is famous for offering access – sometimes exclusive access – to these brands. Washington Speakers is a great example of the platform principle in action. If you are part of their stable, such exclusive membership is a credential in its own right.

2. Be the tastemaker – these intermediaries direct traffic often in competitive, crowded sectors. They cater to our very human nature to seek reassurance that we are making good decisions. Their verdicts – often crowd sourced – decide who others decide to go with. The obvious examples are review sites like TripAdvisor for anyone considering a trip. Other successes include those who’ve gathered expertise to provide readers with information they want but can’t easily access – e.g.  Open Table for anyone looking to eat out. These intermediaries depend on their accumulated authority and of course the convenience of having many opinions in one place.

Time

3. Be the landing page – these intermediaries act as timesaving destinations, particularly online, bringing people to a single place where they can gain access (and deals) that they could seek out individually but that would take so much more time. Amazon, iTunes, the App Store, Expedia and Ticketek are powerful examples of shortcut channels. On one level, these intermediaries add value through venue. They cut the “search cost” by being the landing page for their sector. More than that though, the intermediaries that are market leaders today often provide an element of curation that consumers are prepared to pay a margin for. There are also offline examples. Buyers swarm to Wholefoods because of the trust that they extend to that brand to ‘forage’ on their behalf for the freshest and most natural produce.

Relationships

4. Decide what gets decided – through their algorithms, these channels provide the parameters within which millions of people have relationships and make decisions. Google, Facebook, Linked IN, dating sites and others sift through all the variations to present people with more manageable and relevant bases on which to manage aspects of their lives. From PageRank to articles that might interest us to prospective dates, these intermediaries give us a view of the world that presents as a great deal of choice. For those with a technical bent wanting more detail, this fascinating article lists 10 algorithms that have a significant effect on the running of our world.

5. Lead the new charge – intermediaries like Uber and Airbnb are changing how consumers work together to challenge old frameworks. Their role is both functional and emotional. Someone has to bring the new participants together and act as a meeting point. At a more impassioned level, these intermediaries are a rallying point, an inspiration if you will, for new ways of addressing old and frustrating problems. Brands in the collaborative economy exemplify both these roles. They act as collecting points for people and new actions and in so doing build a community of early adopters that has commercial value. Great article here on Uber’s effect on the taxi industry.

OK, I can hear some of you saying, that works well for big brands, but what are the implications for smaller players? How can they apply at least some of these principles to their advantage? Most middle players have now moved on from the interruption model of simply looking to stand between the parties and hand things through. Most have recognized that convenience, price, consolidation and networks are competitive features that will continue to deteriorate in value. Most have also seen that some level of advisory is now expected. So where to from here? Some options:

6. Become an authority in your area, but more than that, like the aggrandizers use those credentials to magnify the worth of what you stock. Look for ways to be a certain kind of what you do. Appeal to a particular and passionate market. Represent a specific interest or lifestyle. Make being in your store a sign that they have ‘made it’ for the supplier and a delight that they have ‘got it’ for the buyer. Don’t just be a destination. Be a status.

7. Guide buyers through busy and/or murky waters. Be the pilot. Present options. Mary Portas makes the excellent point that retail stores for example often focus too much time on stocking and not enough on filtering all the choices into manageable options.

8. Prudently (yet radically) expand your trust boundaries. If you are already known and trusted in a particular area, leverage that to invite customers into an adjunct sector that feels like a natural extension for them. The balance that needs to be struck here is to see past the predictable trends, so that your new offer doesn’t just look like the same ‘more of more’ as everyone else, but at the same time is not so lateral that consumers are left confused or concerned. Getting this right requires real discipline (right extension, right timing, right consumer, right margin) but offers exciting opportunities to reframe your relationships, refresh your value proposition and distance yourself from others.

9. Lead the conversation in new directions. While online has been seen by some as a significant threat to intermediation, there’s little doubt it also offers opportunities for some companies to make an impact with what they have to say. What’s the biggest frustration that consumers or sellers face? How can you reconcile their differences? Or is there distinction (and money) to be made in advocating for one side? If there’s no future in being everything to everyone, can you become everything to someone?

10. Shift the middle – don’t like where you’re positioned at the moment? Move. So many intermediaries don’t give enough thought to what would happen if they put themselves between different parties than those they stand between now. Here’s a counter-intuitive opportunity: look for a way to place yourself between parties that don’t trust each other or where there is low transparency. In such circumstances buyer and seller alike will value a reliable, trusted, accountable, efficient, neutral and updated platform through which they can trade.

In many ways the rules for success as an intermediary brand today are no different than they are for direct brands: deliver consumers things they want or need in interesting and streamlined ways that surpass how they might be accessed otherwise.

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Have you ever noticed the presence of an intermediary in your everyday life? Did you know that the grocery store you go to on most days, and the shopping malls you visit, are forms of intermediaries? Did you know that people can also act as intermediaries? Read along to become an expert on all the different types of intermediaries.

Intermediaries in Marketing

Companies sometimes require external agents to help them market their products. The external agents are called intermediaries.

Intermediaries help a company to promote, sell and distribute its products to its customers.

Marketing intermediaries act as middlemen between various stages in the distribution chain. Intermediaries make the accessibility of the products easier for customers. With the technological advancements now available, and the rise in the digital engagement of customers, intermediaries can also be seen on digital platforms. Intermediaries are part of the distribution chain, with four main types of intermediaries.

Types of intermediaries

Mainly four types of intermediaries act at the different stages of distribution.

Intermediaries: Agents and brokers

Agents are people that represent another person or entity. They serve as an intermediary between buyers and sellers on a permanent basis. They have the power to negotiate and are given decision-making power. They are most actively present in the real estate industry.

Brokers are similar to agents in their role as intermediaries between buyers and sellers. However, they are not permanent representatives of a person or an entity. They are most active in the trading sector.

Both agents and brokers are paid on commission for a sale or transaction they have mediated.

Intermediaries: Wholesalers

Wholesalers act as intermediaries between manufacturers and retailers. They buy products from manufacturers or farmers and sell them to retailers. Products are purchased in huge quantities from the manufacturer, and the wholesaler distributes them to retailers. A wholesaler might buy only a specific product from manufacturers or have a variety of products from manufacturers available in large quantities.

Wholesalers mainly focus on the Business-to-Business (B2B) market rather than the Business-to-Consumer (B2C) market.

Wholesalers can operate in traditional cash-and-carry outlets or warehouses, but technological advancements have also allowed wholesalers to move their business onto digital platforms.

Intermediaries: Distributors

Similar to wholesalers, distributors are in direct contact with the manufacturer. But unlike wholesalers, they do not sell the products to a retailer but the end-user. They usually distribute only from a specific manufacturer and provide after-sales services to customers. They are either paid in commission or fees by the manufacturer.

Intermediaries: Retailers

Retailers are the types of intermediaries consumers are most familiar with and interact with the most. Shops, supermarkets, websites, etc., are examples of retail. Retailers have a wider reach. They either buy from the manufacturer or another intermediary.

Retailers purchase fewer items than other intermediaries but have a more comprehensive range of products. E-commerce platforms such as Amazon, Shopify, etc., are also forms of retail.

Not all businesses have intermediaries in their distribution channels. This depends upon the industry and the operating market. For example, the steel industry usually uses two intermediaries in their distribution channel, namely the wholesalers and the retailers, as shown in Figure 1. The cosmetic industry, however, usually only needs one intermediary between the manufacturer and the end consumer, the distributors, as shown in Figure 2.

Fig. 1 - Role of intermediaries in the steel industry

Fig. 2 - Role of intermediaries in the cosmetic industry

Examples of intermediaries

Let's now look closely at a few specific examples of intermediaries.

Intermediaries: Examples of agents

Real estate agents work with people trying to sell and buy properties. This can be seen in Figure 3. They show the property for sale to the interested buyers and negotiate prices that both parties agree upon. They are paid in commission, which is a pre-determined percentage of the transaction made through the sale. For instance, their agreed commission could be 5% of the total value of the sale (e.g., the sale of a house).

Fig. 3 - Role of intermediaries in the real estate industry,

Literary agents work as intermediaries between authors and publishers, as shown in Figure 4. Agents pitch an author's work to the publishing company and increase the chance of the work getting published.

Fig. 4 - Role of intermediaries in the literature industry

Intermediaries: Examples of wholesalers

Websites such as thewholesaler, mxwholesale, dkwholesale, etc., are examples of wholesaler websites in the UK.

The Booker Group, acquired by Tesco, is the largest wholesaler in the UK in terms of revenue.

The Booker Group supplies many products, including groceries, wine, beer, stationery, tobacco, and more. They stock over 200,000 products. They supply products to restaurants, retail stores, theatres, and even the prison service in England and Wales.

Intermediaries: Examples of distributors

The UK has the most significant number of distributing companies in London, followed by Manchester.

Some of the largest distributors in the country include:

• John Distilleries Pvt Ltd

• Esso petroleum company Ltd

• TATA steel UK Holdings Ltd

John Distilleries is an Indian company and one of the biggest distributors in the UK. John, as the name suggests, produces distilled beverages. Its chief products include whiskey, wine, malts, and vodka products. The drinks are manufactured in India, exported to the UK, and sold by distributors to the people in the UK, making it easier for them to reach this product.

Intermediaries: Examples of retailers

Some of the biggest and most common examples of grocery retailers in the UK include:

• Tesco

• Sainsbury

• Walmart (Asda)

• Morrisons.

For instance, Tesco works with thousands of suppliers, who supply them with all kinds of different grocery products (e.g. milk, vegetables, bread, etc) which they sell in their numerous Tesco supermarkets.

Importance of intermediaries

Intermediaries of all levels make the availability of products or services for their users much more accessible. They make the process of offering the desired product to the right user efficient and effective, as they have information about the customers and their needs. They have direct contact with the customers and are therefore knowledgeable about what products to source and where to source them from. They base these decisions on the manufacturer's quality and customer demands.

As intermediaries deal with smaller quantities of products but of a wider variety, they can match the different needs of customers. They have information as to what customers are looking for, and can link them to the right supplier for a fee, making the job much quicker and easier for both parties.

Advantages and Disadvantages of Intermediary Channels

The advantages of intermediaries include the following:

• Better accessibility of products and services

• Physical distribution of goods

• Storage of supplies

• Better market coverage

• Improve buyer-seller relations

• Before-and-after sales services.

The disadvantages of intermediaries include:

• The manufacturer loses some decision-making power.

• The manufacturers' profit is reduced due to the money they have to pay the intermediaries.

• Intermediaries may be misinformed about the product, thereby misinforming the customer.

• Intermediaries may favour a competitor's product if they offer a better fee, and as a result, the manufacturer may lose their target market or market share.

As you can see, intermediaries are essential for businesses because of their various roles. Without intermediaries, it would be much more difficult for manufacturers and customers to find the right products quickly and efficiently.

Intermediaries - Key takeaways

• Intermediaries help a company promote, sell, and distribute its products to its customers.

• There are four main types of intermediaries that act at the different distribution stages: agents or brokers, wholesalers, distributors, and retailers.

• Agents are people that represent another person or entity. They serve as an intermediary between buyers and sellers on a permanent basis.
• Wholesalers act as the intermediaries between manufacturers and retailers.
• Distributors act as the intermediaries between manufacturers and end-users.
• Retailers buy products from manufacturers or other intermediaries and sell them to the end consumer.
• Storage of supplies, improving buyer-seller relations, and providing before-and-after-sales services are a few advantages of intermediaries.
• Loss of the manufacturer's decision-making power, reduction in profit, and misinformation about products are a few disadvantages of intermediaries.