Disintermediation is transforming the business practices carried out by specific firms. By cutting out or eliminating the intermediaries, a company may frequently save costs and delivery times, which will be ultimately beneficial for the customer.

In this article, you will learn more about disintermediation. Continue reading this article to understand what disintermediation is, what the risk factors associated with it are, and how the Internet and online technology have helped bypass the intermediaries.

Disintermediation: What is it?

Removing the financial middleman from a transaction is referred to as disintermediation. It makes it possible for a person or firm to place an order straight from a manufacturer instead of purchasing via a distributor. It enables a customer to purchase directly from a wholesaler instead of buying from an intermediary like a shop. Disintermediation is typically done to benefit the customer by accelerating delivery of the products.

Understanding Disintermediation

Disintermediation can reduce the total cost of performing a transaction and is employed in a variety of sectors. It could also be possible for the transaction to be finished faster by eliminating the middleman. Often referred to as the business-to-consumer model, it is presently a fundamental component of the internet paradigm.

It may happen when an interested party acquires products straight from the manufacturer at a wholesale price, often in huge quantities. Because the customer no longer needs to deal with a middleman like a regular retail store, the price of the products they tend to buy may decrease for them.

By doing this, the customer avoids paying the markup that is charged when a product is transferred from the warehouse of a wholesaler to a merchant prior to being purchased. The idea came from the financial sector to let investors purchase financial goods straight from the source, bypassing middlemen like banks or brokers.

In 1976, when the government limited rates of interest for federally regulated accounts, investors started withdrawing money from savings accounts. They did this in search of higher returns by making investments in stocks or bonds directly.

Examples of Disintermediation

Here are some of the practical examples that are going to help you understand disintermediation in a better way.

Suppose you are a manufacturer who manufactures laptops and smartphones. You make them and sell them to giant retail stores like Walmart or Best Buy. Consumers visit these stores and buy your product from them. But soon, you realize that your product is in great demand, and people tend to buy your product online.

In this case, you can consider disintermediation. For that, you need to stop selling your product to those big retailers. Instead, make your shop or a website to sell your product directly to your customers. By bypassing the middleman or that retailer, you can make a good profit.

Another case of disintermediation can be the increase in the number of sites, such as Orbitz and Expedia, available online for booking tickets and hotel rooms. These websites allow individuals to compare prices and buy airfare directly and easily on their own.

This had a significant impact on local travel agents. These agents have now become less important. People don’t need them for their booking processes. They make all the bookings through these websites by themselves with great ease. Services like Lyft and Uber have also eliminated the need for traditional taxi drivers, who were basically the travel middlemen or intermediaries.

How the Internet Has Eliminated Intermediaries?

In recent years, the Internet has played an essential role in promoting the disintermediation strategy. A few years back, business holders or manufacturers had limited to no access to the Internet. At that time, they used to rely on intermediaries or middlemen like agents, retail stores, or dealers to sell their products.

But now, the world has changed. People have bypassed these intermediaries, and now they make online purchases directly. Large technology business organizations have appeared to act as electronic middlemen for several small companies, saving them the high cost of opening a shop in person.

However, there are some services like auto repair and cleaning that need a physical store to operate. These companies can cut out certain supply chain activities, including booking appointments and collecting payments, but their possibilities for disintermediation are limited.

Businesses may find that using online technology is more affordable than using in-person services and distribution channels. This indicates that they are dependent on these innovations in order to operate, which can be taken into account by companies thinking whether they should opt for a disintermediation approach or not.

Risks Associated with Disintermediation

No doubt, adopting the disintermediation approach will boost your profit and decrease the transit time. However, there are still some risks associated with this strategy that must be considered before going for disintermediation.

Bearing Extra Costs

Suppose you are thinking of eliminating the intermediaries. In that case, you must keep in mind that you may end up bearing the charges of delivering the product to the customer because, in this case, the customer won’t come to the store to pick up their products.

Management Responsibilities

Adopting a disintermediation strategy demands a responsible attitude. When you eliminate a person from your supply chain, there will be more responsibilities on you. And if you fail to fulfill them, you will end up risking the entire process, and your business may fall apart.

Less Brand Awareness

Disintermediation may potentially risk consumer awareness of your businesses. The brand won't attract much attention if it is not competitive enough. This can endanger the survival of your business.

Futile

Disintermediation is beneficial, but not in all situations. There are instances when shipping things to a store location makes greater sense for a business. This will enable customers to shop their items from a single, convenient location.

The Bottom Line!

To sum up, eliminating middlemen in business transactions has become a revolutionary approach in several sectors. Disintermediation can be advantageous, but remember, everything has drawbacks that must never be neglected. Therefore, it's critical to balance the advantages with the dangers involved in order to guarantee a viable and effective business strategy.