Disintermediation Meaning
In this age of online shopping where we all at some point in time have purchased things like cloths, mobiles, groceries, etc…, from online shopping websites and this act of consumer buying directly from online shopping websites instead of buying from a retailer or distributor is called disintermediation. Disintermediation in simple words refers to reducing the number of intermediaries between the supplier and the end consumer, in order to understand this concept one should look at the advantages and disadvantages of disintermediation –
Advantages of Disintermediation
Reduction in the Cost
The first and foremost advantage of disintermediation is that it results in saving of cost associated with intermediation, hence for example in case of online trading of stocks when customer is directly opening account with brokerage firm than brokerage firm does not have to pay to stockbroker extra commission as customer is dealing directly with brokerage firm and not through the stockbroker. Hence in simple words, the company saves a lot of expenses due to the absence of intermediaries which enhances the bottom line of the balance sheet of the suppliers or company.
Quick Service
Another benefit of no intermediaries is that it results in quick service to the consumers, hence take the example of airline companies where in the past consumer has to first go to travel agents who then have to book tickets from airline companies and then only consumers got the ticket which naturally was a time-consuming process but nowadays people can book online airline tickets directly from airline websites and get the ticket within 5 to 10 minutes of booking in their email account.
Consumers Benefit
When the company has to pay less commission and fees to intermediaries they pass it on to the end consumer in the form of lower price for the product or service. Hence in simple words, the end-user has to pay less for the product or service which he or she is purchasing resulting in a win-win situation for both consumers as well as the company.
Disadvantages of Disintermediation
More Workload on the Company
It results in more workload for the company because the company has to manage all the consumers instead of managing a few intermediaries. In simple words in case of school imagine if a school does not hire any teacher and school owner or principal has to manage every student then it will be a chaotic situation same is the case with companies having no intermediaries.
Reduction in the Reach of the Company
Company or supplier loses its reach because when a company has numerous distributors as well as retailers than its reach is wide resulting in better branding and marketing of the company’s product or service. In simple words, due to disintermediation, there is always that risk of the company losing its customer base who live in far-flung areas where technology plays a secondary role and personal relations play the primary role in selling the product or service to the consumers.
No Value Addition
Intermediaries do not only offer goods and services to customers but also do some sort of value addition which in the case of disintermediation is not possible. Hence take the case of a stockbroker who apart from giving services to the trading client also offers advice on stocks and general market trend but when a customer does online trading he or she will not get any personal advice from the stockbroker which sometimes can save the customer from taking wrong investment or trading decisions.
As one can see from the above that disintermediation has advantages as well as disadvantages and that is the reason why companies, as well as consumers, should be aware of the above points so that they can decide whether to go for it or not.