Why use middlemen

Some of the organizations provide physical facilities for the handling of the product e. Nairobi City Council and other local authorities while others provide premises where participants come together.

Trade and professional associations fit into this category. They gather, evaluate and disseminate information of value to the members — do research of mutual interest to members and ensure that members follow ethics.

Though not active in the buying and selling of goods, these organizations have far reaching effects on nature and organization of markets. Derive income from fees and assessments of those who use their facilities e.

Sub-module 1 - Economic role of prices. Sub-module 2 - Approaches to the study of agricultural market organization and performance. The Functional Approach. Middlemen of Marketing. Use of Institutional Approach. The Structure-Conduct-Performance Paradigm. The middlemen of particular interest in agricultural marketing can be classified as follows: Merchant middlemen Retailers,Wholesalers Agent middlemen Brokers, Commision men Processors and manufacturers Speculative middlemen Facilitative organizations.

Wholesalers: Any merchant who does not sell to ultimate consumer in any significant amount. He therefore can sell to other wholesalers or to industrial users or retailers. What was an all-consuming business for us as a supplier was a mere detail to our customer. Our ability to perform this service consistently satisfied the customer's need for reliable, problem-solving service. At the Electronic Commerce Resource Center, we have been observing, interpreting, and predicting the direction of business-to-business electronic commerce since Our objective is to help smaller businesses make sensible decisions about equipment investment, employee training, and subscriptions to electronic commerce services.

Combining the World Wide Web's global reach with information about the manufacturer's approval as a supplier to the Army and their own less-than-book pricing, they were able to get orders from Army bases in Turkey, where previously their business had been limited to the Puget Sound area.

Two years later, however, the distributor was somewhat disenchanted. Other distributors had followed their lead, leading to a price war that only stopped when the manufacturer intervened. The Army's electronic commerce initiative had served its purpose, lowering their average cost for this item by about 20 percent. The distributor had to retool his business to survive on lower margins, and was again differentiating himself from other distributors by offering rapid delivery, installation assistance, and so on.

This is an international conference, with representatives from all over the world. I am well aware that what I don't know about how the world does business is much greater than what I do know. In this paper I have attempted to explain myself and use examples clearly enough so that those of you operating in different environments can recognize what applies and what does not.

As humans, we have developed a fairly standard response to conflicting pressures. When I am faced with the desire to make a deal, but fearful of being cheated, I seek out a mutually respected third party to assist in the transaction. Without some source of trusted assistance, the deal will not be made. By reducing the risk of the transaction, a trusted third party can increase the number of willing buyers as well as the number of willing sellers.

Fundamentally, middlemen absorb risk. In a slow, paper-based economy, they absorb currency foreign exchange risk. Where physical distance separates buyer and seller, they absorb transportation loss and damage risk.

Where language and cultures differ, they absorb the risks of miscommunication and misunderstanding. Where buyer and seller are unknown to one another, they absorb the risk of bad intent. Unabsorbed, these risks reduce the number of willing buyers and willing sellers. With the middleman, these numbers increase, trade increases, and the compounding effects of the world economy generate benefits for all. Vertical integration -- owning your sources of supply and of distribution -- was the historic alternative to middlemen.

When the Ford Motor Company owned the entire automotive value chain, from iron ore deposits through showrooms and financing companies, it was fully vertically integrated. The danger is that a single company is unlikely to be equally good at each part of the chain. In today's competitive world, few companies can afford to carry all the risks of vertical integration. Instant, cheap, accurate information transfer eliminates substantial amounts of risk, and sometimes eliminates the related need to hold stock or even to take possession of goods.

If middlemen did not add value, they would cease to exist because buyers and sellers would find it more economical to deal directly with each other. The continued existence of middlemen, and the emergence of new forms, are evidence that middlemen add value.

In a complex or sophisticated environment, or when one of the parties is much more competent than the other, specialist technical knowledge is a key asset for middlemen. An example of an industry that would benefit from technically knowledgeable middlemen is the outdoor recreation equipment industry, which caters to climbers, hikers, paddlers, bicyclists, and skiers.

This market has a huge and diverse pool of suppliers. Many of the suppliers of unique items are outdoors enthusiasts themselves, who have come up with an effective solution to a common problem and want to support themselves by manufacturing the product and selling it to retailers.

The last thing these climbers and skiers are concerned about is inventory level or scheduled deliveries. The large outdoor equipment retailers are much more sophisticated, and rely on receiving goods on schedule in the ordered quantities and sizes.

Middlemen bring additional capital to the industry segment they serve. This capital is used to carry inventory during periods of low demand so that peak demands can be met without wide swings in production rates. Capital is also invested in warehousing facilities and trucking costs, and in promotion of the product to potential buyers.

When a supplier operates in one location and their buyers are located at a distance, middlemen who are located near the buyers add value in the form of market knowledge, personal relationships, and intimate knowledge of the prevailing culture and laws. The key value added by the middleman is trust, the inverse of risk. We trust people who specialize in a field that is unfamiliar to us, who have experience, and who are referred by trusted acquaintances.

In the United States, at least, trust is enhanced by simplicity of interactions, and by successive positive experiences that build confidence.

Pre-Web business processes are essentially unchanged from their state. Information is exchanged on paper or by people speaking to one another. The pace is slow, despite an urgent need for action. The cycle time for asking a question and getting the answer is days, sometimes weeks. People refer to existing knowledge or limited information sources such as printed directories, publications, and personal networks. Web discovery is a transient stage where each Web innovator sees every business relationship as a nail for his or her particular hammer.

In any of these cases, the user is unable to benefit from the solution. What can be done has not yet been tempered by an understanding of what should be done. As an example, consider the disappointing performance of electronic books, compared with the unbelievable popularity of electronically enabled sales of physical books. The people who predicted the demise of the printed book were tripped up by their focus on the costs and difficulties of printing, distributing, and selling books.

They completely missed the nuances of our emotional attachments to books. I would guess that you still remember the first book that was your very own, and maybe some special rules for handling certain books.

Books are profoundly tangible things. If a buyer pays a fee and downloads a book onto her computer, what has she bought? Not an actual book, which could then be treasured in her library, exchanged with a friend or at a used book store, but merely the right to read the book! Thus a book is transformed from a thing of value to an episode of entertainment. When e-books are marketed as entertainment, as an alternative to renting a video tape or seeing a show, then the technology will be aimed in the right direction.

Some critics say that businesses and customers should try to "cut out the middleman" by dealing directly with each other, avoiding any increased costs or commissions.

Intermediaries also make money by selling the product for more than its purchase price. This difference is called the "markup" or cost the buyer ends up paying. Intermediaries can be small companies or large corporations with an international presence. In the supply chain, an intermediary may represent a distributor who purchases goods from the manufacturer and sells them to a retailer, often at an increased price.

Salespeople are often considered middle-people, such as real estate agents who match homebuyers with sellers. Certain industries, either by policy, infrastructure, or mandate, include an intermediate layer of business. For example, automobile makers typically do not sell vehicles directly to consumers. Instead, their products are sold through auto dealers, which may include various accessories, options, and upgrades to upsell cars at a higher premium.

Auto dealerships try to sell pricier versions of cars in order to turn a greater profit for themselves, as a large portion of the sales revenue goes back to the manufacturer. The same is true for electronics, appliances, and other retail products. Sellers of electronics and appliances may attempt to steer customers to higher-end products in order to secure a greater profit margin than low-priced items.

Such intermediaries may be constrained by the manufacturer in the ways they can sell a product, including how it is marketed or if the product can be packaged with other items to create special offers. The rise of e-commerce has changed the dynamics of where an intermediary fits in some types of industries, and legislation continues to evolve in response.

In certain states, the sale of alcoholic beverages may be structured to require retailers, bars , and restaurants to purchase products through a liquor distributor. Under such policies, a winery cannot sell its products directly to retailers, thus making a middleman essential. This can limit the availability of their products as they are beholden to the intermediate distributors who control the channels they can pass their wine through.

Such constraints may also extend to the sale and shipment of their products from one state to another. From channel to cross-border management, and from tech-development to fulfillment and delivery, maintaining operations and logistics become a significant upfront cost. On top of that, more emphasis needs to be placed on marketing your brand and its distribution channels. For well-established brands such an investment is not an issue but it may be a problem for brands with a smaller consumer base.

In midst of the intense competition among brands in the ecommerce and the retail market, it becomes a challenge for start up brands to establish their share in the market place.

One of the major difficulties faced by the clients of aCommerce is driving traffic to their newly launched online website, particularly those who lack a strong presence on social media platforms.

Another area of concern brands need to consider is the risk of channel conflict with its retailer partners. Retailers may view brands going direct as a threat, as brands draw more sales data for themselves.

In Southeast Asia, the chances of conflict are even greater. In holding dominant market share, such retailers force brands to maintain pricing integrity. Brands which go against these retailers and adopt an aggressive pricing strategy will jeopardize their long term relationships with them.

However, there are also opportunities to generate sales and product awareness through cross-promotion. Multiple channels can be used to stimulate interest and encourage purchases. There are several ways in which brands may do this, some of which are listed below:. By doing so, they have the ability to adjust the slot of promotions across channels without a conflict of interest between channels. Such promotions may include bundle sets unique to each specific retailer. This strategy prevents price comparison across each channel.

Alternatively, many brands sell and promote brand exclusive products.