Difference between Disintermediation, Re-intermediation and Counter mediation

Posted on Posted in Business, E-Business

Disintermediation means to remove intermediation from the supply chain. With the advent of internet based shopping in the 1990’s the term became the buzzword signifying the elimination of middlemen as a result of direct to consumer e-commerce methods and consumers dealing directly with service providers.

The value of intermediaries varies and is influenced by factors such as technology, industry life cycles, consumer abilities, and economic climate.

The disintermediation of intermediaries whose cost become greater than the value sees the reduction of inefficiencies in its supply chain such as a decrease in the time lapse between production and delivery and resultantly increase profit for manufacturers. Furthermore, without the middlemen adding additional charges for their services, the final price decreases for the end consumer. Moreover, the power shifts away to manufacturers by providing access to consumer information and being able to build direct consumer relationships such as loyalty, customization and resolving technical issues e.g. Dell computers or travel industry where travel agencies once advised where to travel, offered travel and tour packages. The Internet has transformed travel booking into the hand of the consumer. An airline such as Ryanair deals directly with consumers directly.

In many ways disintermediation sees the producer becoming the distributor. It also leads to sabotage the relationship with intermediaries. Also, new customer services may be required to replace those eliminated by the process e.g. customer service centers and distribution related services such as low order sizes and shipment to consumers.

Re-intermediation is the process of adding intermediaries to the supply chain. It occurs when pre-existing intermediaries offer a new value proposition and re-enter with a new function or when offer innovative value-adding services.

There are 4 general roles:

  1. Aggregation: to aggregate the demand as an online equivalent of a traditional intermediary substituting direct consumers contact for a highly personalized online service e.g. Amazon, Expedia
  2. Matching: to act as a marketplace matching demand to supply and linking buyers to sellers. The database driven portal offers a range of product and services that are not held as inventory by the intermediary e.g. Travel comparison service Kayak or auction portal e-bay
  3. Trust: to counter the loss of trust from a lack of pre-purchase physical contact by providing some sort of guarantee e.g. Online financial transaction agents e.g. PayPal, VeriSign
  4. Facilitation: to act as a broker in the transferral of information online, managing various financial administration factors e.g. travel booking software, SABRE or crowdfunding site Kickstarter

Counter mediation: is when the company re-intermediates and actively invest in the creating of the new intermediary that it owns. The whole idea is to control key elements of a supply chain on to prevent the competitor to gain a competitive advantage e.g.

  1. Johnson & Johnson and other pharmaceutical companies to sell hospital supplies to hospital customers. This is to counter and mitigate the competitive threat of Boxter’s e-market ASAP Express
  2. com coming out with its own Appstore instead of relying on Google Play store.

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