FUNDAMENTEL OF DIRECT SELLING | CH-1 NOTES

 

1. Introduction to Disintermediation:

  • Traditional Marketing Distribution System:
    • Involves multiple middlemen: Manufacturer, Carrying and Forwarding Agents, Super-stockists, Distributors, Dealers, Wholesalers, Retailers, and Consumers.
    • Middlemen play a crucial role in ensuring the product reaches the consumer.
    • Technological advancements have led to a decline in the reliance on these intermediaries.
  • Disintermediation:
    • Refers to eliminating or reducing the number of intermediaries in the supply chain.
    • This shift has been driven by advancements in information technology, distribution channels, and logistics.

2. Pros and Cons of Middlemen Distribution System:

2.1 Pros:

  • Time Utility: Products are available when the consumer needs them.
  • Place Utility: Products are accessible at local retail stores.
  • Assortment: Wide variety of products available.
  • Credit Facilities: Some middlemen offer credit to consumers.
  • Employment Opportunities: Middlemen provide jobs in the distribution system.

2.2 Cons:

  • High Commissions: Intermediaries charge commissions, increasing the product price.
  • Lack of Quality Control: Middlemen are often more focused on commissions than product quality.
  • Limited Services: Lesser services such as home delivery or product ratings.
  • Profit Distribution: Farmers and producers receive a small share of the final price; e.g., farmers often get less than 60% of the final sale price of their produce.
  • Non-Consumer-Centric: Consumers often pay more than the product is worth.

3. Disintermediation-Based Entrepreneurial Models:

a. eCommerce:

  • Online businesses are growing rapidly, using websites and mobile apps to connect directly with consumers (B2C, B2B, C2C, C2B).

b. Franchise:

  • A business model where the franchisor offers the use of their brand name and business model to a franchisee in exchange for a lump sum and a commission.
  • Common in industries like education, hospitality, and food.

c. Network Marketing:

  • Companies where distributors earn by:
    1. Selling products.
    2. Buying products.
    3. Recruiting other distributors.
  • Examples include multi-level marketing (MLM) structures.

d. Discount Stores:

  • Large retail outlets (hypermarkets) that purchase directly from manufacturers and sell products at discounted rates.

4. Reintermediation:

  • Reintermediation: The introduction of a single intermediary expert to replace a chain of middlemen, especially in service industries.
  • Example: The travel industry has seen a resurgence of travel agents, as people seek expert advice rather than doing everything themselves.

5. Disintermediation as a Current Market Trend:

  • Impact of Technology:
    • E-commerce platforms (e.g., Amazon, Alibaba) have revolutionized retail by allowing direct connections between consumers and producers, bypassing wholesalers, distributors, and retailers.
    • Services like Uber and Airbnb enable individuals to offer services directly, eliminating traditional intermediaries.
  • Peer-to-Peer Networks:
    • Social media and online reviews facilitate direct consumer-producer interactions, reducing reliance on traditional intermediaries.
  • Challenges for Traditional Intermediaries:
    • Traditional middlemen must adapt to the digital age or risk being obsolete.
  • Opportunities for Innovative Intermediaries:
    • New business models and services are emerging for intermediaries who offer specialized services or enhanced customer experiences.

6. Conclusion:

  • Disintermediation has disrupted traditional business models, creating opportunities for businesses to connect directly with consumers.
  • While some industries experience reintermediation, the trend towards direct selling and eliminating intermediaries is significant and evolving with technology.

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