In this article, we discussed intermediaries, the types, modern and digital intermediaries, functions and values, the structure, advantages and disadvantages.
Definition
Intermediaries are individuals, businesses, or platforms that act as a bridge between producers (or suppliers) and consumers (or end-users). They facilitate exchange, often without owning the product or service themselves.
Types of Modern and Digital Intermediaries:
Large-scale digital platforms: These are companies that provide a wide range of online services. Examples include:
Internet Service Providers (ISPs) and hosting providers: They provide the infrastructure for internet access and the ability to host web-based services.
Search engines: They help users find information online and often moderate and rank content.
E-commerce platforms: They facilitate the buying and selling of goods and services online.
Social media and participative web platforms: They enable user-generated content and interactions between individuals.
Individual and community-based intermediaries: These are individuals who act as intermediaries in a more personal capacity.
Close intermediaries: These are people like family members, friends, and neighbors who help others with digital tasks, especially those who lack digital skills or access, as explained in ResearchGate.
Hierarchical intermediaries: These are individuals with formal authority, such as politicians, community leaders, or government bureaucrats, who act as a link between citizens and institutions, particularly in the context of e-government.
Professional and organizational intermediaries: These are organizations or professionals that bridge gaps in the digital world. Examples include:
Outreach workers: They assist clients with online applications for services.
Information intermediaries: In financial markets, these include roles like underwriters, analysts, and auditors, Oxford Academic.
Innovation intermediaries: These are organizations that facilitate the innovation process, particularly in the digital and manufacturing sectors.
Functions and Values, of Intermediaries:
Functions of intermediaries
Transactional: Contacting customers, promoting products, and negotiating prices.
Logistical: Transporting, storing, and sporting goods; breaking down large quantities into smaller ones.
Facilitating: Providing financing and risk-taking by purchasing and holding inventory.
Information: Gathering and communicating information about customers and market conditions to producers and other channel members.
Market matching: Matching a producer’s products to the needs of consumers.
Risk taking: Assuming financial risk by taking ownership of products, which may not sell.
Values of intermediaries
Increased efficiency: They reduce the number of contacts needed between producers and consumers, making the distribution process more efficient.
Accessibility: They help make goods widely available to target markets through their networks and scale of operations.
Time and place utility: They provide products to consumers when and where they are needed by storing them until they are sold.
Financing: They provide financing to both producers and consumers, helping to overcome gaps in the payment process.
Risk reduction: By purchasing and holding inventory, they absorb the risk that products will not be sold.
Intermediaries and Market Structure:
Perfect Competition
Fewer intermediaries; direct producer-to-consumer relationships can exist.
Intermediaries may play roles in logistics or marketing.
Monopolistic Competition
Intermediaries help differentiate products via branding, promotion, and value-added services.
Oligopoly
Powerful intermediaries may negotiate terms between a few dominant producers and consumers.
Distribution networks can reinforce or weaken oligopolistic control.
Monopoly
Intermediaries might be limited or controlled by the monopoly supplier.
Alternatively, they may emerge to create access in restricted or regulated markets.
Advantages and Disadvantages of Intermediaries:
Advantages of intermediaries
Increased reach and market coverage: Intermediaries help products reach a wider audience through their established networks and customer bases.
Efficient distribution and logistics: They handle the complex logistics of storage, transportation, and delivery, making the distribution process more efficient.
Market knowledge: They possess local market insights and expertise that can help businesses better target their audience.
Risk sharing: Intermediaries share the risk of selling a product with the producer. If a product doesn’t sell well, the financial loss is shared.
Specialized expertise and services: In areas like finance or insurance, intermediaries offer expert advice, access to multiple options, and assistance with claims.
Inventory management: They manage warehousing and inventory, which reduces the burden on the manufacturer.
Customer service: They can provide after-sales services, handle returns, and address customer queries, which can enhance customer satisfaction.
Disadvantages of intermediaries
Higher costs: Intermediaries add costs to the supply chain through their fees, commissions, and operating expenses, which can lead to a higher final price for the consumer.
Reduced control: Producers can lose control over how their product is marketed, displayed, and sold, potentially impacting brand image and customer experience.
Lower profit margins: The intermediary’s margin means that the producer receives a smaller profit per sale compared to a direct sale.
Potential for conflict and misalignment: There can be conflicts of interest, and the intermediary’s incentives may not always align with the producer’s goals.
Dependency: A business can become dependent on intermediaries for sales, making it vulnerable if the intermediary’s performance declines or they cease operations.
Information distortion: There is a risk that intermediaries might misrepresent information or exaggerate product benefits to increase sales.
Loss of direct customer relationship: Using intermediaries removes the direct line of communication between the business and its end customer.
The Future Role of Intermediaries:
Technological Evolution: Technologies like fintech are transforming financial services, creating new players and reshaping customer expectations for intermediaries.
Focus on Specialization: New intermediaries will likely emerge, specializing in complex areas like managing digital technologies or supporting sustainability transitions.
Emphasis on Empowerment and Inclusion: The future role will involve empowering local and national actors by providing fit-for-purpose capabilities, fostering inclusive markets, and promoting meaningful engagement.
Risk Management: Intermediaries will continue to play a crucial role in managing increasing complexity and risk for both individuals and businesses.
Market Dynamics: Intermediaries are increasingly needed to navigate the complex demands of internationalization, support less efficient firms in accessing markets, and facilitate trade flows.
Potential Scenarios for Intermediaries
Disintermediation: Some traditional intermediaries may be driven out of the market by technological advances and more direct models of exchange.
Reintermediation: Others will adapt by differentiating and re-emerging in new electronic or digital marketplaces, offering new services and capabilities.
Wholly new types of intermediaries will be created to operate within these new electronic environments.
Evolving Functions
Connecting and Coordinating: Intermediaries will excel at coordinating multi-party systems and bridging the gaps between different actors and capabilities.
Capacity Building: A significant role will be in providing resources and support to enable local and national organizations to develop their own capabilities.
Value Creation: Intermediaries will focus on creating value by reducing transaction costs, managing risks, and facilitating more direct exchanges where beneficial.
Conclusion
Intermediaries are essential actors in modern markets, boosting efficiency and access by connecting producers and consumers. Their roles are growing due to digitization, globalization, and platform models, offering significant benefits. However, they also create concerns regarding pricing power, data privacy, and labor practices.