The disintermediation dilemma (34)

The disintermediation strategy presupposes removing one or more steps of the supplier’s marketing chain.

The best-known disintermediation practices are rural outlets, factory stores, direct selling to large customers, telesales, and, most recently, e-commerce.

The last alternative—e-commerce—has revolutionized selling practices. It occurred for three primary reasons: the first was because it significantly reduced the cost of commercial transactions; the second, it allowed the supplier to reach any customer no matter how remote they are without using intermediaries; and the third, because it began to exert heavy pressure on prices charged.

That pressure on prices was not only because it permitted the seller to operate at lower prices and maintain reasonable profitability. It was also a consequence of the entry of numerous web competitors, some very well structured, commercially aggressive, and that had consolidated a good image among their users, such as Amazon, AliExpress, eBay, Shopee, and Mercado Libre.

This scenario brought a new challenge to the price manager: What must the selling price be for the various intermediaries?

At rural outlets and factory stores, it was common for suppliers to operate with prices identical to those charged by other intermediates or, at most, with a little difference. In direct sales to large customers, the supplier usually adjusted the price to the specificities of each operation.

However, nowadays, in addition to those channels, the price manager needs to decide the price for distributors, physical retailers, e-commerce operators, and his own website, resulting in a complex dilemma that presents itself, hypothetically, as follows:

Thus, if the supplier sells to virtual stores at the same price charged for physical stores (which have an increased operating cost), the latter’s sales may be unfeasible.

Concomitantly, if the supplier uses a lower price on his website, it can make it difficult for physical stores to be profitable. Also, if the supplier uses a higher price on his online sales, he will not be competitive compared to his direct e-commerce competitors.

That is a real problem to solve.

C. L. Eckhard, author of Pricing in Agribusiness: setting and managing prices for better sales margins.