Mastering the Intermediaries

The need for intermediaries (online platforms) by business (manufacturers or service

firms)
Intermediaries bridges an efficient gap between manufacturers, suppliers or services firms
(sellers) and customers (buyers). The intermediaries provide various benefits such
information flow, set standards and a place to compare among products. This in turn creates
high dependency on online platforms by the sellers and especially when the business is niche
(Philip Kotler, “Marketing Management”) as it provides scalability and generate high
visibility to customers thereby reducing their search costs.

Strategies for businesses to reduce dependency on online platforms

Online platforms dependency on sellers to form a complete network
It essential for business to evaluate the online platforms and identify their vulnerability to
establish as a complete network within their system and create the negotiation power from
being exploited by the platforms. The businesses need to understand the type of product or
services involvement they are dealing with the online platforms. For example: book
publishers find it highly effective to sell via online platforms (amazon) than any other
channel while restaurants or airlines service reservations find it more cost effective to sell via
their own websites. After the understanding the respective products or services, it is essential
for business (small or large) to evaluate the dependency of online platforms to establish as a
network. The network could require cluster of smaller businesses or one large company to
complete as an established platform.
For instance one of travel search engine Kayak’s key offering was to include all American
flights that were not included in Expedia or Orbitz. But Kayak’s major flights operated in key
cities and American Airlines happened to be a major provider of flights for these key
destinations. Here, Kayak needed American airlines active involvement in their platform to
form into complete established network.
Another instance would be real estate. This business is highly fragmented and has low market
concentration as there are so many realtors and agents. The low market concentration enables
the online platform to high power to set standards and demands. But the completeness of the
platform comes from capturing all the agents and realtors. If a group of agents were to be
missed out from the platform of a particular area and that leads to incomplete listing of
properties for that particular area and hence the network becomes incomplete. This in turn
can induce negotiation power to the agents and realtors
Regulatory contracts against discredit discrimination
The online platforms are so powerful that they often misuse this power to their own benefits.
It is often favouring their own services or discriminate against competitors to earn revenue or
remove listings in search engines without any reason or demote ads if a company ever
questioned or complained about the platform. One way to tackle this challenge is by fore-
going into strong regulatory contracts between the online platforms and businesses. This can
help contain these issues and discriminations.
In the case of Yelp, Google fiddled with its search algorithms to gain prominence against its
competitors’ Yelp to attain competitive advantage. Since the user were more attached with
Yelp services, the customers made an effort to search for Yelp services. The customers only
faced problem with Google search engine while none was faced when the customers used
Bing or Yahoo. The discrimination was noticeable and it was because of the regulatory
concerns by Yelp made it possible to face the backlash and scale back to its initial search
engine algorithms. The expense of losing customers is very costly. Therefore the online
platforms often push back to the idea of treating all the suppliers equally.

Shift or create an alternative platform

The dependability over online platform becomes considerably low when the platform has
competitors. This alternative gives relatively an upper hand for the businesses to negotiate or
be valued. The online platforms’ scale and reach various and often less stable. Therefore
every company should evaluate their available online platforms and decide to partner with,
that is more suitable for them.
A new platform can be created and solely owned by a large company or by cluster of
companies come together. A company should access the need for creation of an alternative
whether it qualifies to be a potential core value to the company in the future or stays as a
support function over time and respectively make the decision to invest. It should analyse the
challenges that might arrive with creation of new platform.
In the case of Regal Entertainment, it created Fandango when it was threatened by
MovieTickets. Fandango was a created by collaboration of Regal Entertainment partnering
with United Artists and Hoyts and other large theatre chains.
Similarly in hotel business, six large chains founded search service called Room Key. Room
Key provided services similar to online travel agents i.e; comprehensive search results. Room
Key was better than any online travel agents as it not only provided search results but also
connected consumers directly to the hotels’ websites to make reservation rather than taking
commission.
The important factors to be considered to make these decisions are cost of the new platform,
other distribution channels, challenges with respect to customers’ existing channels and the
rising the antitrust issues.
Direct selling to Customers
The idea here is to identify the reason as to why the customer prefers or needs the online
platform with respect to a company’s goods or services. And will the customer be willing to
shift from the existing platform to the company’s website to avail the same goods and
services. Hence, making the company’s direct channel possible.
The well-established online platforms provide customers with convenience and accuracy but
at a cost. In most cases, the customer has already decided what he/she wants to buy or avail
the services In case of restaurants, they can leverage on this by providing a direct channel
which serves as cheaper alternative for customers due to the elimination of intermediaries.
As the online platforms’ network gets larger, the cost (search and ad) incurred by the supplier
is passed on to the customers which in turn leads to dissatisfaction and thereby loss of
customer. It is important for the business to understand that business via online platform is
not only for selling but also advertising. The adverting fee via Google cost almost 10% of the
revenue and this affect the company’s ability to provide incentives or offer lower prices. The
focus is to avoid search ads. Therefore companies should find a way to replace their ads from
online portals to alternative portals that incur lower costs.