FACULTY OF COMMERCE

TOURISM AND HOSPITALITY MANAGEMENT

GROUP PRESENTATION 1
E-COMMERCE BM108

MANGAZHA SIJABULISO R1917530V

MAPAVANA GODWIN R1915674C
MASINA DENZEL R1915780A
MSINDO YOLLANDAH R1911365F
MUSHONGA TAPIWA. R19733ZX
PHIRI AMANDA R192168X
PHIRI JUNIOR R1916316F

What Is Disintermediation
Disintermediation is the process of cutting out the middleman. It may allow a consumer to buy
directly from a wholesaler rather than through an intermediary such as a retailer. Or, it can
enable a business to order directly from a manufacturer rather than from a distributor.
Disintermediation in e-commerce fulfilment is all about removing the independence on an
intermediate hub, whether a third party logistics (3PL) provider or fulfilment centre, to process
your international orders. In the financial industry, it is seen when an investor is able to buy
stock directly rather than through a broker or a financial institution.

The purpose of disintermediation is usually to cut costs, speed up delivery, or both. It doesn't
always work because it requires additional staffing and other resources to replace the services
supplied by an intermediary. The concept of disintermediation originated in the financial
industry as investors were given the opportunity to directly buy stocks, bonds, and other
products without an intermediary such as a broker or a bank.

Disintermediation today, is now in use across industries and is a pillar of the internet model. In
the online context, it is often called the B2C, or business to consumer, model. Disintermediation
can occur when a wholesale purchase allows an interested buyer to purchase goods, sometimes
in large quantity, directly from the producer. This can result in lower prices for the buyer
because the intermediary, a traditional retail store, has been removed from the purchasing
process. This saves the buyer the cost of the mark-up that is associated with the transition of a
product from a wholesaler to a retailer before it reaches a buyer.
Worth noting, is the fact that the internet has the potential to be a powerful tool for
disintermediation. Consumers and small businesses can in theory place orders directly with the
producers of products. Some products have been able to skip at least one middleman, the
retailer. Electronics manufacturers like Apple, Google, and HP are prime examples. Cosmetics
brands, once sold only in department stores, now sell directly to consumers via their websites.
Many small local businesses thrive by promoting their wares on their own websites and on
social media.

A real world example of disintermediation is the travel industry, which has been utterly
transformed by disintermediation, mostly through the Internet. The process began well before
the creation of the World Wide Web when American Airlines introduced direct flight bookings
on its Sabre Global Distribution System (now Travelocity) and made the service available on
early online sites including PRODIGY and CompuServe.
The travel agent now has to struggle to compete for consumers who can book hotel rooms,
cruises, rental cars, and flights directly from the providers or through a travel site that allows
them to compare an exhaustive list of options. Online travel booking is not, however, a perfect
example of disintermediation. A site such as Expedia is essentially an intermediary. It buys hotel
bookings in bulk at a discount and resells them to consumers, earning an estimated 70% of its
revenues on the mark-up.
Disintermediation has some advantages and dis-advantages. The main overall advantage of
disintermediation is that it keeps price increases and predatory pricing under control in the
economy. This is theoretically because the availability of wholesale distribution and do-it-
yourself services allow the consumer to save money. For a manufacturer, selling directly to
consumers cuts out the expense of paying sales representatives, allowing the manufacturer to
gather consumer information directly and establish relationships with buyers of its products
particularly appealing in the case of large volume buyers such as businesses.
It also increases consumer contact. Disintermediation puts the supplier in touch with the buyer.
In many supply chains, the supplier never gets to meet their buyer, much less form a
relationship with them. These relationships that form through disintermediation create more of
a vested interest by all parties involved to create something that is mutually beneficial.
Moreover, disintermediation allows for more control, as it puts the supplier in touch with the
buyer. In many supply chains, the supplier never gets to meet their buyer, much less form a
relationship with them. These relationships that form through disintermediation create more of
a vested interest by all parties involved to create something that is mutually beneficial.
The cons of disintermediation encompass an increase in the internal workload. Eliminating the
middlemen means creating more work for yourself. Disintermediation requires you to take on
all the work that intermediaries would normally perform. That means you’re doing everything
from taking orders to fulfilling them, managing marketing, and performing all customer service.
Another disadvantage for the consumer is the lack of personal help in making purchasing
decisions. For the manufacturers and wholesalers, disintermediation adds the cost of marketing
and requires employing a sales transaction staff and maintaining selling facilities. It also affects
the number of services, such as brokers and agents, who might provide protection to their
clients.
Also, it can increase costs. Selling direct might save money, but it can also increase internal
costs. You absorb a number of costs and fees with disintermediation, from payment process
fees and postage to vehicle maintenance and administrative costs.
Thus, these disintermediation pros and cons show that it can be beneficial to form direct
relationships with buyers, but it is also important to have the internal mechanisms in place to
take on all the work of intermediaries before starting. That way, the best chance for success can
be found.

REFERENCE LIST
Forest, W. (2015) Infinite Financial Intermediation.
Graham, M. (2017) “Disintermediation: an economics buzzword that neatly explains a lot of the
good that is going on.” CoEvolution Quarterly, Spring.
Ofgem. (2015) Third Party Intermediaries: what your small business needs to know. Accessed
28 June 2021.
Plantes, P.J. (2012) “Disintermediation: The New Competitor.” Health Management Technology.
Vaishnavi, N. (2020) Middleman: Meaning, importance and functions. Distribution Channel.
Retrieved 28 June 2021 from www.businessmanagementideas.com