Reasons why a middleman may be what you need.

Article written by Anthony Soto

There is no denying that the world is shifting towards a more direct consumer-seller relationship. The preference has been clear:: Businesses would would rather sell directly than through a third party. But what about the middleman?

How do they stay relevant in a world where they are not needed? Does a business need to eliminate the middleman? The value a middleman possesses keeps this trend from taking off fully.

What is a middleman?

A middleman is a person who acts as an intermediary between a business and a consumer(retailer or individual). As such, middlemen have a few advantages over direct sellers.

Advantages of having a middleman

Expertise. A middleman is exceptionally knowledgeable on the product they sell and to which market they sell it. They do so by having incentives and local marketing strategies that help them promote the product.

Feedback. An intermediary is often entuned to its customer base and can be an effective communication tool for feedback on the producers.

Payments. Middleman takes the responsibility of collecting payments away from the producer. More so in the banking side of the business.

Market. As part of their job, they must know the market. They study the business landscape and have an understanding of its local economy. It is also their responsibility to understand its competition which is vital to the success of its business partners.

Purchase. A middleman buys the product before it sells it forward and by doing so it provides a quick return on a business’s products so that it can have the funds to maintain its operations in effect. The middle man holds the product until it is sold, assuming full responsibility until sold.

There’s still a few more

Warehouse Management. For a business to distribute directly they would need to have a warehouse to keep their products. A warehouse that they need to populate with employees to maintain. Employees need to get paid, the lot where the warehouse has rent to pay. These are things that a company will have to pay if they do not have middleman suppliers; but does the cost offset the difference of working with a middleman only? Some companies like Apple tend to adopt both platforms and they sell directly to customers as well as retailers.

Pricing. If a producer increases its prices a middleman can essentially hold on to lower costs it set before as a means to sell to its market over its competitors. The middleman pays the higher cost but the consumer wins, and if it beats its competitors it’s worth it.

Sales. Middlemen tend to buy wholesale, which helps reduce inventory turnover.

Should middlemen be reduced?

Reduction of the middleman can work to a degree, however. For example, companies like Apple and Dell sell both direct and through third parties, and are successful following both models. Yet to remove them altogether is a challenge many companies might be afraid to take. There are some things to consider though.

Benefits. A middleman may get special benefits from the producer but not pass it on to the customer. While this doesn’t affect your business directly, it is your incentive after all it may backfire against your consumer.

Profits. Your business could save a ton of money by cutting the middleman.

Network. Not having a middleman forces your business to build relationships with your suppliers, which can be good.

Customers. Not having a middleman helps you develop a more personal approach to your customers.

In the end, it is your business and you decide what’s best. Make due diligence, and do your research.

If you like this post, want to see more, or have any comments, please let me know. Check out similar posts here.