PRESENTED TO: PRESENTED BY:

TIMIRA SHUKLA MEENAKSHI SHUKLA

BM09108

Intermediation- a business process that lies between and facilitates (adds value to) the points in a value chain.

Intermediaries-interdependent organizations involved in the process of making a product or service available for use or consumption.

Often provides services rather than a product.

The role of an intermediary is to:

a) To adjust the discrepancy of assortment.b) To minimize the distribution costs.c) Facilitate the searching process of both buyers and sellers by

structuring the information network.

Two major categories of intermediaries are:

Virtuals: who do not take ownership of products and services.

Aggregators: who may own, but do not produce or even assemble the goods and services themselves.

When an intermediary offers its services over the Web, it is called cybermediary.

Disintermediation: The elimination of intermediaries in the supply chain, also referred to as "cutting out the middlemen.”

Re-intermediation: electronic re-insertion into the role of intermediator in a firm’s value chain (Delta.com allowed customers to go directly to its web site to buy electronic tickets, taking over the job of brokers via a direct connection. This is a direct-to-consumer business model, or possibly a shared infrastructure model, as in the case of Orbitz)

A firm that offers intermediary services over the Web, is a cybermediary. This may disintermediate agents.

Since purchases and transactions that are least costly are preferable to customers, esp. for commodity goods and services,

All other things being equal, the value chain with the fewest intermediaries will have the lowest price.

However, there are additional costs:

intermediaries have their own cost structure. consumers incur costs when searching for goods/services they with to purchase.

Thus consumers must weigh a cost tradeoff between searching for the cheapest commodity price and paying extra to use an intermediary.

Low cost cybermediaries will be increasingly used for simple, high frequency transactions.

The future of traditional intermediaries’ depends on their focusing on value-added products & services. E.g., travel agents are likely to increasingly concentrate on frequent, complex transactions, such as package tours and corporate travel negotiations.

In general, physical intermediaries will continue to play a role in providing products and services that require more information and analysis than can be conducted through a Web site.

These value-added roles for intermediaries can be grouped into five areas.

Search efficiencies and information management

Use knowledge of how to procure items & services; create trading floor for buyers and sellers

Expedia.comeBay.com

Routinizing and guaranteeing transactions

Handle complex transactions; insure payments and shipments

Ibm.comAmex.com

Logistics Delivery of goods, locally or globally

Ups.com

Aggregating demand/ negotiating prices

Gather orders & negotiate prices with client(s)

Priceline.comETNs like Covisint

Creating packages Break bulk through large-volume purchases, and reassemble into packages

Dell.com

Search Efficiencies and Information Management: Intermediaries fulfill a valuable function when they know more about markets than most buyers and sellers. Customers are willing to pay extra for this knowledge.

Routinizing and Guaranteeing Transactions: Transactional activities are often outsourced to banks and credit card companies. These activities can be taken over by cybermediaries, since NE economies favor this.

Intermediaries could also ensure there is no default, known as “securitizing the transaction”. The ‘insurance policy’ for each end of the transaction is a value-added that buyer and seller would be willing to pay extra for.

Logistics: Logistic firms currently provide online tracking services so that customers can monitor the processing and delivery of their orders.

Firms like UPS organize the links for the whole supply chain for Dell Computer, gathering together the monitors from Sony, workstations from Dell, and other peripherals from other suppliers and then deliver them to the ultimate customer.

Aggregating Demand/ Negotiating Prices: Relating to buyers and sellers in a many-to-many relationship, some intermediaries represent the interests of numerous entities by coalescing demand and negotiating prices. The reverse auction model used by www.priceline.com exemplifies this approach.

Creating Packages: Intermediaries can purchase goods in large volumes and offer these for sale in assortments that would be extremely costly for buyers to put together on their own.

In such cases, the value-added by intermediaries can successfully compete with less flexible cybermediaries.

An example would be a personalized travel package, combining airfare, tours, vehicle rentals, and cruises offered to tourists by firms like Rosenbluth Travel (www.rosenbluth.com).

Companies like Yahoo and Amazon are described as cyberspace “portals” and “content aggregators”

Their true business models are complex hybrids and include being intermediaries and making direct-to-consumer sales.

Again the main idea is replacing physical processes with information processes.

If Yahoo was a retailer like Wal-Mart, its distribution system, etc., would have to be huge.

Instead it handles these processes through its Web-based and information-based systems. Its market niche in the economy is based on this.

Negotiating prices using power of client volumes or access to customer demand-priceline.com

Using specialized knowledge to procure items/services

(search efficiencies)-Barnes&Noble. com; Expedia

Breaking bulk- Walmart.com Making transactions routine-IBM.com Creating assortments for customers-Dell.com, amazon.com