“Electronic commerce is an emerging concept that describes the process of buying and selling
or exchanging of products, services, and information via computer networks including
Internet.”(Turban, Lee, King and Chung, 2000). Electronic commerce, or short e-commerce,
promised many benefits and golden opportunities often described by terms like business-tobusiness
(B2B) or business-to-consumer (B2C). Those terms are now often used in
commercials and advertisements. After only a short while new terminology was invented to
describe the new opportunities of e-commerce. The old terms lost their impressiveness much
too fast. Venture capital was readily available to finance business models described by peer-to
peer (P2P) and consumer-to-business (C2B). The online world but also their financial partners
found themselves in the middle of hype.
One of the great effects predicted was an effect named disintermediation. This term
describes according to Chaffey, Mayer, Johnston and Ellis-Chadwick (2000) the removal of
intermediaries. The former linkages between customers and companies like brokers or
distributors are replaced by the electronic channel. The picture some dot.com entrepreneurs
painted was one of a world without travel agencies, toyshops, electronic retailers and other
intermediaries.
Disintermediation caused some mid-sized channe l relationship earthquakes after a
rebellion from the intermediaries. Resellers of the Apple's I-Mac gave Steve Jobs at a
presentation in Paris, Europe a hard stand. Mr. Case was there to inform retailers about
Appel's newest PC model. His announcement, that the I-Mac will be exclusively available via
the Internet for an introduction period of four weeks, created whistle blowing and tumults
among the resellers. The upset intermediaries feared that this four weeks were just a try out
for their uncertain future (Stein, 2000). It comes at no surprise that intermediaries rebelled as
companies tried to shortcut them with the help of electronic commerce. Another example of
disintermediation is Steven King, who tried to sell a new book via the Internet. He put the first
chapters online for free and would only write further chapters if most people would pay him.
The project called 'The Plant" ended not successfully. Stephen King discontinued his trial
because the percentage of paying customers dropped with every chapter (Der Spiegel, 2000). [...]
Table of Contents
1.Introduction
2.1. Disintermediation
2.2 Reintermediation
2.3. Integrating the Internet - towards multi-channel distribution
3. Implications and suggestions for further research
4. References
1.Introduction
“Electronic commerce is an emerging concept that describes the process of buying and selling or exchanging of products, services, and information via computer networks including Internet.”(Turban, Lee, King and Chung, 2000). Electronic commerce, or short e-commerce, promised many benefits and golden opportunities often described by terms like business-to-business (B2B) or business-to-consumer (B2C). Those terms are now often used in commercials and advertisements. After only a short while new terminology was invented to describe the new opportunities of e-commerce. The old terms lost their impressiveness much too fast. Venture capital was readily available to finance business models described by peer-to peer (P2P) and consumer-to-business (C2B). The online world but also their financial partners found themselves in the middle of hype.
One of the great effects predicted was an effect named disintermediation. This term describes according to Chaffey, Mayer, Johnston and Ellis-Chadwick (2000) the removal of intermediaries. The former linkages between customers and companies like brokers or distributors are replaced by the electronic channel. The picture some dot.com entrepreneurs painted was one of a world without travel agencies, toyshops, electronic retailers and other intermediaries.
Disintermediation caused some mid-sized channel relationship earthquakes after a rebellion from the intermediaries. Resellers of the Apple's I-Mac gave Steve Jobs at a presentation in Paris, Europe a hard stand. Mr. Case was there to inform retailers about Appel's newest PC model. His announcement, that the I-Mac will be exclusively available via the Internet for an introduction period of four weeks, created whistle blowing and tumults among the resellers. The upset intermediaries feared that this four weeks were just a try out for their uncertain future (Stein, 2000). It comes at no surprise that intermediaries rebelled as companies tried to shortcut them with the help of electronic commerce. Another example of disintermediation is Steven King, who tried to sell a new book via the Internet. He put the first chapters online for free and would only write further chapters if most people would pay him. The project called 'The Plant" ended not successfully. Stephen King discontinued his trial because the percentage of paying customers dropped with every chapter (Der Spiegel, 2000).
Intermediaries face additional threats described in the term re-intermediation. The definition of re-intermediation is the creation of new intermediaries between customers and suppliers by providing additional services (Chaffey et al., 2000). Those additional services can be such as providing faster deliveries, search functions or product evaluations. Those new intermediaries try to jump in-between consumers and producers. Well-known examples for new entrants are E-toys or Amazon. Both companies were born and the first company, E-toys, also buried with the Internet-hype. Amazon is more successful and one can say that Amazon proved that re-intermediation exists and that it is performable. Most new electronic intermediaries did not survive the Christmas sales 2000. E-toy lines up in a long line of failed Internet intermediaries. The two terms, disintermediation and re-intermediation fed an academic debate about the influence of e-commerce on channel relations and intermediaries. Some argued that intermediates will indeed disappear and some proposed that new electronic intermediaries will enter the supply chain. This paper aims at enlightening the following question:
Will the emerging concept of e-commerce cause disintermediation or will it cause reintermediation?
The following section summarizes the opinion of several authors about disintermediation. Then a section about re-intermediation follows reviewing the literature on that topic. Several authors propose the Internet as an additional distribution channel. They identify several factors to consider while adding the electronic channel. The paper ends with a conclusion about the impact of the Internet on intermediaries.
2.1. Disintermediation
Brick-and-mortar retailers fear that some output utilities that were more insignificant for intermediaries as manufacturers can offer extensive customer service via their Internet sites (Gilbert & Bacheldor, 2000). Good examples for self-service are Siemens AG and other electronic manufacturers, which offer FAQ, Forums and online problem solving on their websites. The traditional intermediaries could provide such services, but the efficiency of the electronic communication channel via Internet makes their service redundant as they are better performed by the manufacturers themselves. This holds especially for complex, high-tech products, which provide multi-functionality like consumer electronics or PC-software. The next section will discuss the above-described disintermediation of suppliers caused by higher efficiencies of the Internet as a distribution channel. The focus will in particular be on cost efficiencies caused by lower distribution costs and possibilities for better service.
A distribution channel exists only if a certain utility is attached to the role of the intermediaries. Pelton, Strutton & Lumpkin (1997) distinguish four channel output utilities: convenience, lot size, selection and service utility. A distributor always adds costs the customer has to bear. The intermediaries can only enter the distribution channel if they provide some value in the form of utilities customers are willing to pay for. The convenience utility is divided into temporal and spatial. Intermediaries offer lower waiting time (temporal) or ease the process of the acquisition (spatial). Lot size utility refers to intermediaries adding value by resizing quantities to customer needs. Retailers usually distribute smaller quantities.
Because of time constraints or mobility constraints customers cannot search for the best product themselves. They are most of the time locally bounded and have a lack of time, which makes extensive search too expensive. Therefore, an important utility that intermediaries provide is that of selection. The intermediaries pre-select products and give advice to their customers. The services utility are value-added services like free delivery, installation or repairs the intermediaries add to the supply chain.
Those utilities are useful points of attention to evaluate the role of existing intermediaries and the entrance of new intermediaries in the supply chain. Why were traditional retailers scared when their suppliers launched their electronic commerce ventures? They simply feared that the producers try to lower distribution costs were via leaving aside the retailers by offering their products directly to consumers online (Pelton et al., 1997). The sales and infrastructure costs the distributors add to the product price were lowered due to the channel. Dell (http://www.dell.com) sells computers exclusively via its websites. This gave Dell the opportunity to offer very competitive prices while making above industry average profits. Dell's concept does not leave space for wholesalers and retailers. The main advantage stems from the fact that wholesalers usually have a stock turnover. Dell can minimize inventory and builds PCs on demand via the enhanced processing of orders submitted via the websites. Other retailers/ wholesalers face the challenge of keeping inventory as low as possible. Technology changes so fast that inventory of only a few months old could be out of date. Therefore, the sales price could fall below purchase price, causing heavy losses.
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