What is Disintermediation? - Definition & Examples

Instructor: Beth Hendricks

Beth holds a master's degree in integrated marketing communications, and has worked in journalism and marketing throughout her career.

Have you ever purchased something directly from the supplier? If so, you've been a part of disintermediation. In this lesson, we'll study what that is and look at a few industries as examples in action.

Eliminating the Middleman

Have you ever heard the phrase, ''eliminating the middleman?'' No, this isn't some devious plot to off some poor unsuspecting soul standing in your way, but a business strategy that does away with a person or company that stands between a producer of goods and an end customer.

Think of the middleman like this: Farmers supply fruits and vegetables to your area grocery stores. You visit these stores, select the produce you need and make your payment. In this scenario, the grocery store is the middleman. Now, if you're a farmer who wants to eliminate the middleman, you may opt to sell your fruits and vegetables at a farmer's market, where consumers can buy directly from you. That's eliminating the middleman (i.e. the grocery store).

A farmers market cuts out the middle man of the grocery store.
farmers market

So, how does the concept of eliminating the middleman apply to businesses? Simply, through a process known as disintermediation.

Disintermediation Defined

Disintermediation is a big word that simply means what we've already discussed: the idea of eliminating the middleman from the ''middle'' of a business transaction.

For suppliers, it means you can deal directly with your consumers. A common medium for this is via the internet, where it's easy for a brand to interact directly with its audience. For consumers, it often means more choices and cheaper prices. Why? Because there's no middleman taking a cut out of the transaction.

Consider this basic example: XYZ Computers sells its new model to Big Box Superstore, who turns around and sells it to consumers for more than they paid. Both XYZ Computers and Big Box Superstore make money on the sale. But, if XYZ Computers sells a computer directly to a consumer, the consumer can generally get the computer at a better rate because Big Box Superstore doesn't have to make money on the sale.

Prevalence of Disintermediation

Disintermediation has become more popular since the internet has become a part of our everyday lives. Before, consumers had fewer options for making purchases. If you needed new carpeting for your house, you had no option but to visit a local home improvement store or carpet company. Today, if you need new carpet, you can conduct a search online and find myriad ways to purchase directly from a supplier or manufacturer, typically saving money and time in the process.

The act of disintermediation has changed the shopping landscape tremendously. Think of all the stores that have closed, just in your community, thanks to a more open marketplace. So, yes, while disintermediation (or eliminating the middleman) can be beneficial to both the supplier (higher gross earnings since no middleman has to be paid) and the consumer (more options and better prices), it has eliminated entire retail operations who are no longer needed to move product from a manufacturer to the intended audience.

Examples of Disintermediation

Computing

Dell was one of the first manufacturers of computers and computer equipment to take their business from Dell > store > consumer and move it to a Dell > consumer model. There was a time you couldn't buy a Dell computer inside of a superstore because it was available only through Dell, to both individuals and businesses. It was a strategy that worked well for the company, helping them to build brand awareness and enjoy financial growth.

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