The traditional channel roles of the wholesaler/distributor and retailer were typically organised on the following assumptions:
Given these assumptions, and the (then) high cost of direct communications between the supplier and the customer, the wholesaler/distributor and retailer channels did add value. Wholesalers/distributors and retailers created tremendous efficiencies by breaking bulk in each stage of the distribution channel and leveraging different scale and scope efficiencies. For example, wholesalers and retailers realised economies of scope from aggregating and servicing multiple products, creating efficiencies and benefits both for upstream suppliers and for downstream customers. They also realised economies of scale and scope in storage and distribution, thereby creating channel value. But that was then.
Two major trends have made the old channel logic obsolete. The first is the trend to greater product customisation. The second is the trend to cheaper, faster means of communication and transportation. The trend towards customisation means that traditional channels hinder rather than help the customer. There are in general two ways to customise a product. The first is to produce a standard product, then take it apart, then customise it, then put it back together again. The second way is to build the custom features into the product from the very start. The second way is generally cheaper and more efficient than the first. But it requires direct communication between producer and consumers. Traditional wholesalers and retailers just get in the way.
Meanwhile, cheaper communication and transportation makes it economical for customers and producers to talk directly with each other. Toll-free phone numbers, 24/7 call centres, overnight delivery services like UPS, Fed-Ex, DHL, and of course the Internet have made the need for local inventory stockpiles very questionable. Table 2.1 illustrates how assumptions about the provision of value to the customer are being transformed.
But what exactly do these new infomediaries look like? Our research suggests the emergence of a new channel model built around six distinct intermediary roles: buyer agent, seller agent, market maker, context provider, payment enabler, and fulfilment enabler. We expect channel infomediaries to increasingly specialise in these roles, with each category creating its own distinctive value in the channel, and each role characterised by its own revenue model.
Buyer agents create value in four important ways: they help customers assess their needs; they identify suitable offers to fulfil needs; they compare and evaluate offers; and they match a particular offering with the customer in an attempt to get the 'best deal' for the customer. In sum, these activities create greater convenience and better choices for buyers in the purchase process.
Previously, many buyer-agency roles were undertaken by the customer or seller. Electronic commerce is increasing the value of independent buyer agents by expanding access to buyers and sellers, and by making the role economically viable. Buyer agents create value by reducing the search effort for a product that will meet the customer's needs at an attractive price. The value of buyer agency grows with the number and complexity of available choices.
Thus intelligent software agents, or 'bots', create value by searching for product information and bargains and by checking inventories to determine which products are available. Users enter descriptions of items they want to buy and let the bot do the shopping. Bots reduce the selection and delay risks for the customer, and save time. Examples include Jango on Excite Shopping, Junglee on Yahoo! Shopping, mySimon, Comparenet, and Bidder's Edge.
In the automobile industry discussion above, we mentioned Auto-by- Tel, CarPoint, and OneSwoop. These sites provide detailed information on cars, and help consumers to comparison shop (an activity anathema to traditional dealers) and they help lower costs by engaging dealers in a bidding war for the customer's business. These services all add considerable value for online customers.
Of course, while the buyer agents help customers to shop, they also gather information about the customers themselves. Some do this directly, through online surveys (see www.epinion.com and www.bizrate.com); others indirectly, by observing buying behaviour, mining the data, and making inferences about preferences. The higher the volume of transactions and the number of participants, the easier it is for companies like Amazon to make useful recommendations to customers (the 'collaborative filtering' technology is more likely to surface real similarities in preferences across participants).
LetsBuyIt.com is a new firm that takes buyer agency even further to help customers get the best deal. Through its concept of 'co-buying,' it allows consumers to pool their purchasing power and negotiate with suppliers from a position of relative strength. Such services shift power from the supplier to the consumer. Incidentally, most of the early online buyer agents have had an advertising-based revenue model. But, as the buyer-agency business moves more in the direction of aggregating buyer power and negotiating prices, we expect the revenue model will include a brokerage fee. Moreover, it seems that online consumers are often indifferent about saving money,6 so we expect buyer agents to focus mainly on supporting the purchase of high-value and high-involvement goods.
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Note: This article was sent to us by: Daniel S. Allen at 03152010
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