Disintermediation: winning the battle for the customer relationship

  • Thought Leadership
Middleman

I’ve worked on lots of projects on disintermediation recently. It seems like a simple concept: the removal of the intermediary, often a retailer, broker or reseller. This leads to providers selling directly to customers. However, I’ve seen things work out differently, with broader scrambles for the customer relationship breaking out. I’ve summarised the most common scenarios below, and thoughts on how companies can win the battle for the customer relationship.

1)     Direct-to-consumer offerings emerge

This is the ‘simple’ model, with customers buying directly from source. Unilever have begun selling razor blades, mustard and tea directly to consumers. Tesla’s cars are sold through their own showrooms, and not through dealerships. Domestic & General have started selling extended warranties on their own website as well as through retailers and manufacturers.

This approach provides very direct ownership of the customer relationship, but comes with serious challenges: How do you create scale quickly? How do you learn to serve customers directly? How do you avoid alienating your traditional channel partners? If these can be overcome in a market, or they’re not an issue, expect to see more of this model.

2)     Platforms and marketplaces emerge

If a company has a narrow product range, going direct can be tricky: customers don’t want to buy lots of things individually, hence why retailers are useful. One way around this is to sell through a marketplace, or set one up. This allows you to sell directly alongside a broader range of products/ services. Customers get the convenience of being able to buy lots of things in one place. You get a direct relationship with them. The obvious examples are Amazon, eBay and Etsy, but more niche marketplaces are springing up in lots of industries creating this opportunity. Cellar Link, for example, connects buyers and sellers of premium wines. They offer warehousing, distribution and, crucially, a marketplace.

3)     Brokers take full control of the customer relationship

In some industries, multiple parties interface with customers. In Energy, the retailer (eg. nPower), has the billing relationship, with the sales relationship usually held by a comparison site or the retailer. Tilt the mirror, and the comparison site automatically switches customers onto the best deal, in real-time. Tilt it further and this service allows customers to buy directly from source (which could be a house down the road with solar panels on the roof). The retailer risks being fully cut out.

4)     A ‘mega player’ swoops in, building the customer relationship into their ecosystem

In this scenario, old intermediaries are replaced by new bigger, broader ones. Companies like Google and Amazon are increasingly trying to position themselves at the heart of their customers’ lives. They have broader ecosystems of products and services. Customers want the convenience of only dealing with a small number of providers (especially if broader, interlinked benefits are delivered too). Many global mega-companies are thinking along these lines. Tesla are eyeing up the energy market, on the back of home batteries. Will they start selling energy? Ford have just started offering savings accounts in the UK. What other financial services are they looking at?

Big companies diversifying is nothing new. The ways they can do this, quickly across global markets, is, though.

5)     New types of intermediary spring up, offering completely different customer experiences

In this final scenario, completely new ways of buying emerge. Amazon Dash, allows customers to buy replenishable products quickly at the touch of a button. Over 65 buttons are available, for products including shaving gel (Gillette), tissues (Kleenex) and beer (Heineken).

 

British Gas has set up Local Heroes, a marketplace for local tradesmen, allowing people to get one-off jobs done quickly, with British Gas guaranteeing the work. It allows customers to find, book and pay for jobs online. A market that has traditionally been direct to consumer, is therefore becoming intermediated (turning the concept of disintermediation on its head).

Winning the battle

The scenarios and examples above show how complex the battle for the customer relationships is becoming. Technology underpins everything. Where once it was impossible to access customers directly, there now are webshops, apps and marketplaces. Payments are easier to process. Businesses can be globalised in a matter of days. Data capabilities, and even staff, can be turned on and off at the click of a button. Customer expectations have completely changed too. Every company is expected to be as quick, simple and convenient as Amazon and Uber.

This is leading sectors down a wide range of paths, often unpredictably. Companies need to be aware of the possibilities but, more importantly, aware of the forces creating possibility and driving change. Then they need to act quickly, take some risks and do things differently to retain their customer relationships, or wrestle them away from others.

John Bee is MD of White Space Strategy. White Space helps some of the world’s most successful companies solve tricky problems in complex markets (www.whitespacestrategy.com).

Disintermediation summit – White Space Strategy is hosting a free half day summit on disintermediation on 21st September. Speakers/ panelists include senior staff from Sainsbury’s, Centrica, Close Brothers and Volvo Group UK. White Space will be sharing insights in an interactive workshop. For more information about the summit, click here.