Disintermediation refers to companies going directly to customers with products and services. No channel partners are used to move offerings or to manage interactions with customers. The CMO Survey has asked managers to report whether their companies will increase their level of disintermediation in the next 12 months. The percentage responding “yes” has increased over the last three years as shown in the figure. In fact, there has been an increase of over 100% between August 2009 and August 2011! Because internet sales and the use of social media have also soared during this period, I think it is a good bet that disintermediation does not mean bricks and mortar for most companies.
Figure. Company Disintermediation 2009-2011
From my conversations with executives, there appear to be two good reasons to side-step channel partners. The first good reason is that companies can learn more from customers through direct engagement. This is primarily why Procter & Gamble decided to open an online store. As noted in the press release announcing the site, “P&G officials don’t expect the eStore to boost the manufacturer’s revenue or profit very much very soon. They’re more interested in the data it will produce about their shoppers and what works for them—whether it’s product pairings, social media links, environmentally friendly pitches, packaging options, and even the web standby of banner ads.”
The second reason is that direct interaction can help you serve your customers more effectively. This was American Airlines’ argument when it pulled its flights from Orbitz, Expedia, and Hotwire when those online travel agents refused to include American’s new program called “Direct Connect” that allows customers to receive bundled and customized travel offers from American. Without the ability to differentiate its offerings, American and other airlines were stacked in front of the customer, head-to-head, on price only. American argued that global distribution systems, like SABRE, and the online travel agents they owned, like Orbitz, were commoditizing the industry. American noted, “The airline is sick of being viewed as nothing more than a flying bus.” A good comparison is Southwest Airlines which has never been yoked to a global distribution system. Southwest must be searched independently by the customer but Southwest has a better chance of making offers that customers will find appealing. American ultimately won its battle—now the online travel agencies get their information from American’s Direct Connect system and not from a non-aligned global distribution company. Exactly how American will exploit this advantage remains to be seen.
A very common form of disintermediation involves the emergence of an online company that acts as a super broker of products or services. Think of video companies displaced by online sources, financial advisors displaced by online brokerage accounts, travel agents displaced by online travel agencies, online book stores displacing local book stores, classified ads displaced by online services such as eBay or Craigslist, and electronics retailers getting bumped by online sellers ranging from Amazon to Tiger Direct. What if you are on the wrong end of this form of disintermediation? What to do? The most important thing is to remember what Theodore Levitt told us of in his book, The Marketing Imagination. He reminds companies not to get fixated on the particular form their offerings take but rather the solution, job, or benefit that they are offering customers. He noted, “People don’t buy a quarter-inch drill bit, they buy a quarter-inch hole. You’ve got to study the hole, not the drill. The drill is just the solution for it.” In a retrospective on an influential article entitled “Marketing Myopia,” Levitt adds, “… the organization must learn to think of itself not as producing goods or services but as buying customers, as doing the things that will make people want to do business with it.” Using this logic, what is a stockbroker, travel agent, book store, or electronics retailer really selling? Also, when you do go directly to your customers, what business are you in?