Middlemen cost money. No matter for which trade. And this money is taken from consumers. Full stop.
When a firm appoints a series of middlemen to get their products to the end consumer, they are simply factoring in the cost and building it into the product price.
The final middleman is the retailer, who typically guzzles up a large part of the selling price to cover selling costs including rent, overheads, finance, credit card charges & more.
Amazon & Filpkart & the likes are all intermediaries who make their living off margins. Where can companies eliminate middleman. And if so, which middlemen??
Retailers including online marketplaces play an important role of making the product available to the end consumer
BUT, is it necessary to have 2 or more intermediaries before the retailer??
The taxation & state laws in India have encouraged the appointment of middlemen.
Additionally the poor credit rating & credit management infrastructure has made companies rely heavily on distributors who also play the role of credit & collection agencies.
With the Fintech & Logistics industries improving & innovating, the day is not too far where the role of the middleman will be significantly diminished. Add to this the taxation (GST) reforms in India. Companies will be able to send goods across the country without the need to have distributors or branches.
There is also another important change brewing. The old guard at traditional retail shops is changing hands. The younger daughter & sons who are taking over are able to adapt to technology & new ways of doing business (not necessarily better ways).
Combine the following
1. Simplified, Unified Taxation
2. Technology & Internet
3. Fintech & Digital Wallets
4. Logistics Infrastructure Development
And you have a formula in which a Direct to Retailer business can have the potential to grow (provided all the economics work out).
Companies should look at a Direct to Retailer business by eliminating Middlemen & Distributors. This will make companies more competitive and future ready. If not done soon, they will be playing catch up with the first movers in their respective industries.
Tiger Pug is a Direct to Retailer Business, which connects manufacturers with retailers. To know more about Tiger Pug contact the author
wechat : ajaymiglani.