The “middleman” business model – what you must look out for when trying to make money as the “middleman” in the retail sector

In business, the term “middleman” is used to describe the person who connects different groups of people and enables a transaction. In various sectors of business and finance, the middleman role can take on different forms and encompass different responsibilities. In the financial markets, a broker acts as a middleman, connecting the individual investor or trader to the financial markets and processing transactions. In the real estate business, a real estate agency will act like the middleman that connects a prospective buyer with the real-estate provider. Some of the world’s most successful companies such as Uber, Airbnb, or Deliveroo operate as the middleman to some extent. While there are many classifications and subclassifications of what a middleman is in essence their role is the same– to connect different parties and enable a transaction.

The retail sector deals with a large volume of transactions every day that involve individuals purchasing various products.  The retail sector provides a large opportunity for a business to establish itself as a middleman and make a profit by bringing the customer and the supplier together and facilitating the transaction. Amazon, currently one of the largest companies, has managed to build an incredibly successful business model operating largely as the middle man, providing a platform on which the buyer and the seller can effectively communicate and carry out transactions. While the path of a product from the factory to the customers’ hands often involves many instances of selling and reselling and hence passes through the hands of many middlemen, not every such agent of transaction is the same, ranging from distributors to resellers, the middle man can take many different forms even in the retail sector alone. A question that automatically arises is why is the middleman necessary? After all, with every middleman, a commission is added, and the product grows in price whilst staying the same in value.

It is important to keep in mind that the middleman business model does not simply provide the customer with a product; it sells something even more desired. The real value these businesses sell is convenience, especially in the retail sector. The middleman business has always been a business selling comfort and convenience, enabling the customer to save time, making the customer’s life just a little bit easier. The reason you use Uber when trying to get somewhere instead of standing in the middle of the street and trying to flag down a taxi is, after all, convenience.

The middleman business model can seem like an attractive concept for many, as it does not involve the struggle or costs of developing or manufacturing a product. All that one must do is advertise the already existing product to a specifically selected group and make sure the advertisement is targeted well enough to drive sales. The middleman must make it easier for the customer to purchase the product and can often benefit from making the customer feel like the product is scarce or unique, which is an identity that usually sells the product better.

However, a business acting as a broker must also realize that it involves risks. The fundamental trends of customer behaviour show that if two providers present a customer with the same product for a different price, the customer will choose the cheaper alternative. The middleman business model must often rely on casting the impression that the more expensive product it offers is the only realistic option, thereby eliminating the pricing problem. Such business must remember that its advantage does not lie with the product being better or cheaper but being more convenient and closer to the consumer. That way, the product can be marketed more specifically and targeted better.

Amongst the biggest costs for a middleman are the marketing expenses and so the advertisements must be expertly crafted. The biggest risk comes from the consumer realising that there is a simpler path between the manufacturer and them, thereby eliminating the need for the middleman. Different middlemen will compete with each other, and so the middleman business is often a business of advertising, a business of who can cater to the customers need the best, providing the most convenience for the smallest cost.

While being a middleman in the retail sector is inviting, it is a very oversaturated profession and one must understand that the profit margin is usually very small. It is a business of quantity that relies heavily on advertising and is incredibly competitive. Most businesses in retail are acting as the middleman in some way, but the ones who managed to grow the fastest are often the ones that have accurately estimated the price of “a little extra effort” ” and stay slightly more worth it than the other options out there.   

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