Page 98 - E-Bussiness and E-Commerce Management Strategy, Implementation, and Practice

M02_CHAF9601_04_SE_C02.QXD:D01_CHAF7409_04_SE_C01.QXD 16/4/09 11:07 Page 65

Chapter 2 E-commerce fundamentals 65

Producer Wholesaler Retailer Consumer
(a)

Producer Wholesaler Retailer Consumer
(b)

Producer Wholesaler Retailer Consumer
(c)

Disintermediation of a consumer distribution channel showing
Figure 2.6 (a) the original situation, (b) disintermediation omitting the wholesaler, and
(c) disintermediation omitting both wholesaler and retailer

The relationship between a company and its channel partners shown in Figure 2.5 can be
dramatically altered by the opportunities afforded by the Internet. This occurs because the
Internet offers a means of bypassing some of the channel partners. This process is known as
Disintermediation disintermediation or ‘cutting out the middleman’.
The removal of Figure 2.6 illustrates disintermediation in a graphical form for a simplified retail channel.
intermediaries such as
distributors or brokers Further intermediaries such as additional distributors may occur in a business-to-business
that formerly linked a market. Figure 2.6(a) shows the former position where a company marketed and sold its prod-
company to its ucts by ‘pushing’ them through a sales channel. Figures 2.6(b) and (c) show two different types
customers.
of disintermediation in which the wholesaler (b) or the wholesaler and retailer (c) are
bypassed, allowing the producer to sell and promote direct to the consumer. The benefits of
disintermediation to the producer are clear – it is able to remove the sales and infrastructure
cost of selling through the channel. Benjamin and Weigand (1995) calculate that, using the
sale of quality shirts as an example, it is possible to make cost savings of 28 per cent in the case
of (b) and 62 per cent for case (c). Some of these cost savings can be passed on to the customer
in the form of cost reductions.
Vauxhall (www.vauxhall.co.uk), the UK part of General Motors, provides a good example
of the response to the opportunities provided by new electronic channels. The initial aims
for this web site were not limited to online sales generation. Indeed, a wholesale replacement
of dealerships was not envisaged. Additional aims included raising the profile and branding
awareness of Vauxhall and lead generation for dealerships (such as brochure and test drive
requests). To achieve these aims online approaches used include differential pricing (‘Vaux-
hall Internet Price’), an online sales support tool (‘Vauxhall Advisor’) and an e-mail
newsletter. CIO (Chief Information Officer) (2002) reported that in November 2001, eGM – a
group created in 1999 to manage e-business projects and processes throughout General
Motors – was dismantled and rolled back into GM’s traditional business units. While scep-
tics may point to this as evidence of disappointing results from e-business, the article reports
that GM executives, including CEO Rick Wagoner and CIO’s Ralph Szygenda, say the
changes at eGM are not indicative of a wholesale retreat from e-business:
The intent from the beginning was to create a separate function for two to three years to
drive [e-business capabilities] across GM. The dismantling of the eGM group is seen as a
sign of success, with e-business now an integral part of the company’s fabric.

GM managers also point to the role of the Internet in generating leads for dealer sales. In
September 2001, the GM BuyPower US web site has delivered an average of more than 2,000
leads to dealers per day with 20 per cent of dealer leads generated through BuyPower con-