Describe commercial transaction with and without intermediaries.

Subject E-Commerce
NU Year Set: 5.(c) Marks: 5 Year: 2017

Rather than the highly abstracted view of intermediaries as providing a single unified service known as "coordination," the roles of intermediaries must be considered in more detail in order to understand the impact of the NII. Assumption 2, which characterizes intermediaries' roles generally as coordination, results in an aggregation and potentially an underestimation of the services they provide. Moreover, it contributes to the misleading conclusion that all aspects of exchange supports will be affected equally by an NII.
In traditional consumer markets, intermediaries provide a variety of explicit and implicit services for their customers. For example, by patronizing a store, consumers implicitly choose a bundle of services for which they pay through the retailer's margin. Intermediary functions that benefit consumers include assistance in search and evaluation, needs assessment and product matching, risk reduction, and product distribution/delivery. Intermediary functions that benefits producers include creating and disseminating product information and creating product awareness, influencing consumer purchases, providing customer information, reducing exposure to risk, and reducing costs of distribution through transaction scale economies. Finally, we note that often producer and consumer interests are in conflict, suggesting that another intermediary function is to balance and integrate these sometimes competing needs.
Search and Evaluation. A consumer choosing a specialty store over a department store implicitly chooses between two alternative search and evaluation criteria. In either case the consumer is delegating some of the product search processes to the retail intermediary. Intermediaries also provide quality control and product evaluation. Importantly, this may not mean providing a high level of quality, but rather providing an appropriate level and definition of quality. Thus, the quality of the goods expected at a flea market, a discount store, and a specialty clothing boutique is significantly different. Product evaluations can also be provided by specialized intermediaries, such as Consumer Reports and Better Business Bureau. However, retail intermediaries design the type of the search and evaluation services that will be offered to consumers by choosing the product mix and focus.
Needs Assessment and Product Matching. In many cases, it is not reasonable to assume that individual consumers possess the knowledge needed to assess their needs reliably and identify the products which will efficiently meet those needs. Therefore, intermediaries can provide a valuable service by helping customers determine their needs. For example, many hardware stores explicitly present themselves as providers of "helpful hardware people" who help customers determine which products they need. By providing information, not just about the product, but also about the usefulness of the product, and even explicit expert assistance for identifying consumers' needs, intermediaries provide consumers with needs assessment and product matching services.
Customer Risk Management. Consumers do not always have perfect information, and hence they may purchase products that do not meet their needs. Consequently, in any retail transaction, the consumer faces a certain amount of risk. This risk may be the result of either consumer need uncertainty, communication failure regarding the characteristics of the product, or the intentional or accidental failure of the producer to provide an adequate product. Another service that many intermediaries provide is related to the management of this risk. By providing consumers with the option to return faulty products or providing additional warranties, intermediaries reduce the consumers' exposure to the risk associated with producer error. If the consumer has the option to return products for any reason, the intermediary further reduces the customer's exposure to the risk associated with customer failure to assess needs accurately and match them to the characteristics of the product. Thus, by choosing an intermediary that provides these services, customers are implicitly purchasing insurance from the intermediary.
Product Distribution. Many intermediaries play an important role in the production, packaging, and distribution of goods. Distribution is a critical factor in determining the value of many consumer goods. For example, the value of a gallon of gasoline one hundred miles from a consumer's home and the value of a gallon of gasoline one mile from the consumer's home are significantly different, primarily because of the distribution services provided. Distribution service firms, such as Federal Express, are a prime example of how information technology has begun to make it economical to provide services independently that historically have been provided by integrated retail intermediaries.
In addition to providing services for consumers, intermediaries also provide a variety of services for producers. In choosing marketing channels, producers choose the bundle of services provided by the intermediaries involved. Several functions of intermediaries purchased by producers are briefly highlighted below.
Product Information Dissemination. One class of producer services provided by intermediaries relates to informing consumers about the existence and characteristics of products. Producers rely on a variety of intermediaries, including traditional retail stores, catalog and mail-order houses, advertising agencies, and media outlets to inform consumers. In some cases, such as traditional retail intermediaries, these information services are tightly tied to other services, such as distribution, and in other cases, the information services and distribution may be provided by independent intermediaries.

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