Wednesday, November 28, 2012


Have you ever heard the phrase we have lower prices because we eliminated the middle man?  Sales people are all too familiar with efforts to cut out the middle man or at least his commissions.  What is the middle man and why does he (or she) exists in the first place?  Can you survive as a middle man (or woman)?

What is the role of a middle person?  The term implies a connector.  The middle person is one person bringing resources from one party to a second party who can use the resources.  At one time people did everything themselves, but not too many recall those days.

The first selling efforts were directly from one seller to one buyer.  Somebody had something someone else wanted and they bartered.  Might have involved goods (like meat, tools, weapons) or services (like protection, hunting or sex).  Previously one of them might have beaten up the other, but that is not "civilized."  We progressed to higher levels of specialization and at some point developed an idea of a currency so that the seller could use the proceeds to buy something else entirely.

The emergence of a middle person occurred when retailing evolved with one smart person selling goods they accumulated from different sources and could sustain a living and even wealth.  Really all he was doing was bringing buyers and sellers together in a more convenient manner (early one stop shopping).  It would have started on a local scale with perhaps one person agreeing to sell a variety of produce from one farmer or from a group of farmers and hunters.  As society prospered the concept of luxury and beauty became more prominent.  A merchant would seek luxuries and beautiful things from further afield to re-sell to those who could afford more expensive items.  Manufacturing could start to thrive perhaps in the field of textiles (clothing, bedsheets, etc) or furniture or utensils and tools.  Sometimes it might be on consignment or other times the merchant would take the risk of buying.  This would let the farmer or manufacturer concentrate on putting out the goods

The merchant has taken a risk.  As time went on innovations became more common.  Someone found a better tool.  Prosperous people wanted to surround themselves with beautiful (and prestigious) objects.  The middle person can help bring new and aesthetic goods into our world meaning they ave to be concerned about fashion tastes and competition.

Gradually many manufacturers became bigger, but most did not have the network or the expertise to actually sell all their goods.  Wholesalers took some of the risk by buying inventory ahead of time. Now you have three levels--the producer of goods, someone storing the goods until someone else can relieve the risk and finally the retailer who puts the goods up for sale.  It eventually got more complicated with consumers buying at one level and tradespeople buying the same or similar goods as part of their services at another level.  Eventually there would be more than one level of wholesaler.

On one hand it is risky to take on or create inventory that might not sell enough for a profit.   Then there is the human tendency to get comfortable with previous choices that worked out acceptably. There has always been another way of doing things and often they were better than our comfortable habits.  The manufacturers, wholesalers and retailers all were involved with selling to the next level and developed employees or agents that concentrated on the selling part of the business.

The middleman can be found at different levels.  Someone was employed to get manufactured goods to the wholesaler.  Someone else was employed to get the goods from the wholesaler to the retailer. And the retailer is really a middle man as well between the wholesaler and end user.  They are each taking a cut of the profit and each performing a service in a competitive market.  If after all the effort the end user decides it is not an acceptable value then everyone in the chain will lose repeat and referral business.  It might also be useful to remember that each cut of the profit allows the middle man to be an end user for someone else.

The problem today has evolved.  With computers and communications it is far easier for the actual producer of products and the people who want to use them to find each other.  This eliminates the need for many middlemen.  We can easily bypass not only a single middleman, but a variety and of course the price is lowered. There is of course a few complications with perhaps the biggest being the competitive intertwined market place.  There are so many products from a variety of sources that offer  a very wide range of problems that it is often very difficult to determine what is the best fit.

I remember a sociology professor saying a bigger population allows more complexity.  I also remember a sales tape that talked about how everything is getting more complex.

As a consumer I enjoy this new power, but am behind many of my more sophisticated colleagues. Recently I made a purchase of an e book.  Several middle people were cut out.  The author and publisher still got a cut and someone had to provide the mechanism for transmitting the words to my Kobo reader and someone to let me transfer the money from my possession to the seller's possession. But we cut out the printer, the person who sold the ink and another person who sold paper to the printer, the person who would have sold the book to a wholesaler and of course the staff who stacked the shelves, advised interested readers and took my money or credit card at the cash register.  From my view point pretty good deal--I saved money and inconvenience.

Why did I buy that particular ebook.  Well there was a marketing effort for sure to get my attention and I had already been persuaded that computers would help me in various ways and that reading ebooks makes a lot of sense.  I looked over various options for reading and made my decision based on what I knew and felt.  I realize I cannot read every book and did not necessarily choose the most ideal choice for my tastes, but I was able to consider a much wider range than I could have with the resources available to me even five years ago.

Efficiency has done away with many middle men (and women).  Is there any room left for the middle person?

One way of looking at it is that a middle man is between a resource and a need/want.  You can make a living producing goods and services if you can somehow find a way get your goods and services to the market.  A prospective consumer has a problem and is looking for a solution.  Often the deciding on what is the best solution can be very complicated and they only have so much time and energy.

How can you provide a service that facilitates exchange of goods and justifies a cut for you.  The first thing is knowledge.  Knowledge is a very big deal including not only what products/services are available, but what the consumer actually wants or needs or can be made aware of.  Nobody knows everything they need to get through the day and maximize their enjoyment of life.

One special source of knowledge is what might be called applications.  I used to sell a cleaner and as time went by I learned it would do a lot more things than I was originally told and many of them unexpected.  How did I find out?  My own personal experience was important, but even more important was the experience of my customers.  They found the product would do the things I had said and when they encountered another problem they tried it and often found that it worked.  When they told me I suggested it to other people.  All I was really doing was spreading knowledge that made life more pleasant for some people.  A lot of products do more than they are marketed for (and all products have limitations).  A good middle person can help point them out.  To find out more about applications.

Travel agents used to be a lot more common, but many have been cut out by online purchases.  Most of us are focussed on the bottom line, but in fairness we also have access to opinions.   Opinions of individual users can be dangerous.  Someone who has accumulated a wide variety of opinions is in a better position to advise.

The ideal salesperson is pro active.  The other kind is reactive, in other words waiting for someone else to make the first move.  There are a lot of order takers and sometimes they are so busy processing orders they don't have much spare time.  They are taught to add questions like "with fries?"  Salesmen have always realized they make more sales for items that people want more than what they need, however in today's confusing market it makes sense to make people aware of what they really need to simplify their life.

Another factor is trust.  Indeed there are many opinions, but who do you trust?  Ideally someone who knows both the product or service we are considering, but also who knows just what the potential buyer really wants.  In the past a sales person learned as much as possible about what they were asked to sell and tried to fit it into the needs of prospects.  The more choices available the more confusing the decision process.

In truth the position of the middle person has shifted.  Instead of being between the manufacturer and the retailer they might be working for a manufacturer who deals directly with the consumer.  Usually they are restricted in what they can offer the consumer, but often they do have access to a wide range of products and services to match the consumer's needs.  They could also be a complaint centre representing a manufacturer who realizes it is more effective to deal with difficult situations rather than have a retailer intermediary.

All this is general thinking and you have to sort out what is unique in your experience and where there might be a need not being met.  If there doesn't seem to be a very good fit between your resources and future consumer needs you need to develop one.  In one sense we are all middlemen. But you have to protect your position--using knowledge, being pro-active and earning trust.

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