The main reason that many will argue that middlemen should be elimination from the channel of distribution is related to the extra costs involved in employing them. An example of middlemen working in a channel of distribution is travel agencies selling hotel rooms. The hotels will sell a certain number of rooms themselves and sell the rest of the rooms to a middleman. This middleman will pay for the rooms regardless of whether they are going to be filled and do their best to sell the rooms on. Middlemen can buy a bulk of rooms from the hotel for a reduced price and try to sell them on for better value than if the customer were to buy directly from the hotel. This process can work both in favor and against the hotel.
If a middleman has bought a certain amount of rooms for a certain amount of time, the hotel is guaranteed to receive money for every one of those rooms every night whether or not they have someone staying in them. The channel of distribution can have a negative impact on the company, however, if customers experience problems with the middleman. The hotel's reputation may be put at risk if the package or amount charge is not what the customer expects. Guests at the hotel are more likely to complain there and then directly rather than contact the middleman.
Often the hotel will be unaware of the customer's personal and package details, only frustrating upset guests further. The increase in online and high street agencies that are able to undercut the hotel's flat rates can lead to the hotel losing money. Every room that has been bought by a travel agency at a cheaper price is a room that cannot be sold to a guest at the full price. The hotel could be missing out on the opportunity to make more money on the same room.
This is an example that bears similarities to many other channels of distributions across a number of industries. There is much debate about whether or not the middlemen should be eliminated.
If a middleman has bought a certain amount of rooms for a certain amount of time, the hotel is guaranteed to receive money for every one of those rooms every night whether or not they have someone staying in them. The channel of distribution can have a negative impact on the company, however, if customers experience problems with the middleman. The hotel's reputation may be put at risk if the package or amount charge is not what the customer expects. Guests at the hotel are more likely to complain there and then directly rather than contact the middleman.
Often the hotel will be unaware of the customer's personal and package details, only frustrating upset guests further. The increase in online and high street agencies that are able to undercut the hotel's flat rates can lead to the hotel losing money. Every room that has been bought by a travel agency at a cheaper price is a room that cannot be sold to a guest at the full price. The hotel could be missing out on the opportunity to make more money on the same room.
This is an example that bears similarities to many other channels of distributions across a number of industries. There is much debate about whether or not the middlemen should be eliminated.
