Middlemen in the market network
The middleman (or intermediary) concept is frequently used in marketing literature to
denote a particular category of market actors. A major problem is that the notion of a
middleman is used to describe actors with quite different roles in the market system.
Consequently, the interpretation of the concept becomes somewhat fluid and vague. In
the literature taking the marketing management perspective of the manufacturer,
middlemen are generally considered as important - but often antagonistic - counterparts.
They are perceived to be part of distribution channels. This one-sided perspective
conceals the real impact of middlemen in the market system. In particular it becomes
problematic when we want to interpret the recent trends in distribution. The very
concept of a middleman implies an actor in-between two other actors. In many cases the
middleman is analysed primarily in terms of its relation to these two other actors. The
purpose of this paper is to put in focus the business of the middleman rather than its role
as perceived by others. We believe this perspective to yield more accurate insight in the
business logic of middlemen. Therefore, this approach may be of help both in order to
deal more effectively with middlemen and to identify alternative strategies for their
businesses.
Before analysing the various middleman roles we need to elaborate a little on the
system in which they are involved – i.e. the market network. It is common to conceive
marketing as the process of bridging the gap between production and consumption. In
its broadest sense marketing can thus be thought of as the ‘link between a society’s
material requirements and its economic patterns of response’ (Kotler 1988:xvii). Thus it
is the process by which needed and valued resource elements are made available to
users. This task of bridging can be carried out in many ways involving different actors
performing the various activities required. In its most elementary form the bridging of
the gap is a matter of exchange and transfer of resources between the provider and the
user of a given resource entity – i.e. a product. The process appears relatively
straightforward when we limit the perspective to a given and tangible ‘product’. The
core of the marketing process then becomes carrying out exchange transactions between
two parties - who may or may not be assisted by a middleman. When the perspective is
expanded to cover more than exchange and transfer of a single given product gap
bridging becomes more complex. The reason being that what is normally exchanged is a
bundle of resource elements (different products and services) combined by the provider
and in turn used by the user in combination with other resources. The gap bridging
involves thus series of exchange relationships between numerous actors who all, apart
from carrying out the exchange transactions, perform the task of combining resource
elements to meaningful resource bundles. Alderson (1965) pointed out this function of
the market system as sorting toward meaningful resource collections.
Once we broaden the perspective in this way a whole network of exchange relationships
and actors appears involved in resource transfer and sorting, i.e. in bridging the
production – consumption gap. Various actors in the market system buy and sell
resource bundles that are re-combined. The market network is in continuous evolution
as new exchange opportunities are enacted and various categories of actors perform
different roles and display different activity focus and links to others. These changes
cause problems with a “middleman” concept if defined as something that is in-between.
The evolution of the market network reshapes both what is in-between and what it is
between. Since the conduct of middlemen is one of the forces shaping the market
system we need to consider the business of a middleman from its own perspective,
rather than from the perspective of others.
The starting point of our discussion is a broad review of the historical changes in the
role of middlemen in the market place. The core of our argument is that middlemen
always fulfil important business functions in the market system, and that the roles they
take complement those of other market actors. Our analysis focuses on three roles in
which middlemen actually follow different business logic and perform widely different
functions. In the following sections we discuss the middleman as trader, the middleman
as distributor and the middleman as provider