Middlemen

Middlemen

Middlemen Jonathan Poland

A middleman is a person or organization that acts as an intermediary between a producer and a consumer. In a business context, a middleman typically adds value to a product or service by facilitating the exchange between the producer and the consumer. For example, a wholesaler might purchase goods from a manufacturer and then sell them to retailers, adding value by providing a more convenient way for the retailer to access the goods. In this way, the middleman is able to capture some of the value created by the exchange between the producer and the consumer. Overall, the middleman business model can be a useful way for businesses to add value and generate revenue by facilitating transactions between producers and consumers. The following are common examples.

Wholesale
Buying from producers and selling to other sellers as opposed to consumers. For example, a wholesaler of fish and vegetables who buys from farms and fisherman and sells to grocery stores and restaurants. This adds value as it is a great deal of overhead to deal with individual farms such that it makes sense to share this cost amongst many sellers.

Cooperative
A cooperative is an organization created by producers to pool their resources and increase their negotiating power. For example, a farming cooperative that sells the agricultural products of many farms to wholesalers.

Digital
Selling products and services through digital channels. The internet is a middleman business model when the seller is not the producer.

Reseller
Reseller is a broad term for selling something you didn’t produce.

Parallel Import
Importing things without the permission of the producer. For example, a firm that imports a variety of European jams to Japan without reaching any distribution agreements with the manufacturers of these products.

Arbitrage
Arbitrage is the process of capturing value by taking advantage of price differences in different markets. For example, a soap manufacturer who sells soap for $8 in US and $38 dollars in Hong Kong might attract parallel importers who take advantage of this price difference.

Trading House
A firm that helps producers reach foreign markets. For example, a Japanese firm that handles localization of products, sales, compliance and taxes for foreign firms who want to sell into Japanese markets.

Retail
Retail is a middleman business model if the retailer doesn’t produce what they sell. For example, a sports shop that sells snowboards from various brands.

Broker
A broker executes a transaction on behalf of another. For example, a real estate company that sells hundreds of units on behalf of a house builder.

Agent
An agent represents the interests of another. This is very similar to broker except that an agent is usually an individual and a broker is usually a firm.

Market
A market connects buyers and sellers and takes a cut of each transaction. For example, a market for vacation rentals that connects owners with short term renters.

Auctioneering
A market that sells to the highest bidder.

Cutting Out the Middleman
Business models that seek to reduce the number of intermediaries between the producer and consumer. For example, a farmers market where farmers can sell directly to consumers. It should be noted that it is common for middleman to participate in farmers markets.

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