8 CONDITIONS THAT MAY WARRANT BY-PASSING THE MIDDLEMEN

Middlemen play a crucial role in the chain of distribution since they connect producers and consumers.

However, they are some conditions that may warrant by-passing the middlemen which are explained below.

1. Perishable goods: Goods that are likely to spoil if kept for an extended period are called perishable goods.

Middlemen make the chain of production very longer, and may, therefore, not be suitable for perishable goods.

Indeed, when perishable goods are involved, distribution through middlemen is not a viable option as goods may get spoilt in the process of distribution.

2. To increase profit: Producers can easily profit by selling directly to the consumer.

They can increase their profit margin by charging a high price that is more than the price they would have ideally charged the wholesaler

3. Bulk orders from a consumer cooperative society: A consumer cooperative society is owned by consumers and created to further the interests of its members.

Members of such a society may come together to combine their orders and buys in bulk so that they can receive discounts from the producer.

In such a situation, the services of middlemen are unnecessary.

4. To prevent hoarding: Producers may sometimes bypass middlemen in a bid to curb hoarding.

Hoarding is the act of storing goods, to create artificial scarcity and increase the price of goods and services.

When cases of hoarding are too much, the producers may choose to sell directly to the consumers to avoid hoarding by middlemen 

5. Establishment of warehouses and storage facilities: This is another reason that may warrant passing the middlemen.

If the producer decides to establish a warehouse for his goods and services, the function of the wholesaler of storing goods would be deemed extraneous and middlemen may be eliminated in the chain of distribution.

6. Establishment of retail outlets by producers: Rather than sell goods to middlemen, some producers have now established their retail outlets to sell goods in their name.

This retail outlet merely acts as a safe distribution channel for the producers as they can easily control how the product is distributed to the consumer.

With the establishment of a retail outlet by the producer, the service of the middlemen may no longer be needed.

7. To reduce the price paid by consumers: When middlemen are present, the price of goods and services rises because they must raise the price at which they purchase items to make a profit as well.

Recall that a middleman's revenue is the difference between the cost of the items he purchases and the cost at which he sells them. Because they are focused on making a profit, middlemen tend to raise prices for goods and services.

However, producers sometimes sell directly to consumers to cut out middlemen charges and decrease the price of goods and services.

READ ALSO: ARGUMENTS IN FAVOUR OF MIDDLEMEN IN THE CHAIN OF DISTRIBUTION

8. Expensive goods: Expensive Goods are generally not entrusted to middlemen.

For example, rather than sell goods to middlemen, car producers usually have retail outlets where they sell cars directly to customers.

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