If we examine the price of a T-shirt for a brand-name manufacturer, we can see that the intermediaries' profit margins make up the major part of the final price paid by the customer.

Manufacturer ------> Wholesaler ------> Retailer -------> Final customer
3.5 euros ------> 7.5 euros ------> 14 euros -------> 39 euros

Figure 2

In the physical world, the manufacturer, whose production units are often situated overseas, doesn't have any direct contact with the final customer, for geographical reasons. The middle-men justify their existence by their commercial skills and the distribution channels they set up. Thus, thanks to Internet, retailers can physically connect direct to the manufacturer's site to place their orders. The latter could then double his turnover by reaching the retailers direct.

Manufacturer ------> Wholesaler ------> Retailer -------> Final customer
3.5 euros -------------------------------> 14 euros -------> 39 euros

Figure 3

Again, the manufacturer could increase his turnover by 2.5 by selling direct to the final customer.

Manufacturer ------> Wholesaler ------> Retailer -------> Final customer
3.5 euros -----------------------------------------------------------> 39 euros

Figure 4

The manufacturer's profit increases because he is replacing the wholesaler and retailer. A small part of his turnover must cover the related costs of marketing (market survey, definition of sales strategy), advertising, packaging, management (invoicing, credit control, accountancy) and logistics (stock, transport), as since he is replacing the wholesaler and retailer, he must take on all the services which they provided. This presents three types of challenge : the manufacturer's fixed costs become higher as a result, he must acquire new skills and completely overhaul his information system to cope with the new flux of information which will reach him.

next