Hi,
May you explain what does it mean? I know that it concern with the customer.
I mean phrase to cut out the middle man.
There are many standard distribution formats. One of them follows:
Manufacturer --> Retailer --> Customer
In this case, the retailer would be the middle man – if you cut out the middle man in this case, you’d be left with a direct relationship between the manufacturer and the customer.
Mostly, however, the retailer is not thought of as a middle man. Usually it’s a player such as a wholesaler and/or an agent.
For example:
Manufacturer --> Wholesaler --> Retailer --> Customer
In this distribution format, the most likely candidate for “middle man” status is the wholesaler, because retailers are generally recognized as being more essential to the distribution process than wholesalers (though wholesalers are fairly common).
The reason for cutting out the middle man is this: you lower the price for the customer, because the product goes through fewer stages before reaching the customer.
Think of it this way. Let’s say we have a pound of butter.
The farmer makes the butter. She is our manufacturer.
Neighbor Bob buys the butter from the farmer and sells it to retail outlets (stores).
Stores (we’ll use Kroger as an example) sell the butter to customers.
The farmer sells the butter to Neighbor Bob for $2 per pound.
Neighbor Bob sells the butter to Kroger for $3 per pound.
Kroger sells the butter to butter customers for $5 per pound.
More levels in a distribution format = more people get paid
More people get paid = Price is higher (generally)