The maligned middleman

rainforest_frogSummary: Handling or transaction fees aren’t necessarily a bad thing if you’re getting value for them. The better question is having sufficient competence to know whether you are.

Mr. Fashion-Incubator and I have been re-watching the 11 part Planet Earth BBC Series. Last night we watched the Jungles segment which described the unique cycle of predation and parasites in the rain forest. Predictably when parasites and fungi debut, the viewer’s reaction is boo-hiss over the nasty buggers -until you learn that they’re instrumental in processing dying flora and fauna in such a manner as to render the decay into fresh nutrients to be absorbed by the forest floor and trees anew. Indeed, were it not for parasites and mold, the cycle of life would cease. I couldn’t help but think of the parasitic life as nothing short of middlemen. They’re processing a transaction and necessarily exacting a “handling fee” in the form of their own sustenance.

I think too many view a middleman as an impediment to progress when it’s more likely their task of processing and facilitating a transaction is often too subtle for what should be a broader appreciation. Examples could be sales representatives and fabric salesmen. And conversely, we now have need of middlemen when we once did not. For this example I mean sourcing agents or production facilitators. Previously, entry points (gate keeping) was so much higher that one consequence of getting in was that you knew enough to not need the new middlemen.

I’d been reading Cheap: the High Cost of Discount Culture (good book, very readable) in which the point was made that one consequence of lower prices was that services previously provided by a manufacturer or merchant, is being foisted onto consumers. Like putting knock down furniture together. All that stuff is shipped in cartons strategically designed to fill shipping containers to greatest advantage. However, once products reach port of call, there’s no longer any infrastructure to construct the unit into its finished whole. I don’t have a problem picking up the slack (provided the price is right) and putting stuff together and I imagine you don’t either so the lower cost is a worthwhile trade off because it’s something we can readily do for ourselves. The task is obvious, we get instructions to do it. But when we don’t or the job requires a subtlety we’ve not learned sufficiently to appreciate, a middleman can make all the difference. They grease the wheels and the forest flourishes.

I am troubled with the nature of blurring boundaries in merchant and vendor relationships. It’s been an issue for awhile now. The problem is business to business customers who enter into transactions and relationships with an inappropriate mindset because they’re acting like consumers -increasingly narcissistic ones. It’s become a real problem. As a business customer, you can exact discounts at wholesale, in effect skirting a consumer level middleman (you’re making clothes, not buying them) but the assumption is that you have the mastery and competence to merit access to those relationships. Consumers turned business customers need to evolve their thinking very quickly but it still remains all too common for many to expect what amounts to special treatment. Namely hand holding and education at no cost. Of course this isn’t true of everyone and everybody does do some investment (for which they want pats on the back) but the conflict lies in that you -even though you’re in charge of you and your operation- don’t get to determine what is sufficient to know. Others do that. They judge you. You’ll have to measure up to whatever internal litmus test each of them has with respect to your performance. It doesn’t really seem fair does it? But that’s the difference between being a consumer or a business customer. No one else is obligated to facilitate the education they think you should have. In many ways, it’s like growing up.

Bryan Caplan has this to say about it:

Do you want to know the clearest sign that someone is a bad driver? If they think everyone else is a bad driver. Why do these people imagine that everyone else is a bad driver? Because they have unreasonably high expectations about the kind of treatment other people owe them. The clash between their inflated expectations and reality is the cause of their bitterness.

When people scoff at the power of reputation to constrain business behavior, they’re basically making the same mistake. If you think that paying the standard market rate entitles you to top-of-the-line quality, businesses will constantly disappoint you. I call this the Law of Inflated Expectations: The main cause of cynicism about business is consumer narcissism.

In comments on the same page, Eric H (Mr. F-I) says:

I’ve come to believe that inflated expectations are a rational means for some consumers to extend the bargaining period past the point of purchase.

I’m not going to debate whether it is okay for consumers to extend the bargaining period, I only know that you can’t do this in business relationships if you try to exact leverage when you have little or no compensatory insight as to the workings of the transaction (shades of the Dunning-Kruger effect). Like the mold on the forest floor.

If you’re interested in reading more about consumer narcissism whether to avoid or manage it from your customers or to avoid being pigeon holed yourself, here’s some links worth a careful reading:
Consumer Entitlement, Narcissism, and Immoral Consumption
The I That Buys: Narcissists as Consumers

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3 comments

  1. Rocio says:

    Kathleen,

    What a timely post!… Just had to put a prospect back in his place because he had it in his head that I had gone into business to SERVICE CUSTOMERS.. Hmm, last time I checked I had gone into business for profit (never claimed to be a charity) and to make a living

    Anyway, very wise words to start the new year with :-)

  2. I have a distributor who sells my baby booties at a high markup (around 300%). Some people think she’s cheating me by selling at so high a price and making so much money. I’m not jealous that she makes more money off each sale of my booties than I do. In order to sell booties at that high of a price, she has to work extra hard at developing a clientele and a reputation that will allow her to sell at that price. That is work I’m just not cut out to do. I don’t have the social skills or the connections or the time to develop either. She earns every penny she makes selling my booties. And I give her a discount because what she does adds to the cachet and reputation of my business as well. I’ve picked up a lot of other wholesale customers because of the TV appearances she’s arranged for my booties.

  3. Penny says:

    The sales representatives and fabric salesmen I know all work hard for their money. The middlemen I have a hard time justifying are the ones that connect you ONCE with a factory or vendor and then sit back and collect a pretty hefty percentage of the business profit for the duration of the relationship. Sure they provided a valuable service, but their overall involvement seems grossly disproportionate to the percentage they receive. Once they’ve made the connection, (except for a few random emails occasionally), they drop out of the picture. It’s not like they can be held liable for hooking you up with a factory that misses ship dates or delivers crappy production…

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