You’ve probably seen either Dropshipping, or eCommerce marketplaces. These business models, although often misunderstood as one another, are quite different.
Newbie online entrepreneurs face a challenge when they are faced with the decision of whether to dropship or sell on a marketplace.
Both these models have many similarities. They both sell final consumers goods online. They also have many differences.
This article will compare dropshipping and eCommerce marketplaces. This article will explain how they differ, their pros and cons, as well as which one is best for you.
Dropshipping and E-commerce Marketplaces are both built on the same foundation: The entity selling the product doesn’t physically own it. Distributed product supply strategies allow retailers to significantly increase their supply to customers. Drop shippers and Marketplace rely on third parties to deliver the product to customers after the sale. Both the physical product logistics and virtual product data flow are identical for both these models.
This post will discuss the major differences between dropshipping programs, and online marketplaces.
Dropshipping Model
Dropshipping allows consumers to place orders with multi-vendor online retailers. However, the manufacturer or brand of the product is responsible for shipping the order directly. Drop-shippers do not store physical products. They simply send order information to the manufacturer who then ships the product onto the customer.
Dropshipping can prove to be a great business tool. Dropshipping is a simplified process that allows retailers to offer more SKUs from their existing suppliers, and also allow them to try new vendors and product types without incurring a large upfront cost. Drop shipping is a good option for small and startup businesses. It can help reduce your costs in the beginning stages of your eCommerce venture.
Marketplace
A marketplace is an online storefront that small businesses can use to sell their products. The marketplace allows sellers to sell their product alongside regular inventory. You can visit the marketplace website to purchase your item. However, you might be able to sell it to another manufacturer.
Large retailers tend to have marketplaces. They use their demand aggregation to attract sellers and customers. Many start-up E-Commerce merchants have taken advantage these marketplaces over the past few years. The marketplace model is increasingly being used by retailers to increase sales and move inventory. These hosted eCommerce stores are now the norm. Drop shipped hybrids are offered by many platforms, including BigCommerce, Shopify and Volusion.
5 Important Differences Between Dropshipping and Marketplace
- People who sell their products on Marketplaces are called’sellers’, while drop shipping refers to’suppliers’.
- Marketplaces will disclose whether they are using third parties other than the retailer.
- Marketplaces encourage buyers to rate sellers’ performance so that website visitors aren’t put off ordering through a third-party marketplace. Positive reviews are a sign that customers will be loyal to your marketplace products, and they won’t lose faith in sellers’ ability to deliver excellent products or services.
- Drop shippers often hide logistic details. While the consumer may know that a brand sells an item, they will not be able to know who is responsible for processing and shipping it.
- Drop shippers have complete autonomy over what they sell, while marketplaces will typically not make decisions about what items will be sold.
Dropshipping: What does it mean?
Dropshipping is an online business model that allows you to sell products without having to have inventory or warehouses. Instead, customers place orders on your platforms and then purchase the products from the supplier. The suppliers pack the products and send them to the customer.
Dropshipping is a major component of 30% online businesses. Dropshipping is the most preferred business model for eCommerce entrepreneurs. It is easy to see why.
Dropshipping has many advantages
No inventory required
Dropshipping doesn’t require that you have inventory. Dropshipping is as easy as putting up the product, and then buying it when the customer places an order.
This business model reduces capital-trapping inventory, such as obsolete or unsold inventory. You can also eliminate warehouse costs.
Test different products
Dropshipping allows you to test out new products and suppliers quickly. Dropshipping allows you to test the waters without spending a penny.
This allows you to adapt to the latest trends more easily and attracts many seasonal customers.
Dropshipping has its disadvantages
Intense competition
Dropshipping is easy to enter, but it faces fierce competition. There are millions of dropshipping stores, all offering similar products. It can be difficult to get traction and drive traffic if your marketing and sales strategies are not effective.
Customer service
Dropshipping can pose serious risks for customer satisfaction. Dropshipping is not a way to control the products or shipping. Your options for helping customers are limited, even if there is an issue.
These events increase the risk of cancellations and returns as well as bad reviews.
Dropshipping is best for whom?
Dropshipping success does not guarantee success for all businesses. Dropshipping is most beneficial for the following businesses:
Cash strapped entrepreneurs
Many entrepreneurs are interested in trading online, but don’t want to invest their initial resources by purchasing products, warehousing and shipping. Dropshipping is a great option for them.
Dropshipping allows them to purchase a website and dropshipping software. They also have to pay marketing. They can run their business with minimal expenditure.
Start-ups
Dropshipping is a great option for those who want to open online stores but don’t have any customers or physical stores. Dropshipping is a risk-free method to start your business, provided you’re willing to do the work.
Finding the right dropshipping niche suppliers would be the biggest challenge. You can then focus on marketing your new venture, and customers will start coming in.
Sensitive products
Many sellers sell fragile or bulky products that are difficult to sell. Dropshipping allows you to avoid the hassle of storing these products and reduce the chance of them being returned.
Entrepreneurs who want to sell equipment for exercise would have higher expenses if they had physical stores or warehouses. They take up too many space. Dropshipping places the burden on the supplier to store and pack the goods, as well as ship them to the customer.
What does eCommerce marketplace selling actually mean?
When you open a shop on an established platform online, selling on eCommerce marketplaces will be possible. You can leverage the infrastructure and facilities of major outlets such as Amazon, eBay, Walmart, and others.
These marketplaces are very popular with consumers. These marketplaces are a great place for customers to shop and find what they need.
They have therefore higher traffic volumes, which is good news for sellers.
Dropshipping is sometimes an option in certain cases. If the retailer doesn’t have a product in stock, an agent will take it from another warehouse and ship it to them.
eCommerce marketplaces have many advantages
Traffic is high
Ecommerce marketplaces draw large amounts of traffic every day. Amazon receives over 200 million visits each month. This traffic can provide sellers with a greater sales potential. Sellers could make much more profit as a result. As the platform grows, so do the opportunities for sellers.
Established structures
Ecommerce marketplaces have already established structures for managing shops, order fulfillment, shipments, and so forth. This reduces the amount of work required to set up shops and order fulfilments. Amazon, for example, has a large fulfillment network that its sellers have access to.
Brand exposure
Brand growth is easier when you sell on an established eCommerce platform. A new business is more trustworthy if it is connected to an established market. This encourages rapid business growth.
eCommerce marketplaces have their disadvantages
Inventory risks
Like any inventory-based business there are risks when selling products on eCommerce marketplaces. Many products are no longer available, which can lead to sellers losing money on unsold goods.
The rules are set by the marketplaces.
Sellers are tenants on eCommerce marketplaces. The platform decides what transactions can be made, which products are sold and even how much they charge. You have almost no control over your business’s destiny.
Platforms make rules that are generally in their favor. If something does go wrong, it can greatly impact your business.
Who could benefit from eCommerce marketplaces?
Retailers for short term
Sellers who are simply looking to sell products, and not establish a brand, will often prefer selling on eCommerce marketplaces. All products sold on these marketplaces can be considered goods.
This model is great for sellers who don’t care about the long-term consequences and just want to make money.
New start-ups
Ecommerce marketplaces can be a great option for entrepreneurs who don’t want to start their own business. You can also take advantage of existing structures on these marketplaces.
You only need to set up your shop, pay the fees and begin advertising. This allows you to quickly and easily enter eCommerce retail.
Bulk sellers
Ecommerce marketplaces work well for sellers selling low-priced products that require high sales volumes to make a profit. These sellers can then take advantage of the high traffic volume available on these marketplaces.
These platforms are popular because customers often visit them looking for bargains. They have a great opportunity to offer a low price and a high level of service.
Dropshipping and eCommerce marketplaces
Dropshipping or eCommerce marketplaces can be difficult for sellers of all types. Both have their advantages and disadvantages.
The best option for you depends on your business’s unique needs.
Are you looking to create a brand?
The choice of which business you choose will depend on whether your goals are to be in it for the long-term (or years). Dropshipping is a great way to build a brand that will last for many years.
You might feel constrained by the terms and conditions of eCommerce marketplaces. Your products are often delivered in their original packaging. This is not a sustainable way to build a long-lasting, strong brand.
Are you able to manage the risks?
Ecommerce retailing has many risks. It all depends on your willingness to take on the burden. Dropshipping is a good option for cash-strapped entrepreneurs.
If you have the cash to invest in inventory and platform fees, marketplaces may work for you. You can make a lot of sales and recover quickly.
Dropship programs and ecommerce marketplaces: What’s the difference?
You’re likely to have heard the terms “dropshipping”, “marketplace” or “sell on a marketplace” used a lot if you are involved in ecommerce or retail businesses. It seems that people are constantly talking about how they want to “get into dropshipping”, “sell on a market” or “dropship with Amazon or Wayfair.” These are just buzzwords, or do they all mean the exact same thing?
As you will see, the answer is no. Learn more about these terms and how to capitalize on the growing field of ecommerce.
Dropshipping Basics
Dropshipping allows consumers to place orders with multiple online retailers, but the actual manufacturer of the product or brand will ship the order directly. Dropshipping retailers do not store physical products. They simply transmit order information to the brand and ship it on behalf of the customer. This graphic shows the entire process clearly:
Dropshipping is an extremely efficient process that offers many benefits. It’s easy to see why dropshipping has become so popular in the ecommerce world. Dropshipping allows retailers to focus on selling products, not managing warehouses. Dropshippers can offer more SKUs from their existing suppliers, and/or explore new vendors and product categories at a lower upfront cost. Brands can also gain access to more retailers, reaching new customers and creating new revenue. The brand can also experiment with new SKU combinations and product categories with existing retailers. This is a riskier option than a traditional wholesale arrangement.
Dropshipping, like all retail activities, has its flaws. Dropshipping can be disastrous for both manufacturers and merchants if it is not done with the right technology and diligence. Manufacturers and merchants alike could lose control over all aspects of shipping, inventory data and product information. Dropshipping is a great strategy for businesses, and those who have used it successfully will be the first ones to admit that it can be a boon.
Ecommerce Marketplaces
Dropshipping is a popular option for many companies. These marketplace retailers are not restricted in any way, nor can they control or curate the products on their websites. Instead, they serve as highly-trafficked virtual places where brands can open shop and reach tons more customers. Brands are the ones selling and shipping products on ecommerce marketplaces.
This model is clearly a profitable one. Amazon is only 22 years old and it’s already the fourth most valuable company in America by market capitalization. The success of eBay and Walmart is well documented. However, not everyone can set up an online marketplace that covers all aspects. Many retailers want to keep their online merchandising power and choose carefully-chosen brands. They opt to sell third-party products via an efficient, well-organized dropship program.
Dropship Programs
Dropship programs are arrangements where retailers market and sell products from specific suppliers online. This allows them to expand their product range for customers. Dropship programs are used by companies to increase their product ranges and inventories. They also help them roll out new brands and generate new revenue.
Crate & Barrel shows an example of an established retailer who launched a dropshipping program online in order to sell more products while still maintaining a high degree of control and discretion over the product mix. Crate & Barrel’s dropship program allows them to continue selling products from different vendors that are directly related to their home goods vertical. However, they can sell a wider range of products in much larger quantities and have a “extended aisle” with virtually unlimited shelf space. Crate & Barrel maintains the same high quality curation and customers still go through the whole buying process through their lens.
Which one is better?
We now have a better idea of which model is best for dropshipping and ecommerce marketplaces. There is no clear answer. It all depends on your company’s goals and activities from an ecommerce perspective.
Some brands may be looking for broad access with low barriers of entry. In this case, they might want to explore the major ecommerce marketplaces such as Amazon. Some brands may have niche products that could benefit from being targeted by dropship programs with reputable retailers.
The same considerations apply to retailers. Are you looking to manage your website, or are you open to letting sellers decide what you display? Are you looking to increase your brick-and-mortar inventory or just launch a site that hosts thousands of SKUs across different verticals?
Dropshipping is not a standard solution for retail. This article should have clarified some things and given you an edge in ecommerce.
