Dropshipping VS MarketPlace: What is Best for Your Business?

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There are many things you need to know when starting an eCommerce shop. Drop Shipping vs Marketplace: Which one is right for me?

This is understandable as electronic commerce is infused with many complex concepts and ideas. They don’t need to be difficult. It’s just about understanding them.

We’ll answer these questions and provide an overview of dropshipping, as well as how it differs to a traditional marketplace solution.

Dropshipping Completely to Marketplace

M2 Marketplace transforms your eCommerce site into a marketplace with dropshipping support.

This Magento 2 extension lets you work with both your inventory or your suppliers.

Dropshipping

DropShipping takes the hassle out of shipping, labeling and stock control. DropShipping allows you to sell products on your website by purchasing the product from a third-party (wholesaler, manufacturer) and having it shipped directly.

DropShipping is a great option for entrepreneurs and startups who want to open an online store that sells products but doesn’t require inventory. Dropshipping can be a great option for small businesses or startups that don’t have enough inventory or who are unable to handle shipping and delivery.

Lower risk

DropShipping is a great way to start an online business. It’s also a low-risk option that can help you get started in Ecommerce.

Dropshipping is a great way to relieve some of the burden off your shoulders so you can focus on your core business, such as customer service and marketing your online business.

Crate & Barrel are a great example for a store that uses DropShipping. They have created a niche market selling “home goods” through marketing and selling products from different vendors.

Dropshipping has many advantages, but there are also some drawbacks. We have listed the pros and cons of DropShipping to help you decide if DropShipping is right fit for your business.

Benefits

Positive Cash Flow: You don’t have to stock the product and you don’t have to pay until it’s sold.

DropShipping has a low inventory risk. You only pay what you sell. DropShipping doesn’t tie you down to your inventory or being “overstocked”.

Low starting cost: You can start selling immediately without requiring a lot of capital or investment.

Scalability: You can test new products without buying large quantities and worrying about whether they will sell.

DropShipping allows you to explore new markets. DropShipping has no borders and is available worldwide. You can test new products by forming strategic partnerships with the right suppliers to determine if it is worth importing them into your store.

Keep customers happy: Increase your product range as often as possible to retain your customers.

The Challenges

Stock shortage: This could lead to a situation where your supplier is selling a hot product quickly and you are forced to refund customers who were not satisfied.

Oversaturated Markets – You will need to search for niche markets because of oversaturated market.

Customer Service: It is essential to ensure that you find a reliable and trustworthy supplier. Your responsibility for dealing with customers will include any errors made by your supplier.

DropShip is just the beginning of an online business. DropShip is not only about the products that you can sell, but also the resources and tools that will make managing your store easier.

Multi vendor DropShip Extension is a great way to sell products from multiple suppliers without having to keep inventory.

An automated DropShipping platform like Avasam is also worth considering. This allows you to choose from thousands of products and then dropship them.

Ecommerce Marketplace

Ecommerce marketplaces are another great way to get your foot in the door of Ecommerce. Ecommerce marketplaces like Amazon, eBay, and Alibaba are well-known and popular.

This marketplace is made up of well-known and highly trafficked websites that allow brands to open shop and reach tons more customers.

Brands are the ones selling and shipping products on Ecommerce marketplaces, not dropshipping.

Amazon Marketplace is the fourth most valuable American company and one of the most popular online shopping sites.

Ecommerce is a great way for businesses to sell large quantities of products and reach a wide market.

Benefits

Trusted payment: Buyers will feel confident if the marketplace you use is well-respected and has a great reputation.

International Shipping: It can be challenging to sell to international customers due to high shipping fees. International shipping costs can be affordable through marketplaces.

The Challenge

You are not your customers: Customers in the marketplace will always be customers. You will need to start over if you decide to leave the marketplace.

What is the Difference?

Dropshipping is simply that:

  • A seller sells the product and a buyer delivers the goods.
  • The manufacturer or wholesaler delivers the product to the customer. However, all branding on the boxes and return shipping labels must include the logos of the retailer and their contact information.
  • The customer POV states that the box was sent directly to the seller from which they purchased it.

A marketplace:

  • One party can sell a good, and another party can (could include any manufacturer, wholesaler or another retailer, a mom and pop seller, etc.). Delivers the goods – on its behalf.
  • The customer receives the product with all branding on the box as well as return shipping labels that have the third party seller’s branding.
  • The customer POV shows that the box was purchased from a 3rd-party seller even though it was purchased at another site (e.g. Amazon). Amazon.

Dropshipping allows retailers to sell large and bulky items (think appliances) that don’t fit their fulfillment capabilities. Dropshipping has been more of an approach to supply chain than a merchandising strategy.

Many people confuse dropshipping and marketplace because of differences in their frames of reference. Dropshipping may be used by some marketplace sellers, which are third party sellers on Amazon. The image below shows how Agoodbuy4u2 could be working with wholesalers to dropship oils.

It is best to view dropship and marketplace from the perspective of a retailer. A marketplace allows trusted third party partners to directly sell products alongside the retailer’s own. The retailer uses its website to connect buyers with sellers. The 3 rd seller must ship the product to the customer and provide any support needed after the sale has been made. The supplier is responsible for the packaging and return slip.

Although it sounds very similar to dropships, there are key differences.

  1. Accounting. Dropship allows retailers to reflect their total topline revenue, but also all costs of goods sold (COGS). This can impact profitability. A marketplace retailer will have zero COGS. This is the commission it receives on the sale.
  2. Resource commitment. Dropship requires retailers to make significant commitments to the products they source and ship via dropship. It will need to be able to price the product and how to market it. It will take longer to recruit new vendors as a result of this level of commitment. A marketplace on the other side will require the retailer to make no commitments and only take a commission for each sale. In a matter hours, marketplace sellers can be up and running selling products.
  3. Branding. Dropship models will allow the retailer to use all branding, while marketplace sellers can do their own.

Dropshipping is a good option for smaller products. The marketplace model can scale fast and far.

Dropshipping is a good option for:

  • These core products must be branded by the retailer and can be difficult to store and ship.
  • Dropshipping is an option for products that procurement teams are able to negotiate higher discounts.

Marketplace good For:

  • Complementary categories
  • Core products are deep
  • Items with long tails
  • Product tests (e.g. New categories are being tested
  • Products in shortage

It is crucial for retailers to grow their business because of its speed and scale. The digital age is not the time when owned inventory and a few dropship products can be enough to generate the full revenue potential.

Let’s take Target as an example. Target is a well-known retailer, but it doesn’t have a marketplace. Target wants to increase its selection of fidget spinning machines while this fad is still hot. Amazon is the clear leader in both selection (Target currently has 5), and price (Target currently has a best price for fidget spinning machines at $14.99 versus Amazon’s $1.50).

Target has three options if it really wants to make money from this fad.

  1. Add more fidget spinners to your inventory.
  2. Dropshippers can partner with you to offer more fidget spinners.
  3. You can increase your selection of fidget spinning machines by inviting three rd sellers to sell their fidget spinning machines.

It takes time to bring anything into your inventory. This includes negotiating bulk orders from suppliers, learning about the product, developing a pricing strategy and working with logistics. Owned inventory is not the best way to go, as it can take too long for a product like this to get to market.

Target could add fidget spinners to its supply chain by droppingshippers. This can still take weeks or even months and is a waste of time.

Target could easily have thousands of sellers selling fidget spinners within hours. This will give their customers the choice they want and create price competition to ensure fair prices. There is no risk. Target doesn’t need to have any inventory and doesn’t need to incur any upfront costs for sourcing. Target simply makes sure its customers are satisfied by making the product they want available.

The differences between dropships and marketplaces are more apparent when viewed through the eyes of the retailer. Both can be used to expand your assortment and extend your range. However, the marketplace model is more flexible and more scalable.

Retailers are limited in their ability to satisfy customers in a safe and risk-free manner if there is no marketplace.

A marketplace is essential for retailers to make sales, and keep them ahead of the competition.

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