Comparing Ecommerce Models: Dropship vs. Marketplace

Comparisons between the terms “dropshipping” and “marketplace” are thrown left, right and center in the retail and ecommerce business world, with both teams respectively piping up to prove why one model is better than the other. To choose which avenue to go down, you first need to understand what these buzzwords really mean.

In simple terms, a dropshipping model is a way for retailers to create curated, extended aisles of products on their website, where each product that is sold is being shipped by its manufacturer. An ecommerce marketplace is an online forum where thousands of sellers can sell goods on a website – think Amazon and eBay. These sellers might not be the manufacturers of the product, so one product can have multiple sellers.

What does dropshipping mean?

Dropshipping is a streamlined process. The consumer buys a product from a retailer’s website, the retailer then sends this order to the dropshipper, and the dropshipper ships the product directly to the consumer. A dropshipper takes the weight off the retailer’s shoulders by managing stock, inventory, warehousing, and fulfillment. It also allows retailers to offer a broader array of Stock Keeping Units (SKUs) from existing suppliers and even try out new vendors and product categories to see what resonates with the retailer’s customer.

What does marketplace mean?

A marketplace is where sellers can essentially host their own stores through a larger ecommerce site. The consumer buys a third-party product from the retailers website, the third-party seller sends this order to the consumer, and the retailer deposits the funds into the third-party seller’s account while taking a commission for themselves. Marketplaces offer full disclosure when they’re selling a third-party product, and when you think of the success of Amazon, this model has advantages. However, with numerous third-party vendors involved, it takes away a lot of the control and customer service management from the retailer.

At Revcascade, what we are seeing right now is that the dropship model has become much more widely adopted by traditional retailers and next generation ecommerce companies. The reason is that this model allows for a better consumer experience, stronger customer service, and as a result, builds a better brand relationship between the retailer and its customers.

Dropshipping – Ensures top customer service

With a dropshipping model, the retailer can rest easy knowing that their customers are receiving products supplied directly from the product’s manufacturer. Products will be in sellable condition and will follow a controlled delivery system resulting in top customer service.

In a marketplace model, however, ensuring this same quality of customer service can be jeopardized due to a number of variables. Rather than a direct connection to one manufacturer, retailers using a marketplace model are selling products that could be represented by numerous third-party sellers and therefore numerous opportunities for poor customer service.

The retailer will not necessarily know what each customer experience will be like, as this is essentially in the hands of the third-party sellers. Will they ship the products on time? Will the product arrive in one piece? Will they be able to handle return policies up to the retailer’s own standards? Will they communicate effectively with the consumer? With no control on these factors, retailers using this model can not confidently say that they can guarantee the utmost customer care.

Dropshipping – Creates an extended and curated aisle of products for the customer

A dropshipping model supplies retailers with the tools to find the right vendors that speak to the retailer’s merchandising point of view. It’s important to keep in mind the quality, price points, and styles your customers know you for. Through dropshipping platforms, retailers can make these informed merchandising decisions to fit with what makes sense for their customers.

This curated dropshipping approach gives retailers and their customers access to an extended aisle of products. By expanding on their existing merchandising strategy, retailers can test new SKUs and product categories without any of the risk. Crate and Barrel, for example, can continue to market and sell products that fall squarely in their premium to luxury home goods vertical by expanding their product selection with their existing vendors via dropshipping.

Retailers can also experiment with different SKU mixes and product categories, an option that would be far riskier and prove more difficult under a traditional wholesale relationship. A broader array of SKUs can also help retail brands reach new audiences and generate new revenue.

Dropshipping – Improves branding

At the end of the day, no matter if you have used a dropship or marketplace model, staying true to your brand and the experience associated with that brand lands on you. Dropshipping products will all be clearly labeled and packaged with the retailer’s brand, whereas in a marketplace model, products will be packaged with the third-party seller’s branding.

Dropshipping is designed to strengthen the retailer’s overall brand image by making the shopping experience an extension of the retailer’s existing ecommerce experience. However, a marketplace model separates this experience, making it harder for small businesses, in particular, to grow their brand and expand their image.  

Like in all industries, there is no right or wrong way to do business. Your business size and the products you specialize in will always come into play when deciding on whether to choose a dropship or marketplace model. However, for retailers looking to generate more revenue with zero inventory risk, provide top quality customer service, offer an extended aisle of products, and build a deeper connection with their consumers, we recommend dropshipping.

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