Marketplace vs. Dropship: What’s the Difference?
Last updated on May 17th, 2022 at 04:25 pm
Ecommerce sales account for 18% of all global retail sales; in 2023, analysts expect this figure to reach 22%. With more competition, retail companies are altering their selling strategies and reassessing their business models.
You may have considered both marketplace and dropship models when deciding which sales channels are right for your business. While dropshipping and marketplace selling are typically seen as interchangeable business models, they are very different. Each model has pros and cons, so you should do your research before choosing whether to adopt one or the other—or both.
Keep reading to better understand the advantages and disadvantages of marketplace vs. dropship.
What Is Dropshipping?
Dropshipping allows you to accept and fulfill orders without holding your own inventory. When you sell a product, you buy it from a third-party seller, who then ships it to your customer. Your branding may appear on the packaging and packing slip, so your customer may never know the product wasn’t sent directly from you.
Dropshipping helps reduce supply chain complications for the products you select. While you’re not handling inventory and fulfilling orders, you retain control over product selection, pricing, special promotions, and customer service.
Wayfair is a popular example of a company that relies on the dropshipping model.
Benefits of the Dropshipping Model
- Increased speed and visibility: Quickly feature various products on multiple sales channels.
- Widen your reach: Listing on new channels allows you to reach new potential customers.
- Expand your product assortment: Partnering with new suppliers allows you to list a broad variety of products.
- Get started quickly: You can begin dropshipping as soon as you have a relationship with a supplier and you’ve set up your ecommerce store.
What Is a Marketplace?
An ecommerce marketplace serves as a host to multiple retailers. A marketplace doesn’t need to hold its own inventory—it can simply provide a channel for other companies to sell their products. It’s then up to the retailers to facilitate transactions and fulfill each order.
Marketplaces are attractive because they allow you to significantly scale your product assortment and availability without greatly increasing overhead.
eBay is a well-known example of an ecommerce marketplace that doesn’t hold its own inventory. While Amazon is immensely popular, Amazon has its own product line that it lists aside other retailers’ products.
Benefits of the Marketplace Model
- Increasing popularity: Marketplaces have the capacity for rapid growth. When a customer searches for a product online, there is a significant change they’ll end up on a marketplace.
- Expand your product assortment: By dramatically increasing your product catalog, you’ll reach new and different types of customers.
- Testing ground: Sell your products alongside other retailers and quickly introduce new products and styles.
- Less risk: When retailers are responsible for their own products and fulfillment, issues related to warehousing, delivery, logistics, and return policies don’t apply to you.
- Multiple monetization options: You have several options to make a profit, including commissions, listing fees, membership fees, featured listings, and more.
Marketplace vs. Dropship: Significant Differences
When considering the differences between dropshipping and marketplaces, consider the following:
- While dropshipping doesn’t require you to disclose if you’re using a third party to fulfill orders, a marketplace does.
- Marketplaces have “sellers” or “retailers” while dropshippers have “suppliers.”
- When dropshipping, you likely hide logistic details from your customer—they will know the brand of the item they’re buying but not who fulfills the order.
- Marketplaces offer and encourage customers to review retailers’ products and performance. This promotes transparency, which helps customers feel more comfortable buying from third-party sellers. Positive reviews benefit both parties, as positive reviews lead to loyal customers who trust a marketplace’s ability to provide superior products and services.
How to Choose Between Marketplace and Dropship Business Models
If you’re struggling with how to choose between marketplace vs. dropship, you’ll be relieved to know that you don’t have to decide. Both business models lead to more exposure and more sales and can be implemented easily with little risk.
The dropship model is an excellent fit if you’re simply looking to expand your product catalog without purchasing and holding inventory. You can easily sell larger items, such as furniture, without worrying about warehousing or shipping large items when dropshipping. Without the expense of inventory, you can add a supplier’s entire offering to your product catalog, if you want.
On the other hand, if you want to add variety to your product catalog and reach new customers, consider a marketplace instead. Many large brands such as Best Buy, Walmart, Express, and Home Depot incorporate the marketplace model.
For example, Best Buy (Canada) is traditionally an electronics store, but their marketplace allows them to expand their reach with furniture, luggage, jewelry, and more.
Expand Your Business Quickly With Flxpoint
Implementing marketplace vs. dropship may seem cumbersome and time-consuming, especially when running your ecommerce business with traditional, manual processes or complex integrations. With Flxpoint’s ecommerce operations solutions, you can easily upgrade your existing tech stack and add several dropship suppliers or new marketplace brands and merchants.
Let Flxpoint help you quickly broaden your reach and expand your product offerings without the expense of investing in and holding inventory. Talk with an expert today to learn more about how we can help.
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