Similarities and Differences between Drop Shipping vs. Marketplaces: Pros and Cons Explained

Find the similarities and Differences between Drop Shipping vs. Marketplaces: Pros and Cons explained. This will help you to understand the market place concepts to run your own multi seller eCommerce website.

Most of us are familiar an E-commerce market with the idea. eBay was a pioneer of the model. The most famous market is Amazon, which enables third parties to sell products in addition to Amazon regular inventory. Many other retailers – such as Target, Walmart, Staples, Rakuten, New Egg, and even Toms shoes – launched market places on their own.

Similarities: Drop shipping vs. marketplaces

E-commerce marketplaces and drop shipping are similar on one important basis: the company does not physically control the sale of the product to the consumer. Instead, both have distributed product supply strategies. After the sale, both models via a third party set to provide the product to the customer. For both models, the flow of virtual product data and physical logistics of goods are identical.

Drop Shipping vs. Marketplaces

Drop Shipping vs. Marketplaces

Brands and manufacturers are often involved with two models: you have seller accounts with marketplaces and drop-shipping dealers work as a salesman.

Differences: Drop shipping vs. marketplaces

There are however important differences between E-commerce marketplaces and drop shipping. These differences relate to the purchase and point-of-sale experience and the underlying business model.

Source: With marketplaces, there is a transfer to the consumer, s0 the product is physically located and controlled by someone other than the retailer that can be shipped on behalf of the seller. It may be notated as such: “Sold & shipped by eForCity.” In addition, most markets take an additional step and produce ratings and reviews the performance of the seller. Also a seller providing many marketplaces showcase within the broader E-commerce website, so that you can see all products.

In the early days of E-Commerce-drop-shipping, it was called “blind drop shipping,” because the consumer is in fact blind to this dynamic.

Selection: With a market place, retailers typically control, but not curate the products from third-party providers. With drop shipping, the retailer may be at the mercer of the inventory of the supplier.

Pricing:  With marketplaces, sellers set the price to the consumer. With drop shipping, the dealer have a larger say with price control.

Fulfillment: The retailer cannot offer or inserts delivered box packaging. With market places, usually the seller sets shipping carrier, what and procedure will be to support it. In most cases, a drop shipping dealer dictate these methods to their suppliers.

Customer service: Return a product, both models require an authorized return to get the customer. But for a market transaction, the customer contacts of the seller direct. With drop-shipping, the customer contacts of the retailers who then coordinates with its upstream suppliers.

Business model: The business models are different. Marketplaces are collecting money from customers, and then keep a part of it and send the rest to the seller. With drop shipping, collects the dealer, the customer transfers the previously negotiated wholesale amount (plus fulfillment costs) to the supplier – and keeps the difference.

Accounting: In a marketplace, if a retailer sells a product for $100 and his market up is 10%, they only need to focus on the profit of $10. Therefore, almost 100 percent of the gross margin are third-party business Amazon. With drop shipping, one must record the $100 sales, then subtract the cost of goods sold.

Strategies

Both models offer pros and cons – especially to transparency. Smaller and new traders can determine that product suppliers have more credibility in their brand (in comparison to the retailers own brand) and could therefore be sure of the marketplaces. Moreover, for certain product categories (such as clothing) with a high proportion of revenues, marketplaces can make it easier for you, your suppliers and customers, as they are all moving parts.

It comes down to what experience would you want to deliver to the end customer. Consumers today are familiar with the idea of “sold and shipped by eForCity.” So using a marketplace seems to be more acceptable. Most market places are large retailers use their massive demand aggregation, to entice the product sources to engage. But in the last few years, there were many more start-up E-Commerce traders, to take advantage of these market places. Increasingly, online retailer to a marketplace model will look to move inventory, and drive sales.

This is why such hosted eCommerce stores have become the standard. Many, such as BigCommerce, Shopify, Wix, 3dcart and Volusion, even offer drop shipped hybrids.

Comments

  1. I am very pleased to find this article today, because I was going to buy an opencart multi-vendor plugin. But I tried very hard to read this article and have not completely understood the similarity and difference between marketplace and dropshipping. Perhaps because English is my second tongue. But I feel the article is hard to understand. I will read again and again.

    Thank you so much for this great topic.

    Regards,

    Jason @ Shanghai, China

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