23.12.21
What is the Difference Between Marketplace and Dropship?
Today, classic e-commerce has been replaced by hybrid models: marketplace and dropshipping. According to DigitalCommerce360, more than $2.47 trillion was spent on marketplaces in 2020. Statista reports that the direct delivery market has crossed the $128.6 billion line. These figures testify to the effectiveness of these trade models and their demand in the world. Due to the similarity of the main business processes, they are often confused, as it's not so clear what the difference is.
In this article, we will discuss both concepts and compare the key differences. We will also talk about why they can be perfectly combined and complementary to each other.
In this article, we will discuss both concepts and compare the key differences. We will also talk about why they can be perfectly combined and complementary to each other.
What is a marketplace?
It is a trading platform with thousands of showcases, retailers, and millions of products collected in one place. Its capabilities allow you to integrate accounts with payment systems such as CRM, CMS, PIM, ERP, or WMS. It ensures an almost seamless connection between all links of the supply chain and optimizes the main operational business processes. The possibilities of platforms of this kind are unlimited. Among the main ones are:
Convenient system for publishing content: descriptions, photos, and prices.
Fast and responsive interface that works on all devices.
A large number of showcases and places for retail outlets.
Diverse assortment, filters, and catalog system.
Integration with supplier systems via API.
Tools for analytics and collecting feedback, ratings.
Various communication channels: chatbots, calls, and messages.
High competition and multiple offers.
Thousands of vendors willing to work with distributors.
Marketing service with paid publications and impressions.
Thanks to these features, marketplaces take leading positions in the ranking of e-commerce businesses. Consumer credit for these platforms is enhanced by meticulous administration efforts to implement features such as buyer protection, secure payments and shipping, seller ratings, and more. Trading platforms have a high entry threshold, but with due diligence, you can start your business with small investments. Most operators are willing to work with newbies with SEO and marketing skills.
What is dropshipping
It is a system for interaction between the seller and the supplier when the former is engaged in marketing, communication with customers, and processing orders, and the latter sends the goods to the buyer from their own warehouse after confirming the transaction. To work on this model, you need a website, content strategy, advertising plan, and reliable partners. In fact, to start activities in this area, you can even use a simple showcase or a rented space on the trading platform. The main thing is to find good suppliers who:
Have their warehouse for goods.
Provide an extensive and high-quality assortment.
Cooperate with popular logistics companies.
Deal with unique products and services.
Have a staff of managers and couriers.
Quickly process orders and ship them to customers.
This set is the minimum requirement for partners in the classic direct delivery model. So, if the contractor is engaged in logistics, then what does the seller do?
Trader activity in the model:
Designs and maintains a showcase (website or rented space).
Creates and publishes content: images, videos, product descriptions, and characteristics.
Promotes products through SEO, social media, and direct advertising at third-party resources.
Manages the store's content, checks and verifies the assortment, availability, and volumes.
Communicates with potential buyers, consults, and accepts orders.
Analyzes the market, looks for new suppliers and promising points of sale and scales the business.
Investments in the store development pay off and generate net income in commissions for each unit of goods sold. A reasonable reader question arises: is dropshipping worth it? Yes, definitely worth it, but with a smart approach. First, let's talk about the difference with a marketplace to understand how to combine them.
Dropshipping Vs. Marketplace: Battle of Brothers
The history of e-commerce says that the B2C model emerged in the early 2000s, spreading like a virus across all categories of goods and digital services. Initially, the sellers worked individually, purchasing goods in China and renting warehouses to store them. Since merchants had to conduct all business processes on their own, they needed a large staff for accounting, logistics, and sales. Around that time, the marketplace model was born, where dozens of monotonous stores offered their goods at an inflated price. As a rule, they did not have enough time for full-fledged feedback, which negatively affected the quality of service. More and more customers left such dumps and dealt with small stores, which were intermediaries between users and manufacturers (suppliers).
Let's visually compare dropshipping vs. marketplace:
As you can see, the difference is significant. In fact, in the marketplace model, the seller is not responsible for the quality of the product, the speed of sending, and the relevance of information about it. All these tasks are delegated to suppliers who do the routine. The main duties of the seller are control and expansion of the assortment, marketing, and communication with consumers.
Specifics of working with direct deliveries: pros and cons
Historically, the pricing in the 2000s allowed for purchasing goods from China for $1 and selling them in local markets for $50. These were the golden times when anyone could get rich in this field. Now the picture is a little sadder, but there are still business people who successfully sell products with a 20% extra charge and higher. The main problem of the current time is high competition in the market and its oversaturation with the same products.
To improve the efficiency of the main business processes, third-party operators use the following methods:
Independent work with clients through social networks..
Improving USP and assortment to distinguish their brands from colleagues.
Decrease extra charges for some products.
Marketing campaigns and CTAs in their publications.
Developer services to create clear and convenient showcases.
Marketplaces (compensating for rent with high traffic).
The dropshipping model has existed in e-commerce for decades, but it is the most relevant today. Moreover, the contractors are ready to take the business to a new level and sell goods on their own.
The tendency to work without intermediaries is firmly entrenched among suppliers because it:
Saves the budget.
Shortens the supply chain.
Improves the quality of services.
Improves communication.
Details the assortment.
Increases the competence of direct suppliers.
Such activities are beneficial to both suppliers and consumers. As a result of staff reductions, budget expenditures are reduced too, which increases the difference between investment and profit, increasing net income and ROI.
Benefits of dropshipping
The classic marketplace model is the logical outcome of the evolution of the B2C e-commerce business. Since the concepts of a trading platform and direct deliveries are interconnected, we will consider the benefits in the same context. Let's start by defining the benefit for suppliers who take on the lion's share of the responsibilities.
Pros for logisticians:
You can focus on your core business processes without being distracted by marketing and communication.
Omnichannel points of sale appear, increasing product turnover and cash flow.
There is no need to look for points of sale: as a rule, sellers find suppliers on their own.
You can adjust the pricing based on the analytics of the sellers.
The assortment expands due to the sale of illiquid or viral goods.
Typically, intermediary operators earn by recouping the investment in the business with the help of the seller's marketing skills. The seller earns on margin and percentage of the brokerage commission.
Benefits for sellers:
You can work with several categories simultaneously, providing a high average check.
There is no need to create content, update it, and check for relevance.
The percentage of commissions sometimes reaches 50% of the cost of a unit.
You do not need to rent warehouses, keep records yourself, and take care of the stocks of products.
You can improve your marketing skills by advertising products using SEO and creatives.
It is easy to adapt to the current market conditions by scaling and expanding the assortment.
The costs of marketing and renting a space on the marketplace often pay off in the first months of operation, transforming into net profit. With due diligence, you can reach a high level and become a leader in your market niche.
Disadvantages of the model
Implementing a dropshipping model for marketplaces has some complexities. The most significant of them are:
High competition in all market niches.
Inflated cost of renting space on platforms.
The need for an IT team to integrate.
Complicated work with some clients.
Issues associated with logistics and inventory control.
Difficulties with marketing and USP.
Yes, some of these shortcomings are leveled out due to a competent approach to business management, correct technical implementation of the IT part, integration with all systems, etc.
How to open your own business and not go bankrupt: tips for enthusiasts
If you decide to start your business, especially trading on the dropshipping model, then first learn the basic nuances. The first thing to understand is that it takes time, experience, perseverance, suppliers, and investors to grow a business and generate significant profits. Equity is necessary to start work: minor operating expenses, domain registration, renting a showcase on the marketplace, and insuring the first transactions.
So, how to start a dropshipping business:
Make the first step. If you are going to start your business, go to the end, risking and winning! Study the features and invest your time in development or just buy a ready-made and well-established project.
Get an idea for your business or select the latest one from the current trends. Both options are good, but the USP looks more attractive than competitors, and creativity is always good in e-commerce.
Analyze your competitors and search engines to determine the best marketing strategy. You should not completely copy competitors, but you can spy on cool ideas and adapt them.
Find your first supplier. Whether it's gadgets, clothing, accessories, or pet products, check the quality and feedback on the products. When dealing with large companies, it is not a problem. Beware of scammers.
Launch your store or showcase on the marketplace. You can use a ready-made platform or order development of your own one. In any case, you need an attractive design and advanced functionality that will help in development.
Drive traffic to your store. Advertise it on social media, involve influencers, optimize SEO, and promote it across all available channels. Sell quality products and get organic free ads.
Analyze, draw conclusions and improve. Look at feedback for periods of 1, 3, 6, and 12 months, ROI, and traffic: how much, from where, how good the conversion is. Evaluate performance, optimize your business, and scale it.
The path to success is through dedication and diligence! Don't be afraid of small problems and don't give up! Today, trading on the dropshipping model is available to everyone because thousands of customers wait for new showcases with unique goods. Promote your brand to people and take a leading position in the market!
Well, this article is coming to an end. We hope you were interested in learning more about how dropshipping works and how to get into the business from scratch. Our experts keep abreast of the IT and E-commerce world so that you receive only up-to-date information and helpful articles.
Well, this article is coming to an end. We hope you were interested in learning more about how dropshipping works and how to get into the business from scratch. Our experts keep abreast of the IT and E-commerce world so that you receive only up-to-date information and helpful articles.
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