In recent years, online sales have become increasingly important and brands have had to adapt to this new environment, giving rise to a change in the e-commerce paradigm. This, in turn, has generated new business opportunities, strategies and even disruptive processes whose main objective has been to quickly and exponentially boost the sales volume of our businesses.
If we focus on the digital environment, there are several innovative alternatives for growing an ecommerce business. In this article, we will talk about two in particular: the Marketplace and Dropshipping. The first is perhaps the best known, thanks to the influence that platforms such as Amazon or AliExpress have had, and the second is gaining more and more strength due to its easy implementation and savings in investment.
But what is a Marketplace, what is the difference between a Marketplace and a Dropship, and why have they become so popular? Let’s take a look.
What is a Marketplace?
A Marketplace is a digital sales platform that brings together a large amount of inventory from different sellers on the same site. It is as if we were talking about a large shopping centre, with a multitude of brands where the user can choose the one that best suits their needs. As we said before, two well-known examples of Marketplaces are Amazon and AliExpress.
In Marketplaces, sellers sell directly to end customers through a website owned by a merchant. When the sale is closed, the merchant facilitates the exchange, but the contract is established directly between supplier and buyer. Therefore, the suppliers are the actual sellers. This means that they set the selling price and customer service. The merchant, in turn, allows these third parties to sell their products along with their own offer, offering their website and their traffic. Unlike Dropship, the process that takes place in a Marketplace is totally transparent for the buyer and he can know in detail which brand is sending him the product in question.
Advantages of a Marketplace
We all know that ecommerce takes time, effort, dedication and a Marketplace is a very good alternative to boost our business. Let’s take a look at the main advantages:
- Scalability: this is the main advantage of a Marketplace. This is because the merchant can delegate to its network of suppliers a large part of the tasks of an ecommerce such as the incorporation of products, catalogue management and customer service. It is very important that vendors are previously reviewed.
- Price competitiveness: as we have already mentioned, they offer greater price transparency, allowing sellers to compete with each other, so that customers can benefit from better prices and a wider range of offerings.
- Traffic and positioning: we know that beginnings are not easy and an online shop starts to take off between 6 and 18 months after its launch, depending on the sector. The incorporation of a greater volume of references attracts more traffic and more sales.
- Loyalty: by offering the customer a wider range and the possibility of buying everything they need in one place (one stop shop), it generates more loyalty and ensures the quality of service.
What is Dropshipping?
Another business model that offers greater control is Dropshipping, which takes place when a merchant starts selling products on its platform without the need to acquire them previously, organise the warehouse, make inventory or guarantee the correct shipment. In other words, we have a brand that has no real stock of its own products and uses a third party to offer them in its shop. Put like this, it sounds very attractive and simple, especially for those who are just starting out. And it is. That is why it has become very fashionable in recent years. The key to this model is that the retailer takes care of order management and invoicing, but does not have to store, pack or ship the products. He is merely an intermediary between the buyer and the seller, who actually holds the stock.
Dropshipping is therefore said to be a system of fulfilment within ecommerce in which, when the customer buys a product, the merchant makes an instant purchase from his supplier and it is the supplier who ships the product directly to the customer. However, although the merchant never takes physical ownership of the goods, he is still listed as the seller, which means that he still controls the selling price and margin, promotions and customer service. And this whole process is completely invisible to the customer.
Advantages of Dropshipping
Dropshipping is a very tempting model, and among its advantages, we can highlight:
- Cost reduction: as we have seen, the purchase, storage, inventory and shipping can be managed from a third party and this means that you can reduce the initial investment costs.
- Expansion of the offer: by not having to have an inventory of physical products, it is possible to have a wider catalogue. And it even allows you to test new lines of business, activating few products and seeing the user’s interest.
- Brand control: the end customer does not know who the supplier is, and from marketing, promotion to returns management, the merchant is the main contact.
- Absence of a warehouse: whether selling online or in a physical shop, it is necessary to have a warehouse for the articles. This rental cost, together with the investment for staff to place and identify the goods, is non-existent in this model and is borne by the seller.
Conclusions of the Marketplace and Dropshipping model
Once we have reached this point, the question we can ask ourselves is, which is the best model for my business? Well, both models are based on a concept that lightens inventory and rewards growth. As such, they have enabled many sites to develop sustainable and profitable businesses over the long term, but they are also challenging. For example, in the case of Dropshipping, the fact of not having to store, pack and ship your own shipments has advantages in terms of cost savings, but outsourcing this service can lead to other problems. Or in the case of a Marketplace, it is very positive to have a large inventory, but we can fall into a pricing problem, having a worse price in our offer than that of our sellers. Therefore, the final decision will depend on our digital business.
If we look at the market, we see how Dropshipping is linked to young companies that are just starting out and are looking for greater control and lower costs, while Marketplaces, are consolidated companies that want to increase their profits and respond more quickly to the needs of their customers.
