Drop-shipping and Marketplace: What’s the Difference?

Although drop-ship and marketplace models are different, they are often misconstrued as the same thing. While they can be used simultaneously to achieve sales goals, the core difference between the two lies in who owns the responsibility of pricing, customer service and returns.

Drop-shipping

Drop-shipping is an order fulfillment method that does not require a business to keep products in stock.

Instead, the store sells the product and passes on the sales order to a third-party supplier, who then ships the order to the customer. The third-party is virtually invisible to the customer.

In this model, typically only when purchased would the retailer then buy the product from the drop-ship product manufacturer or wholesaler, who in turn, ships it to the customer.

Drop-ship retailers must manage sellers' products and prices one by one, and they absorb all marketing and category risk as they grow.

Drop-shipping makes sense for:

Core products that are not easy to store and ship
Products for which procurement teams can negotiate discounts by committing to drop-shipping
Less popular branded products that must be kept in stock

Online Marketplace

The marketplace model is designed to improve customer experience by making it fast and easy to offer a variety of products. On a marketplace, multiple sellers can sell the same product and compete on price. Companies can’t achieve price competitiveness with drop-ship alone.

In this model, retailers can grow their assortment by hosting specialized and competitive third-party sellers. The retailer facilitates transactions on their own site on the sellers’ behalf, and the sellers fulfill orders themselves.

Unlike the drop-ship model, packaging does have the third-party seller’s branding. As the facilitator, the retailer receives commission for these sales, without a need to increase its team size.

Marketplace makes sense for:

Product testing and experimenting with new categories
Complimentary products that expand revenue opportunities
Depth beyond core products to capture long-tail sales

Have more questions? Get in touch with a MarketPush expert to see a marketplace in action or discuss how to help your company embrace the future of e-commerce. Email us at sales@marketpush.com.