If you currently sell online, you are likely familiar with both the dropship model and the marketplace model. In many cases, your distribution channel may consist of one or both of these channels. While the two may seem similar, understanding key differences can help you determine how you might deploy each.
A dropship model is an E-commerce model in which the owner of a website (retailer or distributor) can sell products from a manufacturer without the burden of buying and managing inventory. How much traffic does your site receive?
In most cases, the packaging has the same branding as the original retailer. Essentially, the manufacturer is providing “blind” fulfilment on behalf of the retailer.
Traditionally, a dropship model allows a retailer to sell a product that doesn’t fit their logistics or fulfilment capabilities (think bulky or heavier items). This model is often used more for supply chain and accounting purposes rather than part of a merchandising strategy.
Some of the advantages of the dropship model is the retailer is not responsible for the costs associated with buying and managing inventory. Additionally, the retail faces lower risk; they only buy inventory from the manufacturer when a customer has made a purchase.
There are some disadvantages to the dropship model as well. Negotiating a dropship model can be similar to a traditional distribution model. You might be required to commit to a sales volume or negotiate how much you will pay as a retailer. You must also determine a pricing strategy that will make a product competitive.
In a marketplace model, the retailer or distributor lists the products on their site from a manufacturer or another retailer or distributor (think Amazon). These are referred to as “sellers.”
In some cases, there may be multiple sellers offering the same products.
When a customer makes a purchase on the website, the order and shipping information is sent directly to the seller who ships directly to the customer. In this case, the retailer is simply facilitating an order between a buyer and a seller. The customer understands that the product will come from a third party.
Similar to a dropship model, the retailer isn’t responsible for costs associated with buying and managing inventory. As a result, there is little to no negotiation required.
Generally, a seller must agree to standard terms and conditions to sell on your site. In this agreement, the seller accepts responsibility for the final sales price to the customer. The retailer simply takes a commission for facilitating the sale to the customer.
B2B and B2C are undergoing a dramatic shift from offline to online purchases, and marketplaces benefit from this shift. The fact that companies like Amazon and Walmart have seen record growth indicates that customers are more comfortable using this model.