Drop shipping vs. marketplaces

In both drop shipping and marketplaces, the seller does not necessarily control the product or host an inventory in a warehouse. However, there are differences between the two shipping methods.

In this blog, we will take a look at:

  • Drop shipping
  • Marketplaces
  • Their similarities and
  • Their differences

Which one you choose will depend on what sort of ecommerce business model you have and what experience you want the customer to have.

Both methods allow for the seller to increase the supply they can offer to the consumer.

 

Drop shipping

Drop shipping allows retailers to own an ecommerce store, without actually having any products. This doesn’t mean you don’t plan to sell products; it means you don’t need to hold the inventory.

For startups and small business’, drop shipping might be a viable route to take as it can significantly reduce your outgoings in the early stages of your business.

Suppose you sell t-shirts and you’re averaging 10,000 orders a month. That’s a lot of t-shirts to store in a warehouse and organise shipping for. If you’re a start-up just getting the hang of things, this could be a process you do not need, nor manage.

In this case, a supplier would process and dispatch the t-shirt on behalf of the t-shirt company which gives you more time to focus on your business.

 

Marketplace

A marketplace is an online platform, like eBay or Amazon, where sellers can host their stores. This allows third parties to sell products alongside the marketplace’s regular inventory.

So although you may visit Amazon to buy your item, it may actually be sold to you by someone else.

 

Similarities

  • In both these methods, it is not the retailer’s responsibility to control fulfillment. This falls to either the sellers or the suppliers.
  • Concerning customer support, when a customer wants to return an item, the return needs to be authorized and accepted and may even have to go through third parties again.

Differences

  • Marketplaces will refer to the people who distribute their products as “sellers“, whereas drop shipping chooses to use the term “suppliers
  • Marketplaces disclose when they’re using a third party other than the retailer. This is usually seen with Amazon in the image below
  • Marketplaces often encourage shoppers to review the seller’s performance so others don’t feel put off by ordering from a third party via a marketplace. Having sellers with positive reviews means consumers stay loyal to the marketplace and don’t lose trust in their ability to provide excellent products or services
  • Drop shippers tend to hide logistic details. The consumer will know that a brand is selling an item, but will not know who is in charge of the processing and dispatching
  • Marketplaces, typically, will not decide what items are sold whereas drop shippers will have full autonomy with what they sell

drop shipping
 

Conclusion

If you can successfully manage the integration and partnership between your company and the suppliers who drop ship your products, then drop shipping could be a viable business option for you.

If you’re looking for a more transparent system of shipping your product then a marketplace might be for you.

Apparel and fashion industries could benefit from a marketplace due to it being easier to coordinate both the suppliers and the customers.

Making the decision comes down to deciding what experience you want your customers to have.

Retailers, especially smaller ones who are looking to drive sales could benefit from a marketplace system. Whereas retailers who are looking for a less transparent system should think about a drop shipping method.

Subscribe to our newsletter

By signing up, you agree to our terms and conditions.

Ready to find out more?

Speak to a member of the team to find out how you could use LoyaltyLion to drive customer loyalty and engagement.

Book a demo