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Comparing Ecommerce Drop shipping and Marketplace

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A lot of investors are confused when deciding whether to choose marketplace or drop shipping, what’s behind these two models, which one is more suitable. So, in this article, I will give you an overview in terms of similarities and differences of Drop shipping and marketplace.

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Similarities:

  • Operating based on the common key foundation: the entity who sells the product will not need physically control product sold to consumers. Both are distributed product supply strategies.
  • Allowing retailers to significantly increase the number of products and services they offer to consumers.
  • After the sale happens, the products will be fulfilled to customers relying on a third party
  • It is so identical for both of the flow of virtual product data and physical product logistics.

Differences:

The differences between these two models are quite many; however, in this article, I just focus on some points related to shopping, point-of-sale experience, and the underlying business model:

  • In the marketplace, the suppliers or distributors will be referred to as seller while Drop shipper calls them by suppliers or vendors.
  • Source: There is one fact that consumers may not know that the product on the marketplace will be located and managed by some other people and I am sure they are not retailers. Besides, the marketplace will take an additional step and integrate ratings and reviews of the seller’s performance. If you visit some marketplace, they even provide a seller storefront inside of the broader e-commerce site. This function is so convenient for consumers when they can see all products put in the marketplace. Drop shipping is totally opposite. The consumer can see the brand and just knows retailers are fulfilling the products. Even when Drop shipping appeared, it was called by blind drop shipping since consumers were indeed blind to these dynamics.
  • Selection: In the marketplace, retailers will not control the products from third-party sellers but with drop shipping, all action including selecting and merchandising in the same way they approach wholesale purchasing and buying.
  • Price: In the marketplace, sellers set the price while in drop shipping, retailers will control the price.
  • Fulfillment: With the marketplace, sellers can specify what shipping carriers, as well as methods, supported. With drop shipping, retailers have full right to decide those methods to suppliers.
  • Customer service: Both models will allow customers to return products if they are not satisfied. Customers on the marketplace can contact directly to sellers but in drop shipping, they have to contact retailers who coordinate with its upstream suppliers.
  • Business model: Of course, they are two different models. After products are sold, the marketplace collects money from customers and keep a certain portion as the commission they deliver the rest for sellers. Drop shipping also collects all money from customers, then they pay the previously-negotiated amount for wholesale (included fulfillment cost) and the rest of the difference will be their profit.
  • Accounting: it is totally different in the way they record the accounting entry. If in the marketplace, they sell $100 item, marketplace fee is 10%, they will count $10 for sale revenue, drop shipping works more traditionally, just record $100 for revenue, then they subtract the cost of goods sold amount, they will know their profit.

Thanks for watching my post. If you have any question, feel free to feedback here. I and colleagues are willing to support you. Goodluck!

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