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Beyond dropshipping: How to boost margins and build your assortment without inventory investments.

Kilka Seller Case Study_Nov 2022
Published on July 6, 2023
Kilka Seller Case Study_Nov 2022

The world of ecommerce has experienced remarkable growth in recent years, providing entrepreneurs with diverse options to launch their online businesses. Established retailers exploring how a marketplace model would best fit into their business strategy have a common question – what’s the difference between dropship and marketplace fulfillment that utilizes third-party sellers, and how can it benefit their business? While both approaches offer opportunities for entrepreneurs to enter the ecommerce landscape, they differ in several fundamental aspects.

We delve into the core differences between dropshipping and marketplace solutions, exploring their unique characteristics, advantages, and potential drawbacks. By understanding these differences, aspiring ecommerce entrepreneurs can make informed decisions to drive their business success.

Dropshipping – A Primer
Dropshipping is a business model where entrepreneurs act as intermediaries between customers and suppliers. In this setup, the online retailer doesn’t maintain inventory or handle product fulfillment. Instead, when a customer places an order, the retailer purchases the item from a supplier who directly ships it to the customer. The key advantages of dropshipping include low upfront costs, minimal inventory risk, and easy scalability. However, it also brings challenges such as lower profit margins, limited control over product quality and shipping times, and potential supplier reliability issues.

Marketplace Solutions –  A Comprehensive Approach
Marketplace solutions, on the other hand, involve setting up an online platform where multiple sellers can showcase and sell their products. Unlike dropshipping, marketplace solutions require sellers to manage their inventory, handle order fulfillment, and maintain customer support. The primary advantages of marketplace solutions are the vast customer base, established brand reputation, and the ability to offer a wide range of products. However, operating a marketplace involves significant investments, intense competition, and the need for effective seller management to ensure quality standards and customer satisfaction.

Understanding the differences

  1. Control and Branding: Dropshipping offers more control over branding and customer experience since entrepreneurs have their own storefronts. In contrast, marketplaces often limit customization options, as sellers operate within the marketplace’s framework.
  2. Profit Margins and Costs: Dropshipping generally offers lower profit margins due to increased competition and higher product costs. Conversely, marketplaces can provide higher profit margins since sellers have more control over pricing and sourcing.
  3. Customer Base: Marketplaces have a larger existing customer base, providing exposure and potential sales. Dropshipping businesses, however, must invest in marketing and customer acquisition to build their customer base.
  4. Logistics and Operations: Dropshipping requires less logistical management, as suppliers handle inventory and shipping. Marketplace solutions demand extensive logistics and operational efforts, including inventory management, order fulfillment, and customer support.

Marketplacer’s Flexible Model
Marketplacer enables our operators to onboard sellers with catalogs that include wholesale prices, while providing sellers with the flexibility to choose which products have wholesale pricing. By onboarding sellers with catalogs that include wholesale prices, operators can attract more sellers, increase profitability, expand their SKU range, and drive higher sales volume, accelerating the growth of their marketplaces.

While dropshipping offers simplicity and scalability, marketplace solutions provide a broader customer reach. With the flexibility to support both marketplace and dropship models, we at Marketplacer help entrepreneurs carefully consider their business goals, resources, and priorities to determine the most suitable ecommerce model for their success. 

Published on: July 6, 2023

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