Drop shipping and marketplace selling are often seen as interchangeable business models. However, while there are some similarities, they are different approaches to selling. Before diving in to which model (or both) makes sense for your business, let’s clearly define each model and the differences between the two.
What is a marketplace?
An online marketplace is a website or app that facilitates shopping from many different sources. The operator of the marketplace does not own any inventory, their business is to present other people’s inventory to a user and facilitate a transaction. eBay is the ultimate example of an online marketplace, they sell everything to everybody (Forbes.com).
What is drop shipping?
Drop shipping is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product (shopify.com).
What’s the difference?
The difference between marketplace selling and drop shipping lies mainly in the customer perspective. With drop shipping, a customer believes the product they are buying from is directly from the retailer, and upon delivery, the packaging info will carry the retailer’s info. Overall, drop shipping gives a retailer more control over branding and the customer experience, as they set the selling price, control the imagery and descriptions, and all shipments include branding packing slips and inserts consistent with internal fulfilment.
For marketplaces, the customer is aware that their order is being fulfilled by a 3rd party outside of the company they ordered from. Packaging and labels will have the seller’s information. Marketplaces allow retailers to quickly add new sellers and expand product assortment, but slightly sacrifice control of their brand.
Deciding what makes sense for your business (hint, probably both)
Retailers benefit from working with drop shippers, as it allows them to expand their product assortment without holding inventory. Historically, drop shipping has allowed retailers to sell larger items, like furniture, without needing to worry about shipping or holding the large items in their warehouses. Because there are no overhead costs for inventory, retailers can offer a brand’s full product line rather than just a few pieces.
Retailers are also moving into becoming marketplaces. Walmart and Best Buy (Canada) are working with 3rd party sellers. While Best Buy has been viewed strictly an electronics store, with their marketplace they are able to offer consumers products in new categories including luggage, furniture, jewelry, and more. These deliveries though, will be delivered with the brand/seller’s branding.
Brands (sellers) benefit from both marketplace selling and drop ship. Both methods ultimately lead to more brand exposure and more sales. As mentioned previously, when fulfilling drop ship orders the seller would print a retailer-branded packing slip and utilize retailer branded packing materials (if applicable). For marketplace sales, the seller can use their own branding. Seemingly, the only risk a brand may face is the costs associated with getting up and running.
How we can help
Traditionally, implementing a drop ship program was viewed as a time-consuming initiative with steps including:
- Vendor selection
- Product assortments expansion
- Vendor integration
However, with Logicbroker’s modern drop ship solution, clients can quickly add new drop shippers on a weekly basis and easily swap out non performing vendors with performing vendors. Logicbroker’s network of certified channels leverages previous integrations to speed up the process. Essentially, retailers can grow their drop ship network at the same rate it would take to connect with marketplace sellers, all while maintaining their branding, leveraging customer confidence in buying from the retailer, and complete control over the customer experience from checkout to shipment to delivery. In addition, the Logicbroker portal enables users to quickly setup and leverage product expansion through Product Flow Integration which enables the setup of thousands of products in days, without sacrificing compliance. Retailers utilizing Logicbroker do not need to hire resources to manage brands, as the portal has scorecards to proactively monitor brand performance and numerous reports.
For retailers looking to start drop shipping, we’ve worked with numerous clients to kickstart drop ship programs. Our flexible connectivity options allow retailers to work with a broader set of vendors. Learn how we helped Zebit to quickly onboard their supplier community, grow product assortment, and run a lean yet efficient operation. In addition, retailers can upgrade their existing drop ship technology with our platform. Using outdated or expensive technology can cause your program to fail. We’ve worked with clients to migrate nearly 1,000 drop ship vendors in less than 6 months to offer their vendors a better experience.
For brands looking to drop ship, we’ve launched the Connected Commerce Network (CCN). CCN ushers in a new way for brands to establish retail relationships through access to Logicbroker’s network of retail customers and certified channels, including Kroger, Walmart, Rite Aid, eBay, Wayfair, and Amazon. These retailers are constantly looking to grow their online product assortment through relationships with drop ship brands and suppliers. Again, since these integrations have previously been done and are certified, the integration time can be completed in a few hours to a few weeks, depending on the partner and number of connections. Managing numerous channels is easy, as all documents and information are formatted in one canonical format, allowing data to be processed through hundreds of channels through one connection.
Both retailers and brands benefit from leveraging marketplace and drop ship selling. While marketplaces have been touted as a quick way to grow product assortment and increase brand visibility, implementing a drop ship program is just as fast with the right partner. With the playing field evened out on the speed of integration, drop shipping offers retailers the added benefit of maintaining their brand, a factor that is sacrificed with marketplace selling. Brands can successfully offer both drop shipping and marketplace selling with little-to-no consequences, and by electing to do both, can cast a wider net and increase the number of retailers to work with.