Marketplace vs Dropship – Which one’s right for your eCommerce website?

The realm of B2B eCommerce continues to evolve driven by the ongoing impact of COVID-19 which has accelerated growth in the sphere and spawned new business opportunities that reach beyond the predominant channels and methodologies in place today.

An eCommerce area where an evolution can clearly be seen taking place is in online marketplaces. We are all very familiar with the major 3^rd party players in this space like Amazon, eBay, Walmart, Rakuten and Alibaba. These giants have transformed the retail landscape capturing greater and greater percentages of consumer shopping and purchase behavior. In line with that, one must not ignore the foray that Amazon for one has made on the B2B side of things with Amazon Business. In spite of the dominance exerted by these large organizations, we have seen movement over the past three years in a different direction. That direction points to more businesses of all sizes considering the formation of their own marketplaces with the subsequent desertion from major 3^rd party marketplaces. https://bloom.bg/3eYlLL8

Perhaps these businesses have identified an opportunity to serve a regional or local community focusing on local sellers/retailers. Such new marketplaces are setup to provide a diversity of product offerings through their local sellers and they tend to attract local buyers to their online environment. It’s a find it and buy it local approach. This new breed of marketplace may also be founded on a desire to focus on a specific niche of products, like for example hand-crafted goods. In any case, the goal is to provide quality local sellers and goods in support of local communities.

A germane question that logically comes up is should an eCommerce business grow by building its own multi-seller marketplace or instead go the drop-shipping route? There can be pros and cons to each direction that one should consider en route to answering this question.

This helpful diagram illustrates who assumes responsibility for key elements of the online selling process.

One significant difference in being a seller on a marketplace versus setting your online business up around the drop-ship solution is how inventory is controlled. As a marketplace seller, the matter of inventory is left in your hands. If you choose to expand your business via drop shipping, your eCommerce store’s inventory rests in the hands of the drop-shipper(s) you use. You take on all other aspects of the business operation as shown in the left hand column under DROP-SHIPPER SOLUTIONS.

How can starting a marketplace benefit B2B businesses?

B2B businesses can benefit in a number of ways.

1. 1. If you already have customers coming and buying from you when you establish a marketplace, you can help increase their spend, because they can find more products that they want to buy. This is of course similar to what one finds in the consumer marketplace environment and it has the ability to influence both customer satisfaction and retention.
   2. A key difference in marketplace versus drop-shipping and warehousing is that you can increase your revenue without all of the operational expense associated with product management. And you can get rid of warehousing and inventory concerns that often show up with drop-shipping.

While these benefits are certainly positive, owning a marketplace does come with its share of possible issues, issues that you as the marketplace owner get to deal with. Remember that you have to deal with multiple sellers. And sometimes sellers have problems like they don’t deliver on time. They may not be putting the product that you want on your marketplace or they may not do so as professionally as you would want. As marketplace owner you take on the responsibility of managing seller issues like this and more. It’s your marketplace brand after all. Think of it this way, when people order something from a marketplace and the product doesn’t show up on time, who are they mad at? Probably not the seller. They’re mad at the marketplace. Whereas, if the seller runs their own online store as a stand-alone business, any problems are theirs alone to address.

The bottom line is that there are important things to think about and plan for when considering starting your own marketplace.

A great place to learn a bit more about this subject is by listening to the podcast “Should You Build Your Own B2B Marketplace.” It’s part of the Adobe Commerce Talk series and features a discussion with Malcolm Allen, CTO of Kadro. It is available on the Kadro website here. https://lp.kadro.com/commerce-talk-podcast-with-kadro

Given KADRO’s distinctive position as a software engineering company that:

• • supports the engineering, integration and implementation of individual eCommerce websites on the Magento Commerce platform
  • helps businesses efficiently participate in 3^rd party marketplaces
  • builds marketplaces for clients wishing to start their own.

we occupy a pivotal vantage point in supporting all these paths to eCommerce.

Whichever path to eCommerce success you may choose, we are here to help.