If you have been online long enough, you have probably come across either Dropshipping or eCommerce marketplaces. Although often mistaken for each other, these business models are very different.
The challenge comes with newbie online entrepreneurs who are spoilt for choice about whether to start dropshipping or selling on a marketplace.
These two models share multiple similarities: they are both online and sell goods to final consumers. However, they also differ in several ways.
This article will look at dropshipping vs. eCommerce marketplaces. You will understand how they differ from each other, the pros and cons, and which one best suits you.
What is dropshipping?
Dropshipping refers to the online business model where you can sell products without owning any inventory or warehouses. Instead, you take orders from customers on your platforms and then buy them from the supplier. The suppliers package the products and ship them directly to the customer.
Dropshipping stores alone make up almost 30% of online businesses. This makes it the most popular business model for eCommerce entrepreneurs. And it is not hard to see why.
Advantages of dropshipping
No inventory required
Dropshipping does not require you to stock any inventory. You only have to put up the product and then buy it when a customer makes the order.
This mode of business reduces the risk of obsolete or excess unsold inventory that traps capital. Also, you can eliminate warehouse costs.
Test different products
With dropshipping, you have the freedom to try out different products and suppliers easily. In that way, you can test the waters without having to spend a dime.
As a result, you can adapt to trends with much less risk, thereby attracting many seasonal customers.
Disadvantages of dropshipping
Since dropshipping is relatively easy to get into, it has intense competition. Millions of stores already exist, many having similar product offerings. So, it can be challenging to gain traction and drive traffic if you do not employ good marketing and sales strategies.
Dropshipping poses significant risks to customer satisfaction. You cannot control what products the customer is receiving or the shipping process. So, even when there is an issue, your options are limited in helping the customer.
These occurrences, therefore, increase the risks of returns, cancellations, and even bad reviews.
Who is dropshipping best suited for?
Dropshipping success is not guaranteed for every type of business. The businesses most likely to benefit from dropshipping include:
Cash strapped entrepreneurs
Many entrepreneurs want to trade online but are not willing to risk their resources initially by buying products, warehousing, shipping, etc. Therefore, dropshipping can benefit them.
With dropshipping, they only have to pay for a website, dropshipping tools, and marketing. This enables them to run their business even with limited expenditure.
People that want to start online stores without any physical stores or customer base can benefit from dropshipping. The dropshipping model offers an almost risk-free way to start a business if you are willing to put in the work.
The biggest task would be finding the right dropshipping niche and suppliers. Then you can focus on advertising your new venture and have customers start pouring in.
Some sellers deal in bulky or fragile products that can be quite expensive to sell physically. So, with dropshipping, you can eliminate the trouble of storing such products or run the risk of failing to sell.
For example, entrepreneurs that want to sell fitness equipment would run greater expenses with physical stores or warehouses. They take up too much space. Yet, with dropshipping, this burden falls on the supplier to store, pack and ship the goods to the end customer.
What does eCommerce marketplace selling mean?
Selling on eCommerce marketplaces is when you set up your brand shop on an established online platform. You leverage the structures and facilities of major outlets like Amazon, eBay, Walmart, etc.
These marketplaces are popular among consumers. They thrive on being an excellent hub for customers to find whatever they need.
As a result, they have higher traffic volumes which is good for the sellers.
However, in some instances, marketplaces take on dropshipping structure. When the retailer does not have a particular product, an agent will pick it up from another warehouse and deliver it.
Advantages of eCommerce marketplaces
Ecommerce marketplaces attract large volumes of traffic daily. For instance, Amazon gets over 200 million visits per month. Such traffic provides a higher sales potential for sellers. As a result, they could earn much higher profits. So, as the platform grows, it presents better opportunities for the sellers as well.
Ecommerce marketplaces already have established structures for running shops, order fulfilments, shipments, etc. It thus reduces the burden for the sellers who would otherwise need to set them up. For example, Amazon has an extensive fulfillment network that its sellers can use.
Selling on an established eCommerce marketplace facilitates brand growth. Customers are more likely to trust a new business when it is attached to an established marketplace. This stimulates rapid business growth.
Disadvantages of eCommerce marketplaces
As with every inventory-based business, there are many risks in carrying products on eCommerce marketplaces. Often, products become obsolete, leaving sellers at a loss of money tied up in unsold goods.
Marketplaces set the rules.
On eCommerce marketplaces, sellers are tenants. The platform ultimately makes the rules concerning transactions, products sold, and sometimes even pricing. It leaves you with almost no control of your business’s future.
The platforms make rules that generally benefit them. So, in case something goes wrong, it greatly affects your business.
Who could use eCommerce marketplaces?
1. Short term retailers
Selling on eCommerce marketplaces is often preferred by sellers who simply want to sell products and not necessarily establish a long-term brand. All products sold through these marketplaces are considered goods from the platform itself.
So, for sellers that just want their money and don’t mind about the long-term effects, this model works well.
2. New start-ups
Ecommerce marketplaces are great for new business owners who do not want to launch an independent enterprise from scratch. With such, you can take advantage of the already established structures of these marketplaces.
All you need to do is set up shop, pay the required fees, and start advertising. It, therefore, provides an easy and fast entry into eCommerce retail.
3. Bulk sellers
Ecommerce marketplaces are perfect for sellers who sell very low-priced items, which require large sales volumes to generate profit. These businesses can thus utilize the large traffic volume on these marketplaces.
Furthermore, many customers visit these platforms looking for a bargain. So, they have an excellent opportunity to compete on price with limited costs.
Dropshipping or eCommerce marketplaces?
Choosing between dropshipping and eCommerce marketplaces can pose difficulty for all kinds of sellers. Both models pose significant advantages and disadvantages.
Therefore, the better option depends on your unique business needs.
- Do you want to build a brand?
Your choice largely depends on if you are into business for the short or long run(for years). If you want to build a strong brand for years to come, it is best to have a store that enables you to grow, that is, dropshipping.
With eCommerce marketplaces, you might be constrained by all the terms and conditions in place. Furthermore, your products often reach the customers in their packaging. It is, therefore, not a sustainable model for building a strong, long-lasting brand.
- Can you handle the risks?
ECommerce retailing comes with several risks. So, it depends on how much burden you are willing to carry. If you are a cash-strapped starter, you may want to go for the least risky option, mainly dropshipping.
However, if you have some cash for investment in inventory, platform fees, then marketplaces can work for you. The bright side is you can recover fast with massive sales volumes.
There is no one comprehensive eCommerce solution available. So, it’s upon you to choose the path that offers the best options for your specific needs. Nonetheless, the common ingredient is to employ effective marketing strategies to drive your store’s needed traffic and sales.
By now, you should have a clear idea of how dropshipping and eCommerce platforms differ. Both provide room for your business’s success.
Though, in some instances, you can have both worlds.
Companies like Wholesale2B provide options to integrate your marketplace stores with a dropshipping tool.