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Are you thinking about starting an online store and unsure whether to choose dropshipping or a marketplace? You're not alone.
Many people know these options can help make money but are not sure which is better for profit dropshipping or selling on a marketplace.
We will explain the difference between these online retail strategies and how they impact your business’s growth potential. This will help you decide which option fits your goals best.
from around the globe. These platforms are operated by a large retailer (such as Amazon) and offer a way for third-party merchants to reach a wide audience.
On a marketplace, the merchant is able to set the price, manage product information, handle the sale, and, in many cases, provide customer service. The marketplace will set commissions, brand guidelines, and terms of use to ensure a consistent shopping experience for buyers.
Marketplaces differ from dropshipping in that third-party logistics are typically managed by the merchants themselves, rather than the marketplace. While some marketplaces may offer their own logistics services, it's mostly the merchants who handle tasks such as inventory management, order fulfillment, and shipping.
Dropshipping is a retail fullilment method that lets you sell products without keeping them in stock. You list items for sale, and when someone buys something, you order it from your supplier. This supplier then sends the product directly to your customer. This method is known as JIT (just-in-time) inventory management because you only buy what you've already sold.
Rather than spending money upfront on inventory, you pay for products as you sell them. It also means you don't have to worry about storage space. This approach makes starting a business easier and less risky. Plus, you can quickly change which products you sell based on what your customers want.
Both marketplace and dropshipping offer unique opportunities for businesses looking to expand their online presence. However, it's crucial to select a business model that aligns with your goals. Here are the key factors to consider when choosing between marketplace and dropshipping.
Dropshipping often leads to higher profits for retailers. This is because, in dropshipping, you, the retailer, get to keep the entire amount your customer pays for an order. On the other hand, if you sell on a marketplace, you have to give a part of each sale (a commission) to the marketplace. So, when it comes to marketplace vs. dropshipping profitability, the latter business model tends to be more fruitful.
When it comes to e-commerce scalability, marketplaces can offer a bigger advantage over dropshipping. This is because marketplaces already have lots of customers, making it easier for you to sell more without worrying about storing products or sending them to customers. This can make it simpler and faster to grow your business with a marketplace.
With dropshipping, you have the freedom to make sure the information about your products matches your brand's style and voice. This can help customers find your products more easily online. In contrast, selling on a marketplace might make it harder for your products to stand out because many sellers might list similar items, and there's a risk of having the same product information appear in many places online. This can make it harder for people to find your products through search engines.
Dropshipping gives you more control over how your brand is seen and experienced by customers. You can decide how your products look when they reach your customers, including the packaging and what happens if a customer wants to return something. This can make customers feel closer to your brand. However, when you sell on a marketplace, the connection between your brand and the customer is not as strong because the marketplace stands in the middle.
Choosing the right e-commerce model is crucial for businesses aiming to grow their online presence. While both dropshipping and marketplace options offer unique advantages, the best choice depends on various factors related to your business's specific needs. Here are key factors to consider when evaluating e-commerce models for your online storefronts:
If many stores sell similar items to yours, an online marketplace could help you reach more customers. These marketplaces are suited for common items where standing out isn’t the main focus. But, if your products are unique or offer something special, dropshipping is the way to go. It allows you to control how your products are presented and priced.
For businesses that value their brand's image and customer experience, dropshipping is preferable. This model lets you decide on your product presentation, communication with customers, and delivery methods, ensuring a consistent brand experience. In an online marketplace, your brand is one among many, which might dilute its impact.
Starting on an online marketplace is straightforward because they handle a lot of the logistics, but they charge fees or commissions. Dropshipping requires you to manage relationships with suppliers and gives you more freedom in setting prices and profit margins.
If you want to grow your business and be more flexible, you can use both dropshipping and selling on marketplaces together. This method leverages the strengths of business models.
Tools like Spocket help you do this by connecting your dropshipping with selling on big sites like AliExpress, Amazon, and eBay.
By using this method, you can handle more sales with less work, target different customer segments, and make the most out of both dropshipping and marketplace tools.
Steve Madden is an iconic '90s footwear brand known for its chunky sneakers and trendy styles. It sells products through its own website and marketplaces like Amazon and Walmart.
Allbirds is a sustainable footwear brand famous for using eco-friendly materials and designs. While many people know it as a successful Shopify store, Allbirds also reaches customers by selling on other platforms like Amazon and Poshmark.
The approach lets Allbirds share its eco-conscious shoes with more people.Want to extend your reach beyond your Shopify store? Learn from top brands dominating marketplaces.
When you run a dropshipping business or sell on marketplaces, it's important to follow some strategies to do well. Here's how you can make your business better:
Both marketplace and dropshipping strategies offer a pathway to ecommerce success. When choosing between them, consider your resources, goals, and market demand. Based on your situation, you may find one approach more suitable, or you might benefit from leveraging both tactics to maximize reach and profitability. Already doing well and looking to improve your bottom line? Maximize profitability with our e-commerce guide.
Dropshipping is a more suitable e-commerce model for startups due to its lower upfront costs and minimal inventory management requirements. Startup owners can benefit from the flexibility to experiment with different products without significant financial risk.
To mitigate risks in dropshipping:
The key challenges in managing a marketplace include high competition and lack of control over branding. To overcome these hurdles, focus on providing high-quality customer service. Sending products in customized packaging can also help you overcome some of the brand-related limitations associated with marketplace selling.
You can easily transition from dropshipping to marketplace selling by connecting your store with relevant platforms. Use the integrations provided by your dropshipping supplier to list and sell your products on different marketplaces.
Adeel holds a Master’s degree in digital marketing and is a passionate e-commerce marketer. He specializes in long-form content creation and has a conversion mindset, which helps him focus on elements that generate sales for businesses.
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