Can’t Decide Between Drop Ship and Marketplace Solutions? Do Both.
By Logicbroker | July 15, 2022
While it may seem like we live in a world of black and white where only one solution can be adopted at a time, at Logicbroker, we believe that both marketplace and drop ship solutions can and should be done together. The frontend and backend benefits of marketplace for retailers and sellers are enticing on their own, but coupling those benefits with advanced drop shipping solutions could be the difference-maker in the market.
Before you make a final decision, let’s look at how each piece of the eCommerce puzzle fits together.
What Are Marketplace and Drop Shipping Solutions?
Drop shipping is a way for retailers to fulfill orders without having to hold their own inventory. Instead, when a retailer sells a product, they buy and have it shipped to the customer from a third-party supplier. Traditionally, the retailer’s branding appears on the packing slip and packaging, so the end customer may never even realize the product isn’t coming directly from the retailer. Wayfair is a well-known example of a company that uses drop shipping to fulfill its orders.
An online marketplace, by contrast, is a website, app, or eCommerce ecosystem that serves as a host to multiple sellers. The marketplace operator provides a place for sellers to offer their inventory and facilitates the transactions. It’s up to the sellers to fulfill each order. eBay is the best-known example of a site that’s purely a marketplace, however, eBay is largely un-curated. Amazon is the largest marketplace, but it also holds its own inventory of products. In traditional marketplace models, sellers typically ship products with their own branding, instead of having to ship with retail-branded packaging.
So, What Does This Mean?
We’ve established what a marketplace is and how drop shipping fits into the puzzle, but what does this mean for your business?
While marketplace and drop ship have obvious frontend differences, the real difference is in the handling of payment and onboarding. In a marketplace sale, money is collected from the customer upon purchase, the marketplace keeps a portion of the sale, and immediately pays out the rest to the supplier/seller. In drop shipping, the retailer collects payment, remits the agreed-upon wholesale amount plus fulfillment costs to the supplier, and keeps the difference as profit.
With marketplace, sellers retain more control over product pricing, marketing, their product catalog, and their eCommerce storefront, as well as product photography and description copy. They can also fulfill and ship orders using their own brand identity. Not only does this give established brands more exposure for customer retention; it also eases the burden on retailers who are looking to supply their target audience with an endless aisle of goods. Instead of retailers having to produce product content and descriptions themselves, they have more leeway to try new things and reach new audiences.
The real answer, however, is that you should do both.
The largest retailers in the eCommerce space—Amazon, Walmart, Samsung, and more—are blending these two concepts into one catch-all “drop shipping” solution. According to Forrester drop shipping is simply “a business model where a governed environment allows third parties to offer products to an audience and where transactions are facilitated by the marketplace owners and fulfilled by the third parties.”
This definition of drop shipping blends the traditional “drop shipping” and “marketplace” terms together into one massive eCommerce solution—the kind facilitated by top-end connection brokers like Logicbroker. To be successful, drop ship programs hinge on the seamless exchange of product data, order management, and pricing and inventory allocation. Through Logicbroker’s eCommerce fulfillment platform, retailers, brands, suppliers, and sellers can connect with each other and with Logicbroker’s cutting-edge drop ship and marketplace solutions to open new roads to eCommerce growth.
For example, while Amazon is considered the largest eCommerce marketplace, with a 40% market share in the U.S. alone, they actually have built a fairly traditional drop shipping platform. The marketplace does curate well over 10,000 vendors onto one platform, however, most products sold through Amazon are branded by Amazon packaging and shipped through Amazon’s 3PL platform and warehouse.
This universal solution has provided Amazon with brand identity, audience trust, customer retention, and the trust of the sellers that their products will reach appropriate audiences on the Amazon marketplace.
Forrester’s drop shipping report found that drop shipping has led to 50% more sales, 46% increased profits, 43% lifetime value, 50% order volume, and 52% conversion rates for retailers who’ve adopted the solution. This massive boost from blending both traditional drop shipping capabilities with newer, marketplace-focused solutions has been the difference-maker in the ever-growing eCommerce market.
Getting started with modern eCommerce solutions begins with a connection broker. While many backend processes can begin internally, Forrester recommends building an internal drop ship team to assess what your organization needs a tech provider for. Logicbroker is the only connection broker on the market that provides both drop ship and marketplace solutions while creating an environment where both can be done simultaneously.
Logicbroker has pre-built connections to thousands of vendors, retailers, and brands across the country, and can easily craft new connections, in any format. Clients can quickly add new drop ship suppliers and marketplace merchants and brands or upgrade their existing drop ship and marketplace technology. Our platform connects with virtually every backend system ensuring a smooth transition and our onboarding team works round the clock to guarantee that every new client is brought up to speed in just a few weeks.
Whether you want to drop ship, build a marketplace, or connect to retailers across the country, connect and grow with Logicbroker.
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