Marketplaces are a digital space where vendors list their products and offer them to buyers, who may be professionals or private citizens. Dropshipping is an e-commerce platform where vendors sell products that they do not have in stock, but rather that they order from a supplier.
They therefore do not function in the same way. There are rather large differences, whether in terms of the sales process, the stakeholders involved or order processing.
What are the differences between marketplaces and dropshipping?
Here are a few answers to that question.
Marketplaces and dropshipping: definitions
Marketplaces and dropshipping are two very distinct sales methods. This is how they work.
What is a marketplace?
A marketplace is a commercial space offering vendors the opportunity to sell their products without needing to create their own platform. In concrete terms, it refers to an operator on which customers and vendors perform transactions.
Thanks to marketplaces, online vendors can sell their products and improve their listings, to be more visible on the internet. They manage their stocks of merchandise and shipping for orders themselves, in their own name.
What is dropshipping?
With dropshipping, a vendor can sell products without having to stock them. The merchandise is stored by the supplier (manufacturer, retailer, etc.) who manages production, storage and delivery.
In practical terms, the vendor presents products to customers on its digital platform, then sends the purchase orders to its supplier. The supplier is responsible for preparing the order and sending it to the client. The consumer then receives a product sent by the supplier, but in the name of the vendor.
The main differences between dropshipping and marketplaces
Let’s look at the main differences between dropshipping and marketplaces
The stakeholders involved
Marketplaces and dropshipping both operate on the basis of a 3-party relationship. However, the parties are not the same for the two sales methods and they do not play the same roles.
A marketplace involves:
- a distributor and their sales website (the marketplace);
- a vendor (online store, retailer, manufacturer, artisan, etc.);
- a user (i.e. the buyer).
Dropshipping brings together:
- a supplier, from whom the vendor buys products;
- a vendor, with their own sales platform;
- a buyer (or consumer).
Price strategy
The marketplace operator does not manage merchandise, ranges of products or their price. Such responsibilities fall on the vendors, whose only requirement is to respect the regulations fixed by the marketplace.
Dropshipping vendors, on the other hand, are free to set their sale prices according to the purchase prices negotiated with suppliers.
Note that profit margins are often higher for dropshipping than on marketplaces: vendors, if they negotiate well, can purchase articles at a very attractive price, then sell them on for more. They are not limited by any regulations, unlike e-vendors using a marketplace to sell their products.
Sales strategy
Marketplaces and dropshipping present different sales strategies. The marketplace sales strategy involves hosting vendors with their own stock of articles in exchange for a percentage of profits.
The sales strategy for dropshipping is to sell products from a supplier in the name of a distributor. Online retailers work to improve their visibility and carry out their own marketing campaigns.
With marketplaces, the consumer is perfectly aware that they are making a purchase from a third-party vendor and not from the marketplace itself. In the case of dropshipping, distributors tend to hide the fact that the order will be handled by an external supplier.
Means of remuneration
Marketplaces very often take a commission on e-vendors’ sales. Note that there are also other means of remuneration, like listing fees, subscription models or sponsored links.
On the other hand, for dropshipping, suppliers are paid depending on the order made by the vendor. They then make a profit margin on products sold.
Furthermore, dropshipping is often considered the ideal solution for online retailing without having to spend large amounts of money, nor manage merchandise stock. Inversely, selling products through a marketplace requires more commitment.
Processing orders
With marketplaces, e-vendors are responsible for sending the order to the final customer themselves. In the case of dropshipping, suppliers send purchased products to clients on behalf of the vendor. In this case, customers still have the impression that the product ordered via dropshipping comes from the vendor. The supplier is completely unnoticeable.
Adding products
Adding new products is faster and more flexible on marketplaces. All vendors have to do is enter merchandise to be sold, write a short description and add it to the appropriate product category.
On the other hand, with dropshipping, the process for adding products takes longer. Distributors must first find reliable suppliers and establish a partnership with them. Then, they must negotiate prices and define pricing and merchandising strategies.
Customer relations
When a transaction is made on a marketplace, the vendor receives any returns, manages disputes and handles customer service. In the case of sales using dropshipping, the online retailer is responsible for customer relations. Requests for returns and disputes are sent to them directly. They then have to send them to suppliers for rectification.
Legal obligations
From a legal point of view, dropshipping is subject to the same regulations as traditional e-commerce. Vendors can display their own legal notices and terms and conditions for sale and use, without having to mention their suppliers.
With marketplaces, additional rules apply. The platform must be clear and transparent. The legal notices must specify the operators and third-party vendors. Marketplaces must present all contractual elements relating to the services and products offered by each of its vendors (except for BtoB). The site must specify the rules for listing products, conditions for access to the platform and how it functions.
Combining a marketplace and dropshipping
It is completely possible to use a marketplace to start to sell via dropshipping. The advantage is that you can profit from the marketplace traffic. Furthermore, it is simpler to define specific target segments and use marketplaces specialized in dropshipping to reach said targets more easily.
It is also possible to operate a dropshipping platform while using a marketplace at the same time. This can help traffic on the dropshipping site to increase significantly thanks to the high number of visitors to marketplaces.
Doing dropshipping on marketplaces
Do you want to use dropshipping on marketplaces?
Why not opt for the dropshipping solution from Octopia ? Octopia Products is the ideal marketplace solution to develop your e-commerce activity. Thanks to our services, vendors have access to a unique technological platform and a qualified catalog of products and brands.
Click here to learn more on this solution.
With our unique expertise, we are now capable of sending your products to over 30 countries in Europe, while best supporting vendors to define their project. Furthermore, with our dropshipping solution, you have access to over 60,000 products and international brands.
Interested? Follow these four steps:
- Sign up to our dropshipping platform.
- Upload your product catalog and import your selection.
- Publish your products on your sales channel.
- Track the status of your orders sent by Octopia.
Though they are different, marketplaces and dropshipping can be complementary. While it’s true that few marketplaces offer the option for dropshipping sales, some do authorize this practice. As it happens, here at Octopia, we are specialized in dropshipping on our marketplaces and we currently offer a comprehensive service and specific expertise to e-retailers who have placed their trust in us.
Three key takeaways:
- marketplaces and dropshipping do not work in the same way: marketplaces connect vendors and buyers through a specific platform. Dropshipping offers vendors the opportunity to sell a range of products from a supplier on their own platform;
- Selling on a marketplace presents certain advantages: high visibility, an attractive website to sell products, reduce marketing costs, etc. As for dropshipping, it also has certain positives: the seller does not have to manage product stock, packaging or shipping. It is also simpler to manage cashflow;
- While marketplaces and dropshipping are different, the two can be combined. It is possible to do dropshipping on a specialized marketplace and enjoy the advantages of both sales methods.
