What are the differences between dropship and private marketplaces? These third-party (3P) commerce business models offer retailers the flexibility to meet consumer demand. Determining which model is right for your business is likely to show that a hybrid model can help retailers scale their businesses profitably. In Rithum’s new guide How Retailers Can Drive Growth with Dropship and Private Marketplace, we break down the differences between dropship and private marketplace and why more retailers are turning toward a hybrid model.
What is dropship?
With dropship, the retailer does not hold or manage inventory of the products they sell. Retailers partner with suppliers or brands that stock inventory and ship products directly to consumers on the retailer’s behalf. This allows them to add products and suppliers more easily and only pay for the products they sell.
Dropshipping gives retailers increased flexibility to easily add new products and suppliers. The business model reduces financial risk since retailers only pay for products they sell. There is no inventory management, which reduces the complexity of stock management and storage costs.
The business model is not without its challenges, as retailers using dropship can have lower profit margins than owned inventory since retailers aren’t buying in bulk. Retailers also can have less control of the customer experience with inventory and shipping managed by suppliers. Operating costs remain high when finding products, negotiating contracts and managing customer support. To combat these challenges, more retailers are turning to private marketplace business models.
What is a private marketplace?
A private marketplace, also known as a curated marketplace, is a retail business model that allows select, invited sellers to join and sell goods to a consumer from the retailer’s website.
Private marketplaces allow retailers to delegate costly activities required in a dropship model to suppliers including pricing, shipping costs, customer support and returns. The business model provides retailers increased scalability with the option to set global seller terms and conditions, replacing negotiations with individual suppliers. Retailers have more flexibility to test new vendors and products outside its usual product catalog to meet evolving consumer preferences.
Challenges include commissions of about 15% – 20% for each marketplace sale. It is also common to see increased shipping restrictions or more shipping methods because suppliers pay for shipping in the marketplace model, which can deter buyers. Retailers are also reliant on established supplier relationships, which can impact the quality and reliability of product offerings.
A hybrid dropship and private marketplace model
To meet evolving consumer demand, a combination of hybrid dropshipping and private marketplace models can fit your business’ needs. Retailers can use dropship to build out a 3P commerce program to offer a wider range of products without purchasing and stocking inventory. High-performing dropship products can then be shifted to your wholesale model, increasing your product margins.
Private marketplaces can expand 3P selling by giving retailers access to additional vendors and new products. As a result, retailers can test new categories and products with low risk. Products that sell can be moved to your dropship program.
Use technology to manage dropship and private marketplace
Managing dropship, private marketplace and hybrid retail models can be a cumbersome, time-consuming manual task. Instead of monitoring dropship and marketplace business models separately, retailers can launch and manage any partnership model through retail technology solutions like Rithum’s all-in-one solution.
Rithum streamlines dropship operations with easy transactions without the trouble of inventory management. This unified commerce solution also gives customers access to over 40,000 brands and retailers. Through Rithum, retailers can unify automated SKU conversions, performance insights and product discovery. Here are additional ways Rithum helps businesses manage dropship and private marketplace:
- Delivery and returns solutions use network data, real-time tracking information and best carrier selection in a single dashboard.
- Retailers can reach more consumers more effectively by launching paid search and shopping and product feed management to help optimize each sales channel.
Rithum simplifies supplier onboarding allowing retailers to onboard new sales channels faster with a single, intuitive portal equipped with reporting tools, progress tracking and support from Rithum employees.
Download the guide today.
