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Marketplace vs Dropship - Which one’s right for your eCommerce website?

Dropshipping versus online marketplace image

The realm of B2B eCommerce continues to evolve driven by the ongoing impact of COVID-19 which has accelerated growth in the sphere and spawned new business opportunities that reach beyond the predominant channels and methodologies in place today.

An eCommerce area where an evolution can clearly be seen taking place is in online marketplaces. We are all very familiar with the major 3rd party players in this space like Amazon, eBay, Walmart, Rakuten and Alibaba. These giants have transformed the retail landscape capturing greater and greater percentages of consumer shopping and purchase behavior. In line with that, one must not ignore the foray that Amazon for one has made on the B2B side of things with Amazon Business. In spite of the dominance exerted by these large organizations, we have seen movement over the past three years in a different direction. That direction points to more businesses of all sizes considering the formation of their own marketplaces with the subsequent desertion from major 3rd party marketplaces. https://bloom.bg/3eYlLL8

Perhaps these businesses have identified an opportunity to serve a regional or local community focusing on local sellers/retailers. Such new marketplaces are setup to provide a diversity of product offerings through their local sellers and they tend to attract local buyers to their online environment. It’s a find it and buy it local approach. This new breed of marketplace may also be founded on a desire to focus on a specific niche of products, like for example hand-crafted goods. In any case, the goal is to provide quality local sellers and goods in support of local communities.

A germane question that logically comes up is should an eCommerce business grow by building its own multi-seller marketplace or instead go the drop-shipping route? There can be pros and cons to each direction that one should consider en route to answering this question.

This helpful diagram illustrates who assumes responsibility for key elements of the online selling process.

Dropship versus marketplace matrix

One significant difference in being a seller on a marketplace versus setting your online business up around the drop-ship solution is how inventory is controlled. As a marketplace seller, the matter of inventory is left in your hands. If you choose to expand your business via drop shipping, your eCommerce store’s inventory rests in the hands of the drop-shipper(s) you use. You take on all other aspects of the business operation as shown in the left hand column under DROP-SHIPPER SOLUTIONS.

How can starting a marketplace benefit B2B businesses?

B2B businesses can benefit in a number of ways.

  1. If you already have customers coming and buying from you when you establish a marketplace, you can help increase their spend, because they can find more products that they want to buy. This is of course similar to what one finds in the consumer marketplace environment and it has the ability to influence both customer satisfaction and retention.
  2. A key difference in marketplace versus drop-shipping and warehousing is that you can increase your revenue without all of the operational expense associated with product management. And you can get rid of warehousing and inventory concerns that often show up with drop-shipping.

While these benefits are certainly positive, owning a marketplace does come with its share of possible issues, issues that you as the marketplace owner get to deal with. Remember that you have to deal with multiple sellers. And sometimes sellers have problems like they don't deliver on time. They may not be putting the product that you want on your marketplace or they may not do so as professionally as you would want. As marketplace owner you take on the responsibility of managing seller issues like this and more. It’s your marketplace brand after all. Think of it this way, when people order something from a marketplace and the product doesn't show up on time, who are they mad at? Probably not the seller. They're mad at the marketplace. Whereas, if the seller runs their own online store as a stand-alone business, any problems are theirs alone to address.

The bottom line is that there are important things to think about and plan for when considering starting your own marketplace.

A great place to learn a bit more about this subject is by listening to the podcast “Should You Build Your Own B2B Marketplace.” It’s part of the Adobe Commerce Talk series and features a discussion with Malcolm Allen, CTO of Kadro. It is available on the Kadro website here. https://lp.kadro.com/commerce-talk-podcast-with-kadro

Given KADRO’s distinctive position as a software engineering company that:

  • supports the engineering, integration and implementation of individual eCommerce websites on the Magento Commerce platform
  • helps businesses efficiently participate in 3rd party marketplaces
  • builds marketplaces for clients wishing to start their own.

we occupy a pivotal vantage point in supporting all these paths to eCommerce.

Whichever path to eCommerce success you may choose, we are here to help.

Kadro eCommerce Insights Newsletter: June 2020

Kadro Offices

Insights

New Site Launch: Houser Shoes

Houser Shoes

Kadro deployed Houser Shoes' new Magento 2 site in May! We have worked with Houser Shoes since 2014 and were ecstatic to help them migrate from Magento 1 to Magento 2. Read more about this project below.

"Kadro’s team has been a true asset to our online business with Magento Enterprise and has responded to deliver for our plans around site performance, mobility and strategic eCommerce planning." - Gary Houser, President & Founder of Houser Shoes Inc.

Project highlights include:

  • Full data migration for products, orders and customer accounts
  • Website redesign and setup of all content into PageBuilder
  • Migration of all EDI integration with show vendors
  • Using ShipStation for fulfillment.

Learn more about Houser Shoes' new Magento 2 site, and the migration from Magento 1.

Visit HouserShoes.com & use code KADRO25 to get 25% off any normally priced merchandise.

Webinar: Building an Online Community Marketplace

Building an Online Community Marketplace webinar on July 9th conducted by eTail with our client/partner MakerPlace, Adobe, and Kadro

Please attend the Building an Online Community Marketplace webinar on July 9th conducted by eTail with our client/partner MakerPlace, Adobe, and Kadro are presenting.

I’m on Magento. What Extensions or Tech Partner do I work with?

Kadro takes the mystery out of choosing a tech parnter

There are over 250,000 merchants on Magento for eCommerce. The vast ecosystem of Magento developers and technology partners is often a driving force for merchants to choose Magento as their platform for growth. One of the greatest benefits of Magento can also be one of the most daunting problems. At some point every merchant struggles with deciding on the right technology partner or extension to meet their need. With so many choices, how do you decide the right choice for your business?

How businesses are adapting during COVID-19

Kadro is partnering with Signifyd to bring you ongoing coverage of eCommerce trends data - by category - across their network of 10K+ merchants globally. We hope this info is helpful peripheral vision as our industry navigates this dynamic environment, and the team at Signifyd is happy to host deeper data reviews if helpful for merchandising, advertising or other decisions.

Turbo Boost your Magento site with Kadro's Site Analysis & Optimization Services

Cure your slow Magento speed headaches

Does your Magento site run slowly, inefficiently, out of sync or worst case not at all? The Kadro Team can help. Learn about our Magento Site Analysis & Optimization Service.

Kadro eCommerce Insights Newsletter: March 2020

Should You Build Your Own B2B Marketplaces?

This month we feature one of the best ways to grow your eCommerce customer base – B2B Marketplaces.

Malcolm Allen Our CTO, Malcolm Allen, is one of the foremost thought leaders in eCommerce strategy for the Magento Commerce platform and recently penned several insightful blogs posts. From the most important considerations in a move to Magento Commerce Cloud to best practices for improving your company's product onboarding workflow.

Quick Links

Building your own Marketplace can be a Reality

Adobe Commerce Talk Podcast Business buyers are shopping on Amazon more than ever before. Now, a growing number of B2B businesses are building their own marketplaces—and expanding their market share. If you want to be a leader and grow faster, it may be time to launch a marketplace of your own.

Join Shannon Hane, senior product marketing manager at Adobe, and Malcolm Allen, Kadro's CTO, for an enlightening podcast that covers the following:

  • What kinds of businesses should run their own a B2B marketplace
  • Why building a marketplace is not as hard as you think
  • How to recruit high-quality sellers to your marketplace

Moving to Magento Commerce Cloud? What primary concerns should you consider?

Building an Online Community Marketplace webinar on July 9th conducted by eTail with our client/partner MakerPlace, Adobe, and Kadro

Considering moving from an on-premise solution or from an alternate cloud hosting solution to Magento Commerce Cloud? We've got all the important points your business should consider.

How to Import Products into Magento for your Enterprise System

Import Prodcuts into Magento Enterprise

Complete eCommerce solutions often involve numerous enterprise systems working together. Most businesses struggle to get their product catalog's data done right during the creation of their eCommerce site and continue to struggle to manage their product catalog as new products are introduced.

Find out how Kadro can help you automate your product catalog workflow.

Kadro Coronavirus Trends Hub

Kadro Coronavirus Trends Hub

(powered by Signifyd)

(Editor’s Note: Kadro is partnering with Signifyd to bring you ongoing coverage of eCommerce trends data - by category - across their network of 10K+ merchants globally. We hope this info is helpful peripheral vision as our industry navigates this dynamic environment, and the team at Signifyd is happy to host deeper data reviews if helpful for merchandising, advertising or other decisions.)

Beauty and Cosmetics Enjoys Another Strong Week Online

The increase in eCommerce spending since pre-pandemic days appears to have settled in at about the 50% range despite the opening up of brick-and-mortar stores in many parts of the United States and elsewhere.

Overall eCommerce spending was down 1% for the week ending May 18, according to Signifyd eCommerce Pulse data. The week’s pattern in fact was much like the previous week. Eight of the 13 major categories that the Pulse tracks were down for the week, seven of them by single-digit percentages. The modest changes, both up and down, left eCommerce spending up 49% since the last week of February, which marks the pre-pandemic baseline for spending.

One standout category during the week just ended was Beauty & Cosmetics, which was up 21% for the week. The category has been making an uneven, but steady, climb since the first week of April, which left the category up 34% over the end of February.

Potential mini-trends reveal themselves deeper in the data. For instance, it appears consumers have become more confident that they will be able to find the supplies they need, as signs of stockpiling have abated. Sales in the subcategory of Baby Products dropped 20% last week and Consumer Packaged Goods (think paper products) and Pet Supplies were down 8% and 3% respectively.

The week also marked a subtle shift in how consumers were spending to support recreation and diversion. Consider the Leisure & Outdoor category, which has been a strong performer throughout the COVID-19 crisis. Sales are up 132% in the vertical since the pandemic began, largely due to the fact that it includes games, puzzles, video games and in-home workout equipment.

Weekly Change Trends by Vertical

Weekly Change Trends by Vertical

But if you plunge into some of the subcategories in the vertical, you see a glimmer of evidence that homebound consumers are focusing more on getting outside as the shelter-at-home and modified shelter-at-home days drag on and the weather improves. For instance, sales of media, toys, hobbies and games fell 1% last week. Meantime, consumers spent 16% more on the outdoor subcategory, which includes equipment designed for camping, hiking and fishing.

Industry Spotlight: Weekly Change Trends in Leisure & Outdoor

Industry Spotlight: Weekly Change Trends in Leisure & Outdoor

Retail analysts had been wondering whether one particular indoor venue would draw consumers with new-found freedom — stores. Non-essential retailers are opening up in more states, at least for buy online, pick up in store and curbside pick up. But polling numbers, anecdotal evidence and data show that consumers are in no rush to shop in physical stores.

Opportunity Insights, a Harvard University-based, non-profit research center, found that the opening of businesses in states such as Georgia, Texas and South Carolina had little effect on consumer spending. In fact, spending in those states contracted before non-essential stores were ordered closed and appear to have not loosened up even as stores are being allowed to reopen.

A recent Harris Poll found that 89% of those surveyed had concerns about returning to physical stores to shop. And a Washington Post / University of Maryland survey found that 67% of consumers were not comfortable with the idea of going into an apparel store.

Industry Vertical: Weekly vs. Cumulative Change

Yet, eCommerce continues to perform at peak-season levels, a pattern that we should see hold or increase as newly reopened stores rely on buy online pick up in store or at the curb, either to assuage customers’ fears or to adhere to local regulations.

Note on Methodology

The data shared here represents weekly trends across the Signifyd Commerce Network. It encompasses transactional and behavioral data across 10,000+ merchants and 100+ countries. All figures are normalized to the week of 2/25-3/2, as a representation of pre-Coronavirus “steady state” shopping volumes.

For ongoing data, please visit Signifyd’s eCommerce Pulse hub page.

I’m on Magento. What Extensions or Tech Partner do I work with?

No more frustration when choosing an SI or Extension

There are over 250,000 merchants on Magento for eCommerce. The vast ecosystem of Magento developers and technology partners is often a driving force for merchants to choose Magento as their platform for growth. One of the greatest benefits of Magento can also be one of the most daunting problems. At some point every merchant struggles with deciding on the right technology partner or extension to meet their need. With so many choices, how do you decide the right choice for your business?

Our clients engage the Kadro team regularly to help identify, evaluate, and integrate potential technology partners and extensions that can satisfy business needs.

So how does the Kadro team help our clients? We start by continually educating ourselves about the possibilities. The solutions and architect teams routinely meet with technology partners to understand their offerings and evaluate whether their solution aligns with any known customer needs. Some of these technology partners we enter into a formal relationship with as you can see on our partner page. Formal relationships provide us better access to technology partner resources and support that we can leverage to benefit our clients.

The solutions teams working directly with clients internally share their experiences, positive and negative, with third party extensions. Kadro uses those experiences to advise clients on what extensions or extension providers to avoid, and which ones clients have had more positive experiences with.

Selecting the right technology partner can be very complex. Is there a cost difference? Are there functional differences? How well does the technology integrate with Magento without development? Can the technology solution also integrate with other systems in our technology stack? So how do we do it? We help separate the sales pitch from the offering. As an example, below is a list we use when our clients are evaluating Digital Marketing Platforms (formally called ESPs – email service providers). These same criteria can truly be used for any technology partner/extension with a few tweaks. Also listed are some unique points on each bullet that we ask our customers to consider.

  • Presales and Sales Engagement
    • The buying journey for consumer, and even businesses, is an emotional decision. You have to feel strongly about a vendor that you are going to partner with for 3+ years.
  • Eases of use of the technology platform
    • How much training will you need to work on the platform? Is there an additional expense to get training?
  • Integration capabilities
    • Out of the box the solution should integrate with Magento, but what if you need to connect to your ERP, OMS or other 3rd party systems. Can this be done? What is the level of effort to make that happen?
  • Account Team/Support
    • Who will you be working with on a day-to-day basis? What is the escalation path when you have issues? Are you comfortable working with these people? By default their team will become an extension of your team.
  • Professional Services
    • Should you need additional help in creative, copywriting or enhanced strategy can they help you? If so what are the associated costs?
  • Overall digital marketing tools
    • Will the tools presented enhance your customer interaction today, tomorrow and into the future?
  • Maturity of the platform and growth potential
    • How long has the partner been in business? How many clients do they have? What is their churn rate?
  • Proposed Contract length
    • Are you looking to kick the tires or make a long-term decision? How does this affect your budget?
  • Access to partner executives
    • Do you have access to the partner executives? Do you need it?
  • IP address warming strategy
    • Very email specific, but this is mission critical for any company who has switched ESPs.
  • Deliverability Service (inbox placement)
    • Again email specific, but very important.
  • Product roadmap
    • What does the future hold? Does their roadmap that resonate with yours?
  • Current Kadro customers’ feedback
    • This is the best! Hear from real life customers who are not references given to you by the sales team. We have found this to be a great way for merchants to talk to other merchants and have a true conversation about the partner being evaluated.

Hopefully the above process resonates with you. This is the service we strive for at Kadro. If you have questions regarding the Magento ecosystem, are looking to build a Magento eCommerce store or seeking a new Magento Partner to help you maximize your investment in Magento contact us here at Kadro!