Marketplace or dropshipping: which model to choose?

In the e-commerce ring, two key concepts clash. On our left are marketplaces. On the right, dropshipping.

But are these two models (really) vying for the attention of online shoppers? What are their differences? Are they complementary? And above all, should you choose marketplace or dropshipping to sell your products online?

Follow the guide, and find out all the answers from Rakuten in this article. On the program:

• Marketplace and dropshipping: definition
• Marketplace vs dropshipping: what are the differences?
• Why choose the Marketplace model?
• Dropshipping and marketplaces... How can they complement each other?

Marketplace and dropshipping: definition

What is dropshipping?

Dropshippingis a form of e-commerceinwhichthe seller has no stock of products. The system is simple: a customer places an order on an e-commerce site, which then transfers it to a wholesaler (supplier). This supplier then ships the goods to the consumer.

In this system, the seller is merely an intermediary. He does not handle inventory management or shipping. However, he remains legally responsible for the sale of products and commercial transactions.

Very popular in recent years, the drop shipping market was estimated at around $128 billion. Now booming, it should reach $301.11 billion by 2024 .And according to forecasts by Grand View Research, dropshipping is set to continue expanding: annual growth isestimated to rise by 23% between 2023 and 2030 .

What is a marketplace?

Amarketplaceis an online platform that facilitates contact between buyers and sellers .On this multi-seller site, brands can sell their products or services online, usually for a commission or monthly subscription fee.

The system is as follows: merchants create an e-shop on the marketplace to sell their products. They manage inventory and order dispatch. Some marketplaces, such as Rakuten, also offer tomanage logistics, thanks to the Rakuten Fulfillment Network .

In other words, the marketplace is a large digital shopping mall. Each store inside represents a partner vendor. Visitors (or web users) can stroll from store to store... without disconnecting from the marketplace.

Does this business model appeal to you? You're not alone. More and more e-merchants are choosing to sell their products through a marketplace, to gain greater visibility, multiply sales opportunities, secure transactions and simplify logistics processes.

The results? In 2020 alone, marketplace sellers increased their sales by an average of 24% on this channel. Growth was twice that of e-commerce (according to a Mirakl study, 2021).

Marketplace vs dropshipping: what are the differences?

1. Bringing buyers and sellers together

In dropshipping, this is the e-merchant's mission: to create a website, promote his products... and attract buyers. Although the stock of goods is released by the suppliers, it's up to the distributor to sell the products, from their own website. Marketing costs are therefore higher than with a marketplace.

A marketplace, on the other hand, facilitates the relationship between buyers and sellers. Internet users can discover different e-shops in a single location. Rakuten, for example , has 13 million loyal buyers. All e-tailers have access to this large-scale community, to boost their sales!

2. The players involved

Dropshipping and the marketplace are two tripartite models... but they don't involve the same buyers!

On the one hand, dropshipping involves a seller, a supplier and buyers. The seller sets the selling price, based on the purchasing costs negotiated with suppliers.

On the other hand, a marketplace like Rakuten involves a platform (or operator), third-party sellers and buyers. It's the sellers who manage their offers, prices and sometimes even logistics. Whether it's a B2B or B2C marketplace, the players involved remain the same.

3 . Customer acquisition costs

Customer acquisition costs are a very important e-commerce KPI. The higher this cost, the more the company has to invest to attract customers to its e-shop.

Dropshippers are considered to have a higher acquisition cost. Indeed, e-tailers need to invest in marketing, and mainly in social ads, to attract traffic and generate sales on their store.

On the other hand, marketplace e-tailers benefit from a strong audience. At Rakuten , 15 million unique visitors visit our marketplace every month. Sellers benefit from this continuous flow of customers to their ads, and save money in the process.

Example of an ad on the Rakuten marketplace

4. Logistics

Drop shipping doesn't always get good press in the eyes of consumers. One of the main reasons? The lack of transparency in logistics. Indeed, many buyers purchase a product without knowing that the sender is not the brand, but a supplier (often located on the other side of the world).

Suppliers ship products in the distributor's name, giving the impression that the product comes from the distributor. Delivery times are generally long.

Conversely, in a marketplace, the seller ships the product directly to the customer. Logistics are simpler and more transparent. With some platforms, such as Rakuten, e-tailers can even outsource logistics, on a long-term basis or for more occasional needs .

Our tailor-made logistics service supports your e-commerce expansion, without compromising customer delivery times. With Rakuten Fulfillment Network, 99.8% of orders placed before 2 p.m. are delivered within 24 hours, to satisfy even the busiest shoppers!

5. The business model

A drop-ship e-shop enables e-tailers to collect the total amount of orders placed. They then pay their suppliers. The dropshipper's profit margin is the difference between the purchase price and the selling price. Onaverage ,the profit margin varies between 45% and 65%, depending on the nature of the items sold and supply conditions .

In the marketplace, the business model is as follows: the marketplace takes a commission on sales by third-party sellers, in addition to any other fees (registration fees, subscriptions, sponsored links).

At Rakuten, our 12,000 sellers can choose between two offers :

• The starter pack, free with commissions starting at 14%
• The expert pack, €49 per month with commissions starting at 8%

Our first freemarketplaceoffer is ideal for getting started in e-commerce :

"The Starter Pack aims to facilitate access for small businesses, looking for a complementary audience, to the Rakuten platform, its ecosystem of services and its community of active members. It's in line with our promise of 'e-commerce that puts everyone on the same page', whether you're a young pure player new to the market or a long-established local business", explains Matthieu Denime, Sales Director at Rakuten France.

6. Customer service

Late delivery? A problem receiving a parcel? A question from a buyer? All these situations require the intervention of an e-commerce customer service department. In fact,itisestimated that 5 out of 10 French customers contact a customer service department for a question or an update on their delivery or order (source: Essendex survey, 2023).

In dropshipping, the distributor manages customer relations and customer service, including returns, which it then passes on to suppliers. In many cases, a contact form is set up for after-sales service.

On digital marketplaces, third-party sellers also manage returns and after-sales service. However, if they choose a marketplace like Rakuten, they can entrust us with the management of after-sales service. Rakuten Fulfillment Network takes care of resolving any logistical problems encountered by consumers. Meanwhile, sellers can concentrate on what they do best: selling.

Why choose the marketplaces model?

Ready to embark on your e-commerce adventure, and join the 207,000 online stores in France? Here's our advice on how to set up your online store safely: opt for the marketplace model to develop your e-shop. And if you're wondering "why choose the marketplace model?", here are our answers:

1. High visibility

When you join a marketplace, you're not starting from scratch to find your first buyers. On the contrary: you benefit from an already established reputation, which makes it easier to build your brand image and sell your products.

For example,Rakuten attracts 15 million unique visitors a month and 13 million recurring buyers who are members of Club R. Ideal for our 12,000 professional sellers!

2. Transparency and trust

Unlike dropshipping, marketplace customers know where their products come from. As a seller, this makes it easier to build a relationship of trust, based on transparency. This trust is the foundation for greater customer satisfaction, which in turn increases customer loyalty.

Good news for e-merchants in the marketplace, who can then make trust rhyme with growth: a 5% increase in the loyalty rate can lead to an 85% increase in profits, according to a Harvard Business Review study.

3. E-commerce highlights

Selling your products on a marketplace means taking advantage of a number of highlights, which increase traffic and sales. Infact, marketplaces organize sales events according tothe seasonality of their sales: sales, Black Friday, Christmas, Mother's Day, Valentine's Day... What's good for e-tailers at these key moments? Promotional efforts are managed by the marketplaces!

To make sure you don't miss any key dates, and to optimize your online sales strategy... Discover our 2024 e-commerce highlights guide .

4. Ongoing adaptation and monitoring

When you choose to sell on a marketplace, you benefit from total flexibility. You can quickly add new offers, enhance your bestsellers and adapt to market trends. And if a product performs less well? You can remove it in just a few clicks.

You're the captain of the ship. You navigate, you make the decisions... But you're not the only master on board! If you need advice or support to improve the quality of the service you offer your customers, some platforms like Rakuten put a dedicated team at your disposal.

At Rakuten, your store is monitored by an e-commerce consultant, who is on hand to share advice and help you boost your sales over the long term .

5. Healthy competition between sellers

On a digital marketplace, third-party sellers set their own prices. This enables dynamic updating of offers, in line with market variations. The result? This flexibility ensures constant competitiveness and rapid adaptation to changes in demand.

In order not to hinder this healthy competitiveness between the players on its platform, Rakuten has a bias: unlike other marketplaces, we don't sell our own products. By choosing a marketplace like Rakuten, you choose to sell freely... without competing with our platform, which hosts your e-shop. Our efforts are dedicated to showcasing your products, to guarantee your success.

Dropshipping and marketplaces... How can they complement each other?

Are dropshippers really the enemy of marketplace e-tailers? At Rakuten, we believe it's possible to bring together the best of both worlds. That'swhy, unlike many marketplaces, we allow our sellers to practice dropshipping, under certain conditions .

The main condition is the existence of a legal entity. This is essential to enable third-party sellers to benefit from the advantages of our marketplace, and to build maximum trust, especially with our 13 million loyal buyers.

So, whether you're a professional dropshipper or not, you now know which lever to use to launch your e-shop: a marketplace like Rakuten. By opting for a 2.0 marketplace, youbenefitfromincreased visibility, optimized offermanagementanda relationship of trust with customers .

With Rakuten Fulfillment Network, you can even outsource your logistics. So, are you ready to enjoy rapid, sustainable growth online? You're just one click away from all these benefits: