Magento e-commerce users, are you wondering how to spearhead a retail business from scratch or how to scale it up? Read on! This blog might throw some light on your problem.

With the paradigm shift in retail, it’s not surprising that a greater number of retailers, brands, and suppliers are flocking the online marketplace. However, to venture out, retailers must understand that at the core of retail businesses lie two primary business models for eCommerce. They are the Dropship and Marketplace.

Retailers using Magento commerce cloud must know about both these business models to make the best choice for their business.

What is Dropshipping?

Dropshipping is quite popular in the retail business. In this business model, the retailer offers the product for sale but doesn’t maintain a product inventory. Instead, they pass on the order to the wholesaler and manufacturer for fulfillment.

At a glance, the benefits of drop shipping might look alluring, but if we dig further, the challenges are no less.


Leveraging Magneto in Dropshipping

The good news is that with  Magento commerce cloud most of these problems stand mitigated. Processes become simple and automated in the dropshipping model. It is possible to write algorithms in Magento so that retailers find the best possible fulfillment hub as per the customer requirement. Also, Magento dissipates the chances of missed order information, because as soon as a customer places the order and completes payment, the order information automatically reaches the designated warehouse. Delayed payment is no more the pain point with Magento business rules since the payment to the wholesaler is immediate. Consequently, there isn’t any more delay in the product shipment process.

Confusion over returned goods is a major problem in the dropshipping model but with Magento capabilities, the challenges become less. For example, when there is a return, the drop shipper no more handles it, the responsibility lies with the retailer. But the retailer can’t afford a loss, so it is important to resell the product. Magento helps to create warehouses at the backend so that the returned product is mapped to the best-suited warehouse. It prevents the product from reaching its date of expiry while the retailer can maintain a certain profit margin.

What is Marketplace?

The concept of Marketplace is as simple as its name suggests. In the eCommerce world, an online marketplace is a website that sells products or services from multiple manufacturers or retailers. The biggest example is Amazon. In a marketplace, all transactions happen centrally from the marketplace operator but the individual vendors handle the deliveries, unlike drop shipping. Hence, marketplaces are not responsible for inventory, logistics, pricing, product images, or descriptions, instead, it connects sellers to customers.

But as the saying goes, ‘Nothing good in life comes easy’, similarly, there are some downsides of this business model as well. Refer to the table below:


Magneto Magic in the Marketplace Business Model

Product displays become much easier with Magento’s capability since they become visible based on the business requirement. It can be the price, the shipping speed, the seller rating, or any other criterion as specified by the marketplace admin.

Besides, Magento has configurable rules which allow the marketplace to act as the inventory, do the warehousing, and function as the fulfillment center simultaneously. The entire process is automated with configurable rules in Magento. The benefit is that a business that acts as a marketplace has multiple sources of income since they can earn money from the retailer as long as they maintain the inventory. Another biggest advantage of having Magento extension in a marketplace business model is that admins have access to the dashboard and can extract reports to find out the service quality of the sellers to offer customers a highly delightful experience. Besides, with Magento, the marketplace admin can either approve or reject seller requests based on the business rule compliance.

Dropshipping or Marketplace?

This piece extensively talks about the advantages and the impediments of both dropshipping and marketplace but, it isn’t possible to arrive at a decision on which retail model is better than the other. Both the business models have features that may be suitable for an individual business owner. For example, dropshipping works perfectly for the ones who have just entered the retail market and do not have a manufacturing unit, while the marketplace works best for an experienced retailer who is looking at the business expansion.

Whatever be the case, you would need the best industry minds who can help you attain your business goals with ease using the Magento capability. Give your business an extra edge, bring in Magento commerce cloud, and see the difference it makes.

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