Dropshipping Won’t Sustain Your Online Marketplace

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Dropshipping Won’t Sustain Your Online Marketplace

By Adrien Nussenbaum - 04/26/2017

With the ongoing success and continued dominance of Amazon, retailers are finally coming to the conclusion that to compete and, ultimately, survive, they need to create their own online marketplaces. Unfortunately, they’re going about it all wrong.

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Recently, retailers like Crate & Barrel have announced that they’ve created online marketplaces using dropshippers. Dropshipping has its place in the e-commerce world, allowing retailers to expand their online offerings without stocking inventory and shipping products. Dropship is a convenient, reasonably efficient and a fairly well established option, but with a much smaller scope and scale than a marketplace.

A “marketplace” with only dropship vendors is not really a marketplace at all. In a marketplace, it is transparent that third party partners sell, fulfill and service the products. With dropshipping, the retailer is still the seller of record, and responsible for any fulfillment or customer service issues that arise.

As such, dropship business models can suffice for a small number of large retailer-manufacturer relationships, such as for core products that are difficult to fulfill but closely fit the retailer’s omnichannel strategy. Dropshipping, though, has serious limitations when it comes to scalability, integration, flexibility and customer experience.

Scalability

Dropshiping allows retailers to add a limited number of new products to their online offerings. However, the model won’t allow a retailer to onboard hundreds of thousands of SKUs to quickly fuel product assortment expansion in the industry. Dropshipping can support a certain amount of expansion but once that limit is reached, retailers will be left looking for another model to continue growth.

Integration

Retailers operating a traditional drop ship model must absorb the costs and pain when adding new supply partners. A makeshift dropship operation won’t allow for the easy integration of back-end processes and systems with multiple suppliers, driving up costs and complexity. Worse yet, many dropshipping vendors use outdated EDI (electronic data interchange) technology, limiting the reach of the model and slowing down integration time.

Flexibility

Given the complexity and costs of adding new dropship partners, it is difficult to bring on new vendors. This limits the retailer’s ability to test new relationships and product categories, further preventing the retailer from quickly and effectively growing and expanding their marketplace options.

Customer Experience

Perhaps most importantly, dropshipping can lead to a disjointed customer experience, creating confusion for a retailer’s loyal shoppers. Because using dropshipping is operationally complex and can drive up internal costs, retailers may integrate their order and customer management systems with those of dropshipping vendors and ultimately pay the price in bad customer experience. Differing customer service standards can lead to additional problems and confusion. Dropshipping also limits the retailer’s control over and visibility into the post-purchase experience. To be successful, the retailer must maintain control at all times over the entire customer experience, including how transactions and communications take place.

When Jeff Bezos launched Amazon more than 20 years ago, no one could have predicted the impact the then bookseller would have on the emerging e-commerce industry by creating the online marketplace model. While dropshipping is a good start to taking on Amazon, retailers can’t stop there. A true online marketplace created using a robust purpose-built platform is the only real way to survive in an Amazon world. After all, Amazon has proven that this model is what works best. Why fix what’s not broken?

By Adrien Nussenbaum, U.S. CEO and co-founder, Mirakl