I often get asked this question so I thought I would take this opportunity to explain the differences between Marketplace and Dropship and why we think the choice we made was the right decision. Well, it is no longer about thinking, the proof is in the pudding, the launch of our marketplace has been a great success!
So what’s the difference?
Dropship has been around for a long time. It is an arrangement by which the supplier sends goods from their distribution centre directly to the customer. The retailer who sells the product is still liable for the product and is also responsible for setting up retail prices, creating content, images, refunds and all other aspects of customer service. More than anything it is a logistics solution but everything else about the basic retail fundamentals remain the same.
Marketplace is a totally different model in which the marketplace platform is only responsible for facilitating the transaction (showcasing the product and collecting the funds) whilst the marketplace seller is responsible for everything else – setting up prices, uploading images and content, delivery of the goods, liability for the product and customer service. It is a highly scalable and capital light model which has allowed Catch to increase our SKU range from 30K a bit over a year ago to more than 1.9M products today.
But as mentioned above, all this “extra work“ by the seller is rewarded with a higher margin. This is also why companies such as Amazon, Walmart, eBay, Aliexpress, Best Buy and others have chosen Marketplace and not Dropship as a scalable model.
For more information on the difference between these models, download the eBook.
Why would an online shop prefer to use the dropship model when dealing with a product seller?
The answer is simply a much higher margin. Let's use as an example of a rug seller selling a $100 rug and working on a $40 margin. Using a drop ship model, the rug seller will pocket $10 and the retailer will pocket a $30 margin. When the same seller sells on a marketplace like catch, the seller will pocket $30 while the marketplace will clip a $10 ticket.
As a result, marketplace sellers can offer a significantly better price. In addition the set up of a marketplace from a technology point of view is significantly more complex as outlined below.
Technology is key
At the core of our marketplace sits the technology that facilitates high volume of transactions as well as interaction with marketplace sellers. There are several pieces to this and it includes building seller portals, financial and reconciliation systems, customer service processes to deal with customer enquiries, monitoring data to improve performance of sellers. This is in addition to an entire data platform that provides sellers with information about their performance and how they can improve.
One of the key technologies we use for our marketplace is Mirakl which also supports marketplaces such as Best Buy Canada and Walmart Mexico. In the 2018 Mirakl Summit Catch won the Fastest Launch award. According to Mirakl, Catch had the fastest launch in terms of growth and total GTV in all of their marketplaces launched to date.
This is a result of the great work that the tech team has done as well as the business development team and Marketplace management.
Another key feature of marketplaces is the level of integration between our marketplace technology and aggregators such as ChannelAdvisor, Intelligent Reach, Omnivore and others. These aggregators have been great supporters of Catch and we thank them for coming on this journey with us. In the case of ChannelAdvisor their strategy is only to align with the biggest marketplaces which is why they are only integrated with eBay, Catch and Amazon in Australia.
Why the marketplace worked so well for us
From the early days of selling one product a day, Catch was always a diversified retailer. One day we sold a laptop and the next day we sold a quilt. Our customers love shopping across many categories and they don’t associate us with just one or two categories, so introducing millions of new products across a variety of categories was a natural evolution of our business - and our customers love it!
A recent survey by Paypal suggests that about half of online shoppers already choose marketplaces as their number 1 shopping destination. A great range is a key success factor for any online retailer. We managed to expand Catch’s range from 30,000 products to 1.9m SKUs without adding any inventory risk. We also noticed that since launching our marketplace our AOV (Average Order Value) has also increased from $95 to $114, which really tells us that more customers are finding more of what they need.
I am very proud to add that catch.com.au is now one of only three major marketplaces in Australia with eBay and Amazon.
Curated marketplace and the future
One of Catch’s differentiating points is that we take a curated approach to building our marketplace. We do not accept just any seller to our marketplace. We go through a vetting process in which we decide whether the offering includes a value proposition that fits the Catch DNA and only if it does, do we let the marketplace seller come on board.
The continued growth in our marketplace will come from continuing to grow the range and number of sellers, as well as improving our curation and our merchandising to optimise and perfect the customer experience. The journey has just begun, and the opportunity is massive.
Jeff Bezos said: "Marketplaces are eating the world." Whilst I don’t agree with everything that Bezos and Amazon I do have to agree that marketplaces are already dominating - and will continue to lead - the front of online retail.
The bottom line is always about the consumer:
Marketplaces appeal to consumers as they provide a broad offering across multiple categories at competitive prices. At Catch we are so happy to have chosen the path of marketplaces 2 years ago as we have managed to achieve so much over this period and be miles ahead of our nearest competitors.
Happy online retailing!
For more information on the difference between marketplace and dropship, download this handy guide.
Written by Nati Harpaz
Nati Harpaz is the CEO of Catch Group, one of Australia’s largest pure eCommerce organisations. After focusing the business on its core capabilities around products Catch has launched a marketplace which help boost the growth Catch has been enjoying recently. Nati’s background includes Law, Information Technology, Retail, Media and generally everything digital. As an entrepreneur from a young age he has had various experiences across multiple industries.