Which eCommerce model is the Best? Open Marketplace or Inventory-Led or Inventory-Less
India has an Internet users base of about 450 Million as of July 2017, 40% of the total population. It is expected to cross 500 Million at the end of June 2018. India is the second-largest user base in the world, only behind China. But the penetration of eCommerce in India is low as compared to markets of U.S, or France. eCommerce in India is spreading very fast and it has different models. Actually, eCommerce models are the way of doing business in the online platform. The three main models of eCommerce in India are: first is the Online Marketplace and the second is the Inventory-Led Model and the third is Inventory-Less Model. In this post, I will discuss the eCommerce model in India, which model is the best for a business and their benefits.
Indian eCommerce started when eBay was entered into the industry. Snapdeal was the first eCommerce company in India to turn to a Marketplace model. Then after Flipkart and Amazon totally transformed the Inventory-Led model to the Marketplace model.
Now, let’s try to understand the differences between the Marketplace model and the Inventory-Led model of eCommerce.
What is a Marketplace Model?
A Marketplace model is an online store where multiple vendors come together to sell their products and services to make the profit. In another word, it is a type of eCommerce that helps sellers and buyers to find each other online and hence they can interact. Amazon, Flipkart, eBay, Snapdeal etc are the examples of Marketplaces.
The main feature of marketplace model is that it provides a platform for customers to interact with a selected number of sellers. When a customer purchases a product from Flipkart, it means he doesn’t buy it from Flipkart. Actually, he is buying it from a registered seller in Flipkart. The product is not directly sold by Flipkart. Here, Flipkart is just a website platform where a consumer meets a seller.
The Stocking of Product and Pricing is done by the respective sellers and not by the eCommerce website. In this case, there are chances that customers will find different price options and shipping options for the same products, depending upon the seller from whom they choose to buy the product. Inventory, Stock management, Logistics etc are not involved in this model.
In Summary, in this model:
* Marketplace (eg. Flipkart, Amazon) acts as a medium for Sellers to sell their products to the Buyers.
* Invoices are issued from Sellers to the Buyers directly.
* Marketplace charges some commission to the Sellers on products listed/sold in the Marketplace.
* Marketplace finds many sellers who want to sell their products through its website.
* Marketplaces don’t need to stock products or even worry about maintaining the inventory.
* Marketplace just has to bring more customers to its website and help them in making transactions.
* The marketplace needs costs for day to day running and maintaining its website.
* It needs to run the advertisements of the seller’s products, which costs more.
* Sometimes, Marketplace applies low transaction fee to the sellers, as a result, it bears a loss.
What is an Inventory-Led Model?
In this model, Retailers or Company sources the products directly from Brands or Sellers and then Stock these. There are no multiple sellers selling one product. The Seller is the eCommerce company and invoice is issued to the customers on the company’s name.
This model is considered good if you have enough money to buy all the stuff at wholesale price and then sell it forward according to your own set price. Yes, here you can earn a more profit but still, you have to stock everything. BigBasket, YepMe, Jabong etc., are the examples of an Inventory-led model.
In Summary, in this model:
* eCommerce marketplace (eg. Jabong) purchases the goods from the Sellers and sell them to the Customers directly.
* They have to stock the purchased products before selling to the customers.
* Marketplace issues Invoice directly to the customers for the products sold.
* More benefits because sellers are their own owners.
* Sellers can stock more products and earn more profits.
* All the products are in sellers inventory and they can manage these easily.
* The most important problem here is that sellers have to stock everything.
* Sellers have to invest lots of money in buying products at a time.
* Another cost is to maintain an Inventory which will incur the cost as well as rent, worker, light etc.
Besides these explanations, especially here is face to face comparison of these two eCommerce models:
Pros of these two models:
Wide products & a Large number of Sellers
Better Quality Products & Services
Investor Friendly Model
Better Customer Experience & Trust
Cons of these two models:
Difficult to check the Quality of Products
Difficult to Scale
Shipping Costs are Higher
High Fixed Costs
Difficult to build Customer's Trust & Loyalty
Everything has to Stock
What is an Inventory-Less Model?
Is it possible to run an eCommerce business without an Inventory? Yes, it is possible through Dropshipping Model of business. The best part of DropShipping model is that there is no any type of restrictions for any particular country. In addition, one can manage this business from anywhere and any part of the world.
DropShipping helps you to manage your online store without any hassle or tension of managing the entire inventory. You just have to create an online store and display the products you want to sell. After this whenever a customer orders from your store, you just have to forward the order to the Drop Shipper. After this, they will pack and ship the product to the customer directly. In this whole process, your role is only to showcase the product on your online store and maintain a relationship with your customers.
Benefits of doing business through Dropshipping are:
* It is easy to Set Up the Business
* Lower Capital Requirement to start the Business
* Location Free Business Model
* Wide Range of Products Selection
* Risk-Free Business Model
* Highly Scalable
* Reduced Losses of Damaging the Goods during Shipment
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