In today’s Now Economy, customers are gravitating increasingly toward the “I see it, I want it, I’ve got it” retail model — while at the same time they’re more intent than ever on making purchases that support their personal values. In other words, consumers don’t just want the perfect pair of black sneakers delivered to their doorstep in 24 hours — they may also want those sneakers to come from a company with a low carbon footprint, or from a brand that supports social-justice causes, or from a Black-owned business in their local area.
Retailers are scrambling to adapt to this exponentially expanded consumer dial tone. While companies are certainly collecting more and more data, data alone can’t drive this level of hyper-personalization — especially not in a traditional wholesale retail model. It’s simply not practical to stock millions of items in a warehouse, curate them at the individual product level, and put them in front of the right shoppers while still turning a profit.
As a result, many retailers are seeking to scale up their selection through models like drop ship and marketplace. But while these approaches can help reduce the supply chain costs of stocking and shipping millions of single items, they also have many retailers questioning their roles. Do retailers risk becoming an undifferentiated “everything store” instead of the unique brands they’ve spent decades building? Does a marketplace model mean relinquishing control of curation — and would a drop ship model help maintain more of that control?
The truth is, it’s not an “either-or” proposition. Although many retailers have constructed conceptual walls between drop ship and marketplace, those mental barriers get in the way of innovation, because they lock a marketplace into what it currently is rather than what it can be. So let’s take a look at how marketplace and drop ship can be unified into a single flexible, data-driven model for going to market.
Shift Your Thinking and be More Flexible to Meet Changing Customer Needs
Whether you call your model “drop ship,” “marketplace,” “concession,” “consignment,” or any combination of the above, you’re really talking about the same thing: selling other brands’ inventory through your storefront with the goal of serving every customer on their own terms. In fact, all these models share the same core principles in common:
- The retailer generates demand and brings in consumers.
- Brands produce inventory and absorb storage costs.
- Suppliers ship products directly to consumers, while things like shipping costs, commissions or fees are negotiated.
So to ensure you’re optimizing your business model to best meet the needs of consumers, you can (and should) combine both these models into a unified go-to-market that brings together the best of both worlds: enabling you to keep control of the customer experience while scaling your selection and putting a personalized selection of products in front of every consumer.
In other words, you don’t have to adopt a “Wild West” marketplace model just to scale your selection cost-effectively — nor do you have to give up your brand’s unique position as a curator. However, you do have to shift your mental framework in some fundamental ways, and embrace the idea of a hybrid drop ship/marketplace model.
The good news is, if you already have a drop ship program, then you’re already doing 90% of what you need to do to make this hybrid model work. But to evolve most effectively and scale your inventory in a personalized way, you’re going to have to make four key shifts:
- Relationships — how will you empower your third-party brand partners to take point on curation while you stay in control of the overall customer experience?
- Ownership — who in your supply chain network owns specific areas of responsibility such as shipping, warehousing, and returns?
- Storefront — who’s responsible for putting products online, making sure all images and descriptions fit within your company’s brand story?
- Configurability — how do you optimize your selling model to suit the needs of your third-party brand partners while still delivering seamless customer experiences?
Let’s take a higher-resolution look at each of these four shifts.
Relationships: Empower brand partners to participate in flexible curation.
Many retailers fear that transitioning to a marketplace model means giving up control of the customer experience, and to some extent those fears are justified. Scaling up to an uncurated “Wild West” marketplace could very well spell the end of your brand’s status as a curator — so don’t scale into an uncurated marketplace. Instead, adopt a hybrid drop ship/marketplace model that enables you to access a third-party brand’s inventory through revenue share. This can empower you to curate at a brand level rather than an item level — or, depending on your needs, to curate all the way down to the product level when that’s a better fit for your strategy.
Ownership: However you handle shipping, maintain control of customer experience.
Just as a flexible curation model enables you to scale your personalized inventory while maintaining your role as curator, a hybrid fulfillment model will enable you to provide the seamless experiences your customers expect, while minimizing your cost burden for warehousing and shipping. One simple way to achieve this balance is to negotiate a relationship in which your third-party brand partners take care of storing and shipping each product but your customer service teams can process returns at your physical stores.
Storefront: Display third-party brands’ products through your familiar front end.
Another area of concern around marketplace is the fear of losing control of the customer front end — but again, this is only a concern for an uncurated marketplace. In a hybrid drop-ship/marketplace model, you can continue to operate the online storefront your customers know and love, and simply connect a backend that enables you to leverage third-party brands’ copy and imagery, modifying it as needed to fit your approach to customer experience.
Configurability: Tailor your selling model toward the objectives of you and your brands.
The battle of topline/bottom line is always top-of-mind at the C-suite level — no matter what, you’ll always have a need to sell a combination of owned and unowned inventory. But that doesn’t mean the selling model that makes sense for your organization has to fit within traditional boundaries. So structure your relationships with brands in ways that are configurable, enabling you to adapt to fit each brand’s needs, while enhancing the seamless customer experience only you can deliver.
By shifting your thinking in these four key areas, you can exponentially expand your inventory, more effectively manage and allocate costs and maintain control of your brand story as curator, and of the unique customer experience you’ve spent decades refining.
It’s all about unifying drop ship and marketplace into a single flexible model: one that brings together the best aspects of owned and unowned inventory and simplifies the product spectrum into an exponentially greater selection that you can curate in real time, so you can put the right products in front of every customer, every time.
Chris Koeppel is VP, Industry Strategy at CommerceHub. He has 16+ years of ecommerce experience, with a successful track record in designing and scaling inventory transformation models to enable retailers to expand beyond traditional wholesale. Previously an ecommerce architect for Nordstrom and significant brands within, Koeppel brings valuable understanding of alternative business models and optimizing retail reach with trusted partnerships. He is well versed in fulfillment services spanning physical and digital channels, advocating an omnichannel approach to get products closer to customers. Koeppel brings passion for unlocking innovative solutions to help brands and retailers truly deliver on customer expectations and thrive in the ever-changing retail landscape.