Pros and Cons of Marketplace and Inventory based model of eCommerce

Pros and Cons of Marketplace and Inventory based model of eCommerce.

The recent announcement by government regarding 100% FDI allowance in marketplace eCommerce model, has set a buzz in the market. Before we analyze the effect of the announcement on your business and economy as a whole we need to understand the basic about both the models in effect and their related pros and cons.

Marketplace model Marketplace model of eCommerce refers to a system where the eCommerce entity allows its platform to be used by a vast variety of sellers (like small sellers and entrepreneurs) to connect with buyers across the length and breadth of the country. This help them to gain access to larger market and hence enhances their profit margins. The eCommerce entity on the other hand, drives a defined percentage, of profit from the overall profit of the seller. The seller has to register with the eCommerce website and is then allowed to use their platform for selling his products.

In marketplace model, their are two variations. In one the seller takes the responsibility of packaging and dispatching, while in the other the seller takes the responsibility of packaging while the dispatching aspects rests with the marketplace entity.

Inventory based model In inventory based mode of eCommerce, only one party is involved in the entire cycle and that is the eCommerce website, itself. They use a warehouse stocked with various products that are sold on their platform to meet the requirements of the sellers. In case of shortage of supply or unavailability of product they procure from the seller or manufacturer directly and then forward it to the customer rather than allowing the seller to directly interact with customer.

Advantages of Marketplace model over Inventory based Both the models have their own advantages and drawbacks. The advantages of marketplace are mentioned here.

1. Reduces the logistical complexity for the eCommerce entity.

2. Allows small and medium sellers to reap the benefits of digital arena who otherwise can’t afford to have a digital platform of their own 3. Transparency is ensured in the entire process as the rules and regulations are same for all the sellers thus promoting healthy competition, moreover the customers also know with whom they are interacting.

4. Provides a wide variety of product range to the customer, thus attracting more conversion rate optimization.

Advantages of Inventory based model over Marketplace model The Inventory based model too enjoys certain advantages which are seen wanting in the marketplace model.

1. Helps you to keep a check of the stock which provides you with an idea to keep the arsenal updated in tune with market demand.

2. Seamless delivery process, as only single party(eCommerce entity) is involved in the entire transaction.

3. Helps to maintain the uniformity of services for almost all the customers, which act as boost in building market reputation for the company.

4. Uniformity in quality standards is also maintained.

Conclusion As from the above discussion it is evident that both the models have their own benefits and wanting. It depends upon the nature and size of a business while going for any one of them.However the advantages that the Marketplace model enjoys due to its inclusive and varied nature can’t be bogged down and in the long run it has a chance to edge past the inventory model.