Inventory Model Vs Marketplace Model of E-commerce: What Should Brands Do?

March 27, 2023 Written By M-Connect Media

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inventory model vs marketplace model

The inventory model vs marketplace model of e-commerce are crucial aspects of the e-commerce business. However, they serve different functions in the market. Both marketplace platforms and online storefronts have evolved into effective e-commerce company models in the digital economy.

The most significant change e-commerce firms face is the transition from an inventory model approach to a marketplace model for inventory management. Marketplace platforms and online storefronts have matured into effective e-commerce company models in the digital economy.

Although they perform different purposes in the market, the inventory-led and marketplace e-commerce models are critical components of the e-commerce industry.

Both models are large and offer several benefits to merchants. Let’s look at each of these models to see how they might help businesses thrive.

What is Marketplace Model?

The marketplace model refers to the business strategy in which e-commerce marketplaces provide numerous vendors with a centralized platform where they may sell their items while engaging with potential buyers.

Marketplaces are platforms that allow a big, dispersed group of consumers and sellers to discover and deal with one another in an efficient, transparent, and trustworthy environment.

E-commerce platforms that use this approach are not responsible for stock management or order fulfilment services. Sellers get control over the whole process, from inventory management, pricing, and packing to sending items to end customers.

With a marketplace approach, online merchants may improve their product assortments, expand sales channels, and increase profitability while taking on less risk. As a result, sellers may concentrate more on their core strengths, such as providing relevant items to clients that improve the customer experience.

The marketplace model is distinguish by the fact that e-commerce companies such as Flipkart, snapdeal, and Amazon, among others, will provide a platform for customers to engage with a limited number of vendors.

What is Inventory Model?

The Inventory-based model is one in which e-commerce platforms hold inventory from brands, merchants, and sellers and sell it directly to customers. Inventory-based marketplaces manage the stockpiles of their vendors, assisting them in order fulfilment.

Sellers that want to use marketplaces with an inventory-led approach receive full-service fulfilment. Marketplaces offer them advantages such as speedier delivery, greater quality control, inventory management, and order fulfilment.

The essential characteristic of the inventory model is that the client purchases the product from the ecommerce company. He oversees inventory (product stock), interacts with clients, organizes logistics, and is involved in all parts of the firm.

In such setups, the marketplace, like Amazon, acquires inventory from sellers and brands and stores it in the warehouse. E-commerce purchases and sells to a large audience, and logistics are engaged in every part of the e-commerce business model.

Inventory models address the time when orders for certain commodities should be placed and the order size. However, when the vendor sends the products to the marketplace’s warehouses, they must meet a few conditions.

Also Read: Ecommerce Personalization – A Complete Marketing Guide to Boost Sales

Advantages of A Marketplace Model over An Inventory Model

The marketplace and inventory-led model are both essential parts of the e-commerce sector. However, it performs various market tasks. Adopting a viable business model demands the creation of novel methods to improve customer experience to boost business growth.

In the e-commerce business, the inventory model has given way to the marketplace model. The companies boost their earnings by minimizing their financial risks. The marketplace concept has gained popularity among sellers worldwide in the digital landscape.

The following are the advantages of using a marketplace business model of inventory for an e-commerce marketplace:

1. Expanded Reach

Marketplaces have a well-developed client base, and individual brands/sellers may leverage it, saving time and money on marketing. They have a well-established network of third-party logistics providers, which allows brands and sellers to ensure efficiency in the last mile.

Online marketplaces offer a pre-existing user base, and merchants and individual brands may focus on product development and improving the shopping experience.

Sellers have greater control when they use marketplace-based systems since they can engage directly with customers. These suppliers may give a consistent client experience by leveraging a reliable platform.

2. Improved Capital Use and Efficiency

Effective capital investment management leads to increased cash flow, faster business expansion, and more competitive advantage. Traditional e-commerce enterprises were particularly capital-intensive, necessitating the construction of massive storage facilities and administrative, warehousing, and logistical costs.

The inventory management marketplace model now distributes this duty to various suppliers, making the organization more sustainable. Sellers are in charge of their products, whereas Marketplaces are in order of the platform and logistics, giving them greater control over the supply chain.

3. Better Customer Data Collection

The orders are directly send to the vendor, and they have total access to client information. Brands/sellers may assure faster order fulfilment and improved customer service by implementing Increff WMS for efficient warehousing and faster order processing.

They can forecast items for the future season based on regional demand. To avoid fraud, all such data must be kept in a safe and secure location. Faster order services result from good warehouse management.

The demand for the items is examined by area to meet client satisfaction and deliver customer-oriented services. Moreover, Even customer service considered to ensure that the process runs smoothly.

4. Extremely Scalable

The seller indicates multiple sales channels on-screen to control inventories using modern technical solutions such as Increff WMS. Sellers may improve inventory visibility, higher sales, better margins, and more substantial cash flow without segmenting or blocking goods for a particular channel.

The latest technology accepts orders from any channel in real-time, and stock is withdrawn from the shop to improve inventory visibility. This type of technique also assists in the reduction of additional costs that may build even during peak sales seasons.

5. Improve Brand Awareness

Brands want online platforms that use marketplace models to meet client expectations and go above and beyond to improve customer experience. However, with the inventory model, merchants have less influence over the process because the marketplace controls everything.

Retailers benefit from increased brand awareness and product positioning by engaging with a broader range of target groups and demographics. They may manage inventory and design items depending on consumer demands to increase the value of their brand.

Also Read: Importance of SEO For Your eCommerce Website: An Ultimate Guide

Marketplace Model’s Problems Solutions for Brands and sellers

  • WMS provides 100% accuracy to manage inventory management properly.
  • Sellers use standardized data to execute marketplace services and keep the work process flowing. WMS develops a single platform idea to control the sales funnel considerably.
  • Real-time inventory management is based on synchronizing features to manage the marketplace effectively.
  • To give a better client experience, the inventory models are managed and updated frequently.
  • The tech solutions lead the way in a massive way to handle millions of interactions among sellers. And marketplace to operate the process flawlessly and avoid problems.

Winding Up!

Multiple factors indicate that e-commerce firms are transitioning toward the marketplace model, with scalability and profitability being the key drivers. Moreover, Online marketplaces anticipated to outperform traditional retail by $7 trillion by 2024.

Customers and brands want simplicity and a dependable online platform for selling and buying things. The expanding brands also enhances whole purchasing experience as main e-commerce business strategy. In this scenario, marketplace approach is gaining traction over the inventory model.

IF you Need help setting up the price of your eCommerce store products? M-connect Media can help you here. We have in-house eCommerce consulting services with a year of experience and expertise who can help guide you on the ideal price of the products. Contact us now!

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