Sunday, June 30, 2013

Inventory vs MarketPlace

'Inventory or Marketplace ?', this is one of the pertinent questions of our times in the context of ecommerce. While the inventory model means that the ecommerce site has to carry inventory of all products it sells, the marketplace model requires the ecommerce site to act as a exchange platform between buyers and sellers and it charges a commission. The upside of a inventory model is faster delivery times and a consistent customer experience while this also means higher inventory and supply chain costs. The marketplace model shift most of the inventory risks and costs to the sellers but it becomes a continuous challenge to manage seller and buyer expectation in a consistent and fair manner.

Though both models look like chalk and cheese, it is important to remember that that the basics are the same from a business model perspective :

1) Efficient Inventory Management - For a great customer experience, having just the right amount of inventory is very important. Nothing is as annoying as telling a customer after two weeks that his or her order cannot be serviced. For websites that carry inventory, this means 'sell what you have' while for marketplaces, it is manage sellers to create a structure where sellers who manage their inventory well are incentivised (this can be done using feedback systems)

2) Efficient Delivery - Getting orders delivered in reasonable time is important for ecommerce. While for inventory based models, this is about managing inventory efficiently, for marketplaces, this is about not overdoing checkpoints and reducing unnecessary logistics costs.

3) Customer Management - Though customer service is paramount, it is worthwhile to remember that there are segments of customers that are still not ready for Ecommerce. 

At KraftInn, we have had some experience in both models - We use the inventory model for our website while we participate in the marketplace model in marketplaces like Ebay as a seller.

As a seller, we feel it is important to get the right balance between seller satisfaction and customer satisfaction and there are certain things that marketplaces should not do. Here is a small list :

  There are three key stakeholders in a marketplace model and it is important to get the right balance between the three.

 No matter whether its the inventory model or the marketplace model, the ecommerce space is hyper competitive and the ones which get the right mix are the ones that will work. We are a very small player and this is just the beginning of an exciting journey :) 

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