Comparing re-commerce marketplace options: peer-to-peer versus consignment
Establishing a successful re-commerce program is a process that can seem overwhelming to those who are just starting out. We thought we would try to make the process a little easier by examining the question we get asked most often — what are the differences between a peer-to-peer (P2P) marketplace (such as the one we offer) and a consignment one?
Inventory
The primary difference between the two types of marketplaces is inventory. The P2P model facilitates direct interaction between individual buyers and sellers. Under this model, sellers are responsible for listing their items (including uploading photos, descriptions, and setting the price), and ultimately shipping the item to the buyer. Brands never take possession of the items.
On the other hand, the consignment model requires that brands take physical possession of products. Products are collected by the brand directly from sellers via mail, or in some situations, in retail locations. Once in their possession, brands are responsible for inspecting the items, listing them, warehousing them, and shipping them to buyers.
Time to Go-Live
The two marketplace models differ greatly in terms of how long they take to launch because of the different level of complexity involved in setting them up. In general, P2P marketplaces can be launched in a matter of weeks, whereas it usually takes months to launch a consignment marketplace.
P2P marketplaces are simpler to design and manage because there is no inventory to manage. They involve fewer workflows, fewer people, and fewer decisions. Since consignment marketplaces handle inventory, they need to design various workflows and policies, such as how to accept the products, what to do with products that don’t meet quality standards or that don’t sell, and how to set prices appropriately. Removing inventory from the equation allows P2P marketplaces to be designed and launched much more quickly.
Costs
There are several cost components that differ between the two marketplace models, including costs to the brands, the planet, and to sellers.
For brands, the primary cost driver is taking possession of products. Holding inventory is expensive (consider costs associated with owning or leasing warehouses, insurance, and taxes), and it doesn’t scale well. There is only so much room in a warehouse, and unless inventory turns over very quickly, successful programs will quickly require more warehouses and more people to work in those warehouses. P2P marketplaces avoid these costs completely, and, as a result, they scale much more efficiently.
For the planet, P2P marketplaces have a smaller environmental impact because products are shipped once (to the buyer), and until they sell, they sit in the seller’s closet. Consignment marketplaces must account for the footprint of their warehouses, as well as the extra shipping associated with sending products to the warehouse. There is also the question of what happens to products that are rejected, or those that don’t sell. In those cases, there is a good chance that those products end up in the garbage to free up warehouse space and reduce cost. P2P marketplaces don’t create the urgency to dispose of items because there is no cost to the seller to keep the item in her closet until it sells.
For sellers, P2P marketplaces offer lower fees because they have smaller costs to recoup. It is important to remember that operating a re-commerce marketplace has to make sense financially for the brands. The higher the cost to the brand, the more it will need to charge sellers in order to make the marketplace financially viable. With sellers in short supply, higher fees will likely discourage sellers and impede the growth of the marketplace.
Quality Control
The importance of the buyer experience cannot be understated. The buyer’s experience with a brand’s secondhand marketplace will inevitably translate into an opinion of the brand as a whole. Controlling this experience is easier when products can be physically examined for quality and authenticity before being made available for sale — an advantage of the consignment model.
However, this advantage comes at a cost, as described above, which may not be feasible depending on the average selling price of the products being sold. It is worth noting that physical inspection is not the only way to address quality concerns. Listings can be reviewed and rejected prior when needed to being posted, purchase histories can be used to authenticate the seller and the items being sold, and emerging technologies such as artificial intelligence and blockchain can be used to identify counterfeits and quality issues. Regardless of the marketplace model, a fair and efficient dispute resolution process must be implemented to address disputes and ensure that marketplace participants have a good experience, even when a transaction is undone.
Seller and Buyer Experience
In a P2P marketplace, sellers are required to list their own products, store them until they are sold, and ship them (though the marketplace typically facilitates the generation of the shipping label). In a consignment marketplace, the only thing the seller needs to do is get the products to the brand. From there, the brand does all the work. Of course, the convenience of the consignment service comes at a greater cost to the seller in both commission paid to the brand and the smaller number of products that ultimately get accepted by the brand for consignment. Because P2P marketplaces never take possession of inventory, they have lower operating overhead, which translates into lower fees for sellers.
The buyer experience is fairly similar under both approaches, with a couple of noteworthy exceptions. First, in a P2P marketplace, sellers and buyers interact with each other, though the communications are often facilitated by the brand. In a consignment marketplace, buyers interact with the brand. If a dispute arises in a P2P context, it is the brand that has to step in to resolve it. That process can be perceived as more risky by marketplace participants, but that risk can be mitigated with a fair and efficient dispute resolution process. Brands that chose a consignment model have more latitude to address a dispute because they are in charge of the sale. They can offer buyers something that P2P marketplaces cannot — returns.
And that brings us to the second important difference for buyers. Most consignment marketplaces offer customers the option to return items. This obviously benefits buyers, but it creates a reverse logistics headache for the brands and increases the program’s carbon footprint. In a P2P marketplace, returns are universally prohibited, except in the context of a dispute. So long as buyers understand this policy up-front, they can factor this risk into their buying decisions.
Join the conversation
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