What is Drop Shipping and What is the Role of Drop Shipping in eCommerce?
If you have heard about drop shipping and you’re wondering if it’s for you, then you have come to the right place for answers.
Drop hipping is a supply chain management method in which the retailer sells products to the consumer which he does not actually stock himself. He takes orders from customers and sends them to the manufacturer or wholesaler who packages the goods and sends them directly to the customer who made the purchase. Often the end customer is not even aware that their purchase was not bought directly from the retailer who sold it to them, as it will usually carry branding and even labelling from the retailer.
The retailer makes a profit through sales commission, or by marking up the price on the original produce.
Drop shipping is particularly well suited to e-commerce because the retailer doesn’t ever need to have a physical shop or store room to house the products they sell. Your main focus as the retailer is marketing and advertising.
Generally, it’s a win -win situation for the retailer and the manufacturer alike because the retailer needn’t worry about production, inventory and shipping, and the manufacturer can focus on production without having to worry about selling, marketing and finding clients.
How Does Drop Shipping Work?
There can be various mitigating circumstance, depending on what kind of goods you’re selling, where you are situated and who your suppliers are. The outline below is a simple step-by-step explanation of how the drop shipping process works.
- You decide what kind of products you would like to sell and where you will be selling them. This is where you will focus your market research.
- Research suppliers. Find out what makes their product unique (USP), what their terms are, and what their supply and demand record is like. You want to work with companies who are known for their speedy, efficient service and good quality products.
- Set up your online store. You will need to have considered your own branding, logo’s, and market position. Make sure that your brand has a USP. Load your products on your site and start marketing!
- A customer visits your website and makes a purchase.
- You receive the order and payment and forward the order to your manufacturer or wholesaler (your drop shipping partner).
- Your drop shipping partner now comes in and packages the order. You will have to ,make a prior arrangement for them to use your specific packaging and branding if that is how you plan to run your business.
- Your Drop shipper manages is responsible for delivery of the goods to your customer.
The Advantages of Drop Shipping
(for the retailer)
Your Startup costs can be very low
You don’t need a huge budget to get your business started because you are not actually purchasing stock, soring goods or even setting up a physical store. You don’t have to employ huge numbers of staff, either, because there is no store or warehouse for you to manage. You can start small and grow your web presence while you gain momentum.
No need to manage an Inventory
Your supplier is responsible for managing the stock inventory, ordering and in some cases manufacturing. It is up to them to order in plenty of the good sellers and try to get rid of any slow-moving products. The risk and hard work are theirs, not yours.
Allows for a Wider Selection
Another advantage of not having to physically stock or buy in the produce yourself is that you can offer a huge variety. You can even stock items from different suppliers all in one place.
Lower Risk Profile
Because your Startup costs are low and you are not investing in stock your risks are relatively low.
Operate from Anywhere
Because your store itself is virtual, you can operate from anywhere with internet access. There is no need for you to actually be situated near warehouses or customers.
Focus on What You’re Good at
If your strength lies in marketing and selling then that is what you can focus on. There is no need for you to worry about product development or manufacturing hassles. If you are on the other side of the drop shipping coin then you are a probably either a manufacturer or a wholesaler, or maybe even a delivery service. Whatever your part in the process you get to focus only on what’s relevant to you.
Disadvantages of Drop Shipping
Some of the very things that make drop shipping a great model also make it difficult to do successfully.
Drop Shipping is Highly Competitive
You are not the only person thinking that drop shipping is a good idea. You will have a lot of competition, with most retailers keeping an ear to the ground, ready to pounce on popular trends. Some of them will even be using the same suppliers as you are, so creating a name for yourself can be hard.
Little or No Product Control
Once you place the order with your supplier you have very little control over what happens next. You can’t ensure that customers get the right products, that they are shipped correctly or even that they are in stock when they are ordered. If your supplier’s out of stock you may be forced to refund clients and you risk losing clients and damaging your reputation.
For this reason you should never rely on a single supplier. These relationships can be hard to build and even harder to juggle – so it’s not for the slow witted.
Slim Profit Margins
The market is extremely competitive and it can be difficult to make sales if your competitors are undercutting you on the same products. Sometimes profit margins can be quite small and you will have to sell a lot to make it worthwhile.
Is Drop Shipping for You?
Many people are extremely successful with this business model and use it exclusively. But it can just as easily fail. To be a successful drop shipper you need to be very in tuned with your market.
A successful drop shipping retailer requires skill and diplomacy in dealing with customers and suppliers alike. You also need to have a flare for marketing, which means you need to understand your market.
If you are willing to be vigilant, diplomatic and engaging, you have strong management skills – and are willing to embrace the latest digital and social trends – you stand a chance of doing well.