In the age of online retail, there seems to be a need to readdress the question – what does it mean to be a good seller. Is it about having a product in stock? Or providing excellent customer service? Or selling the most number of products?
There is a common anecdote that describes a good seller as one who can sell a refrigerator in Alaska. The idea is that a good seller is first and foremost a good salesman. It seems that this concept of good salesmanship has been given a new life today. We live in a world where most services can be and are being outsourced. On the internet, authenticity is an image – and that is not necessarily a bad thing. It is only natural for this image to then acquire value – for it to be bought and sold in the market. This reified salesmanship can be an interesting possibility to look at, and one example of it is drop shipping.
What is Drop Shipping?
Drop shipping is a transaction where the seller forwards the details of a particular order directly to a third party wholesaler, who packs and ships the product to the customer, paying a certain commission to the seller. In this scenario, the seller never explicitly handles the product, but only handles the ‘salesmanship’ part – interacting with the customer.
Drop shipping is not a new market phenomenon, but online retail ends up giving it unprecedented scope. Because of its low risk low reward characteristics, it has especially gained popularity with many online sellers in recent times. Let’s take a look at the pros and cons of drop shipping.
What should you consider before taking up Drop Shipping?
Benefits of Drop Shipping
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Low Cost of Entry
Perhaps the most attractive feature of online retail via drop shipping is the low cost of entry that it entails. You do not need inventory, warehouse storage, or even a product of your own to start selling online using drop shipping. Since the order details are forwarded directly to a third party whole saler. Ideally, all you need is the internet and a wholesaler who is ready to work with you. Thus, the only thing you need to do is collect orders and forward them to the wholesaler.
The inventory management, order fulfillment, packing and shipping becomes the wholesaler’s headache. This is the primary reason why many new online sellers are gravitating towards drop shipping. The thing is, this also makes drop shipping slightly controversial – this model puts both the customer and the wholesaler at the risk of being scammed. But this is hardly the business model’s fault and does not belie the fact that drop shipping can be employed as an efficient and mutually beneficial model for all parties involved in the transaction.
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No Inventory Management Required
As mentioned before, the biggest strength of the drop shipping model is that the seller does not need to come in contact with the product at all. In essence, what a drop shipper sells is a brand. This means that the risks associated with the product – its quality, shipping, fulfillment, etc. are not your problem. As a drop shipper, your primary goal becomes procurement of orders and customer service and interaction.
Drawbacks of Drop Shipping
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Low Reward
This should not come as a surprise – after all, you are not investing much into it. A drop shipper is usually paid on commission basis, which means that a small percentage of revenue goes to you, per sale. The specifics of this are to be decided between you and your wholesaler beforehand. It is therefore advisable to have multiple wholesalers at hand and distribute orders according to geographic and demographic considerations.
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High Competition
Just as you will want to increase your portfolio by having more wholesalers at hand, you can be sure that you are not the only drop shipper that your wholesaler is engaged with. Because of the ease of entry into this business model, the market is bound to be saturated with drop shippers. Most online transactions are in fact routed through drop shippers. This makes your job difficult because you need to establish your mark on the market.
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You can be blamed for other’s mistakes
This is the risk you need to take when it comes to drop shipping. Since you are the face of the transaction, if anything goes wrong, you are the one to be blamed. It does not matter if it was the wholesaler who packed the wrong product or that it was the logistics company that damaged the product in transit – you have to be answerable.
How to Succeed at Drop Shipping
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Find a Niche Market
While the drop shipping model works in any market on paper, you get real results if you apply it to a niche market. A niche market is one that deals with a specialized category of products and customers – serious hobbyist, enthusiasts or professionals is one example. In this scenario, both the wholesaler and the customers are not very easy to find. As a result, your value increases as a bridge between these two ends. The only consideration here is that you have to mould your business outlook according to the market you are catering to.
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Find Trustworthy Wholesalers
The link between you and the wholesaler becomes sanctimonious in a drop shipping scenario. Normally you would order a batch of products and store them in your warehouse, pack and ship the product when the order is received. In drop shipping, you are dependent on the wholesaler for order fulfillment. Therefore, it is imperative that the relationship between you and your wholesaler is that of trust.
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Focus on Customer Service
The best way to differentiate oneself in a market full of drop shippers is to offer impeccable customer service. In fact, good customer service is a great way to build a brand by creating a loyal customer base. The key rules for this are simple – always keep lines of communication open, react promptly to customers and find new and ingenious ways to solve problems, employing automation technology and social media to the fullest extent.
To know more about ecommerce tools and in case of related queries, get in touch with Browntape. We are India’s leading e-commerce solutions experts, and we are always happy to help!
