Big Buy, eBay or AliExpress, among many others, are big dropshipping companies.
Dropshipping is a new online sales business model that thanks to its simplicity is proliferating in recent years. In this article we reveal everything about this concept.
What is dropshipping?
Dropshipping consists of owning an online store with the possibility of selling without having to have a large level of stock stored in a warehouse, nor of facing the often cumbersome process of logistics and shipping of products.
It is an eCommerce solution that acts as an intermediary between a wholesaler which is the one that owns the products in its warehouse and the final customer. Through this sales technique, only the sales process itself depends on the business since the rest of the services (storage, stock control, packaging and shipping) correspond to a trusted third party who will complete the sale making effective the delivery of the product to the customer.
Dropshipping is a new business model that has emerged relatively recently, due to the need for reinvention that digital businesses had, particularly online stores.
Some years ago, it was necessary to invest a lot of time and a large budget in the planning of a digital business: website development and eCommerce, product development, search for manufacturers and/or suppliers, creation of an image and brand identity, warehouse and stock management, the sales process, logistics, shipments, returns, and much more that makes anyone who wants to start a business of this type from scratch consider if they really deserve worth moving forward or not.
However, with dropshipping a good part of this process of making a business a reality is delegated to others. So that only the start-up of the business idea, the management of the store remain in the hands of the company online and customer acquisition which is marketing in general.
Advantages and disadvantages of dropshipping
It seems that dropshipping is a very promising online sales format in the 21st century. However as in any other type of business with these characteristics, dropshipping not only has positive points. We present its advantages and disadvantages.
Advantages of dropshipping
- The initial investment is smaller than in other online sales business models, since it is not necessary to invest in the development of the product, in its manufacture, in the stock, in a warehouse, or in the management of shipments.
- It allows you to have a wide catalog of products and scale the business as you can count on several dropshippers to cover the needs of different types of customers and thus expand the product portfolio.
- It is not necessary to control the stock or make inventories, nor to invest in the purchase or rental of a warehouse.
- In some cases it is possible to integrate or synchronise the dropshipper platform in the online store so the final customer will be able to see the remaining stock at all times and the orders will be automatically managed.
- Lower risk of failure and, with it, a serious economic loss.
Disadvantages of dropshipping
- Depending on the wholesaler the quality may not be entirely optimal. It is essential to negotiate well with the supplier to offer high quality products at an optimal price.
- Care must be taken with the costs especially when the suppliers are of Asian origin as their products may be taxed with unexpected taxes and duties and the shipping costs can be high for the buyer.
- Responsibility to the end customer and customer service management will always be the seller, not the wholesaler. In terms of guarantees, the same is also true: in Europe, two years of warranty must be offered for products eg. technological products.
- There is less information about the products (composition, results, quality, size, etc.).
- If it is not specified or the supplier works like this. It is possible that the shipments arrive at their destination with the image of this together with the billing information of the seller something that gives the final customer a bad image.
- Low control in delivery margins especially when the wholesaler is from an Asian country.
- Less information on products, stock and shipments in order to immediately manage possible doubts or customer issues.
- Profit margins should be studied very well as they are often low and there is a minimum price set by the wholesaler on which the product cannot be lowered further to avoid unfair competition among its buyers.
- It is necessary that there is a fluid relationship with the wholesaler or supplier.
- If the buyer purchases two products from different suppliers they will be sent separately so in the eyes of the buyer it may mean poor management of the seller.
- You have to choose very well what you are going to sell because it is very likely that the competition has the same products. In that case it will be necessary to make a good management of advertising marketing and investment to differentiate from other online stores in addition to convincing the buyer with differential services or real value propositions.
As we can see from the point of view of the seller, online business models based on dropshipping have some points that must be polished before starting up. On the part of the wholesaler or dropshipper however the concerns will focus more on the manufacture and/or distribution of the products, as well as on making a good management of their stock and choosing the best suppliers to optimise their logistics.
Hyland Shipping we have been working since 1983 to offer its services, both to online stores and to wholesalers who wish to move their products and merchandise through European and intercontinental territory in a safe, fast and efficient way.