Do you ever wonder what goes on behind the scenes from the time you place an order online until your package magically appears at your doorstep? We are often too consumed with browsing from one website to the next that we rarely take a moment to appreciate this revolutionary way of getting whatever we want from anywhere in the world. Online retailers are always looking for ways to further reduce their supply chain costs to yield more profits. This explains why retailers would want to shift the costly burden of holding stocks to either the manufacturer or a wholesaler who is responsible for delivering the product to the end customer. This process is known as Drop Shipping.
Read below to find out more about this process and understand why online retailers are embracing it.
What Is the Idea Behind Dropshipping?
Retailers, both physical and virtual ones, make money by selling their products to end customers. The complex function of the supply chain is responsible for the latency in delivery, as well as the extra costs that the retailer has to shoulder. Drop Shipping came about to resolve these issues and allow retailers the chance to save the extra shipping costs and make more money. Not to mention that with the relief from owning warehouses and managing stock, retailers’ jobs have become simpler than ever before.
Benefits of Dropshipping
With the comparatively low risk and simplicity of this business model, Drop Shipping has become a full-fledged business on its own. Many individuals are adopting this business model to start their own personal business, and this allows them to fulfill orders for online retailer giants like Amazon. Besides the efficiency of this method, shipping experts at Cahoot.ai explain how drop shipping is helping the environment by shortening the needed travel distance for order fulfillment. With numerous shippers scattered all over the world, retailers can rely on speedy, green and efficient delivery to their end customers. Drop shipping is a fairly easy business that does not require tons of capital to start, and it is showing no signs of slowing down any time soon with the aggressively growing e-commerce activities.
Challenges Facing Dropshipping
While dropshipping can be very useful as discussed above, it can be quite challenging for both retailers and dropshipping suppliers. For retailers, working with different drop shippers can be very complicated especially since they have no control over the state in which their product will reach the end customer. Consistency is a very important aspect of brand image, so, as a retailer, you want to make sure that your product’s packaging and customer service support are the same no matter where your customer is in the world. Retailers also assume full liability for any shipping blunders, as they are the only point of contact for the customers. This is why it is extremely important to ensure that the drop shipping suppliers you work with as a retailer are not only efficient, but can be trusted to protect your brand image. As for drop shipping businesses, they can face difficulties in tracking stock and managing warehouses. Expensive automation of this process makes it unattainable for many drop suppliers who mainly depend on low overhead costs to remain profitable. Another problem many drop suppliers suffer from is the fierce competition, they have to endure in this business realm, especially that the profit margin they depend on is rather low to begin with.
Does Dropshipping Work for All Products?
The short answer is: no. Not because it is not feasible, but because for some products, dropshipping is not compatible. If, for example, you operate in a niche luxury market where customer experience is of utmost importance, you want to make sure that you have full control over how your valuable items reach your customers. In this situation, working with a drop-shipping supplier is not the right move for you. In other cases though, if you sell non-luxury small items, it will be more cost-efficient to rely on drop shipping since the risk is low, and you will be able to benefit from larger profit margins. As a dropshipping business owner, you want to target retailers that are still in the launching phase. Although the profit will not be appealing in the beginning, it is a good way to approach the market. New startups that are still in the testing phase would want to find a mediator (drop shippers) to spare them the risk of investing in stock before they can validate demand for their products. You can grow along with these new businesses, and even if their products do not get off the ground, your losses will not be substantial.
Dropshipping is another example of businesses that emerged out of necessity. With the ever-growing number of online retailers, dropshipping gave them the chance to focus on what they do best. It is an interesting model to begin with if you intend on venturing into e-commerce. By understanding what it entails as well as its pros and cons, you can decide whether or not this is the right business for you.