Dropshipping is a way of managing an e-commerce store thanks to which you can start by investing little or nothing, because it allows to eliminate the strict management requirements of an e-commerce. To get more specific, dropshipping can be defined as a business model to be used to manage an online store, without stocking up. Thanks to this method it is possible to sell the products from the wholesaler, directly to the customers. When a customer places an order, it is forwarded to the supplier and the supplier will ship the products directly to the customer, without problems for the packaging and the shipping.
We can explain it as a process divided into three simple steps:
1. The customer places an order on the e-commerce site;
2. It is possible to pay the price of that wholesale product to the the supplier, on the e-commerce site, keeping the profit share;
3. The supplier sends the product to the customer.
there are three essential players in this process:
- The supplier, who must be a supplier / wholesaler and he will take care of the shipment and the physical warehouse. In particular, AliExpress is one of the most used site, but there are also independent suppliers;
- The e-commerce store on which the customer places the order, it has only the product catalog with a clear image of that, details and an unique description. Currently, the most popular platforms in Europe are Shopify and Salehoo. But, in Europe, there are several others;
- The Customer who will place the order on the site and he will immediately receive a notification with the details of his purchase and the goods.
Compared to the traditional warehouse model, it is immediately possible to understand that dropshipping is easier because it can be managed remotely and individually. The traditional warehouse model requires a physical place (a shed, a shop) to store the stocks of the items and the staff who are in charge of its management and inventory.
Dropshipping: analysis of the advantages and disadvantages
Below is a detailed analysis of the advantages and disadvantages of adopting this method of sale.
Advantages of dropshipping:
You don’t need a warehouse. The biggest advantage of dropshipping is that you mustn’t organize a warehouse, in fact this means that you will not have the goods sold in the warehouse. What may seem like a problem is, however, a great advantage because a warehouse stock requires a large investment: usually 30% is required for the start of production of the products and 70% before shipment. So a dropshipping shop is ideal when you have a limited initial budget.
When you’re opening an e-commerce store, to achieve a successful brand, it is important to invest in product’s development and in the brand creation. With dropshipping, you sell products that already are on the market. So opening a shop becomes very easy and it can be done in a few hours by owning only a domain and a product sold through sites like Aliexpress. However, even if as a seller there is a time advantage, customers will receive the packages only after three weeks and today, these are times improbable acceptable to a customer.
Trying new products
One of the advantages of this method is the possibility to try new products quickly, because you don’t need to wait for the goods in stock to take a picture of the products. With this methodology, you can take the images of the product, provided other companies.
The Minimum Cost
Starting a traditional e-commerce store, in addition to warehouse expenses, also involves management and expenses for packaging and equipment. In dropshipping the products are shipped by a manufacturing company (dropshipper) which acts as a warehouse for the customer.
Disadvantages of Dropshipping
Starting an e-commerce allows you to invest less time and money, but it makes much easier to increase competition, because everyone can start selling through dropshipping in a short time.
When products are shipped by postal services, it isn’t possible to predict when they will arrive to the customer and this can cause many complaints. When you send the product from a trading company, that is very often located in China, the packages go through customs and this can lead to delays.
In dropshipping you have to be very careful about copyright infringement: it isn’t possible to import a product without the rights, because there would be a patent or trademark infringement. These violations must be avoided because they would cause legal problems. It is important to have a license for the import and marketing of a registered trademark.
Poor quality control
Selling external products doesn’t allow to easily check the quality, in fact often products are sold whose origin is not even known and if they are low quality products, this can compromise the reputation of the e-commerce store.
It could compromise the relationship with the customer or it could cause negative reviews.
Brand value depends on the ability to develop a long-term connection with customers. In fact, to develop a brand with its own strength, it is important to define who are the customers to whom you want to sell and then create the products suitable for that type of market. Only by moving in this way will the company grow quickly. Obtaining this goals, it is possible to collaborate with a third-party logistics company that provides an organization similar to dropshipping, known as 3PL, or third party logistics service provide.
When managing a dropshipping shop it is almost impossible to manage returns effectively, because the management of individual international shipments is expensive. This is the reason why the relationship with the customer doesn’t continue after the sale, because there isn’t an efficient after-sales assistance.
Another important aspect is refund: customers can order paying by their credit card and the charge will be made to the e-commerce site. So, if the customer may receive a faulty product or if the delivery has to take too long, the customer can request a refund.
3PL (Third Party Logistic Service Provide or Third Party Logistics)
In dropshipping sales, you can use a third-party integrated logistics service company, an outsourced company that manages the logistics of the products by the e-commerce site. The third-party logistics company can receive the products in its warehouse and send them to customers (it can also offer order preparation, packaging, warehousing, transport and delivery services). A third-party logistics company can use a software connected directly to the e-commerce site, so you don’t send each order individually: this will automate the process of purchasing and the delivering of the order.
Despite the numerous advantages, the dropshipping doesn’t allow you to create a valuable brand, because you don’t invest in your product, but you sell something that you don’t know and you don’t produce. In this way, it isn’t possible create a stable relationship with the customer, because it as soon as the sale is made. This method can only be considered a first step in e-commerce, buti t isn’t a long-term business model. The alternative to dropshipping is to create your brand / product and commercialize it through a branding strategy and a digital marketing. This may require a greater investment because it will involve creating your brand, producing the products and managing the shipments, but it is more stable during the time.