Are you a new entrepreneur who does not want to invest a lot of money upfront? Are you looking for an experienced business person, but are not ready to take a huge risk? If so, then the drop shipping business model might be just for you! With this newly implemented business model, startup retailers usually do not have to deal with shipping procedures and purchasing large amounts of inventory. What is drop shipping, and what makes it such a great fit for the e-commerce & retail business industries?
What is drop shipping?
Drop shipping is a sourcing and supply management model where the retailer is almost the middle man between the manufacturer and customer. The retailer never owns the actual product that they are selling. Instead, they receive the order from the customer, and forward it to the manufacturer. The manufacturer sends out the order to the customer with the retailer’s name and brand. Therefore, the retailer makes a profit, while they are charging the customers more than the drop shipping company. The retailer also does not need to deal with the problems that come with inventory issues.
How can we benefit from drop shipping model?
The drop shipping model allows retailers to start a business with a low initial investment, since that business does not require inventory, or supply chain management. It is a lot easier to manage the retailer’s business, because they are not the ones dealing with major fulfillment issues, such as high volume of purchases, warehouse-related problems, or location.
If you are a new entrepreneur, or trying to test some products on the market, drop shipping can work perfectly for you. Since retailers do not have to stock all products, they have a significant advantage of providing a better selection for their customers, which can also contribute to customer retention for some businesses. Another advantage is that expenses on inventory are lower, which means less capital (up front.) Pre-purchased goods mean a lower risk of money and inventory loss.
What are the possible challenges with drop shipping?
As promising and effective as drop shipping sounds, it has some downfalls, too. For example, retailers working with drop shipping often fail to provide a personalized brand experience for their customers. Since they are not in control of their shipments and deliveries, they cannot provide the best customer service. Let’s say a retailer wants to include personalized notes, gifts, or samples. Drop shipping manufacturers often fail to include these personalized items in packages. There is simply a more factory-like production mindset.
Another challenge for drop shipping is a high competition rate. Because this model is very effective, and easier to work with, many retailers turn to drop shipping. Currently, it is crucial to find a popular and unique niche in order to succeed within this model.
Here are some final thoughts on drop shopping.
To summarize, drop shipping is a great fulfillment model for low-budget entrepreneurs who are operating a low-margin business. However, if you are an entrepreneur who is looking to create a loyal customer base, and strong brand image, this model might now be the perfect fit for you.