Introduction – What is Dropshipping and how does it work?
Drop shipping is a type of retail business in which the seller accepts customer orders but does not keep inventory on hand. As a result, the retailer is in charge of marketing and selling a product but has little or no control over its quality, storage, inventory management, or shipping.
A physical store is not required for a drop shipping business model. It is compatible with the drop shipped order fulfilment business model. When a small retailer receives a single large order for a product, drop shipping may occur.
The retailer may arrange for the goods to be shipped directly from the manufacturer or distributor to the customer. Drop shipping is also used by sellers on online auction sites such as eBay to distribute products without having to handle stocking of items in a warehouse.
84% of eCommerce retailers cite that the biggest barrier to starting their dropshipping business is securing a good supplier (Source: BusinessInsider)
China & the dropshipping model
The use of Chinese drop shipping companies by both businesses and individuals has increased in recent years. This is largely due to the growing ease of e-procurement and the growing role of the internet in commerce. Because of improved logistics for small packets, drop ship suppliers based in China are increasingly able to compete with same-country distributors.
This has resulted in many businesses needing a reliable source of supply from China which can be difficult for foreign businesses and hence sourcing services for goods from China have become popular options for entrepreneurs getting started and need help navigating the local market and securing high quality items.
Advantages & disadvantages of the model
This model can be a convenient one for entrepreneurs getting started selling there goods online and like all business models comes with some advantages as well as shortcomings which are included below:
- Can be quick to setup and test a concept without spending huge amounts of money on initial inventory. Many suppliers won’t supply small amounts of product and want you to commit to larger orders before they supply you so drop-shipping can be good to get started by ordering on an “as needed” basis when customers order.
- No need to produce, store or send out the products
- Very scalable with options for international shipping
- Supported in many platforms like Shopify for selling various items like shirts, merchandise and other items
- Wide variety of suppliers to choose from around the world
- Can lose control of quality resulting in poor customer experience if the seller doesn’t deliver quality goods this can be avoided by vetting the suppliers to ensure they use best practices
- Shipping times can be delayed if the manufacturer overseas is experiencing logistics issues
- Less control over things like packaging and branding in most cases
- Less profit as part of your margins will be gone to the supplier
- Customer support can be difficult if you get lots of orders and need to handle refunds, replacements etc
Dropshipping in other foreign markets
Dropshipping over the years has become very popular for eCommerce businesses usually as the initial first stage before the business is at a point where they can invest in bulk buying stock and storing it in a warehouse and building out more of the infrastructure required for a thriving online business.
Many countries have grown to their manufacturing capabilities and are commonly used to acquire products to then be resold including China and emerging countries like India which are quickly growing and expected to take up more market share globally in the eCommerce supply sector.
The model however can be used across any country so long as shipping and costs are feasible for both the seller and customers.
Statistics and other figures worth noting
India’s e-commerce industry is set to grow by 84% to $111 billion by 2024: MAAS and Sensor Tower report. Source: Business Insider India
Approximately 27% of online retailers today primarily use dropshipping to fulfill customer orders. Source: Statista
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“Drop shipping” Wikipedia, 16 Dec. 2004, en.wikipedia.org/wiki/Drop_shipping. Accessed 17 Dec. 2022.
B. I. Partner, “India’s e-commerce industry is set to grow by 84% to $111 billion by 2024: MAAS and Sensor Tower report”, Business Insider India. 13-Oct.-2021. [Online]. Available: https://www.businessinsider.in/advertising/ad-tech/article/indias-e-commerce-industry-is-set-to-grow-by-84-to-111-billion-by-2024-maas-and-sensor-tower-report/articleshow/86991705.cms. [Accessed: 7-Dec.-2022].
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