Normally when a business sells a good, the business must purchase a large quantity of the good and then ship individual units to customers as they purchase them. This can be expensive, time-consuming, and expose the business to the risk of purchasing a good it cannot sell.
Drop shipping is one solution to this. A drop shipper is a business that ships individual units of a good, and ships them directly to the purchaser. So, if business A sells a widget to a consumer, business A can work with a drop shipper who will ship the widget directly to the consumer--meaning that business A never handles the item.
There are a number of pros and cons to drop shipping. Here are some of the more common ones.
Pros and Cons of Using Drop Shipping for Ecommerce
Pros of Using Drop Shipping for Ecommerce
One of the biggest advantages of using a drop shipper is that it eliminates the need for your business to purchase and maintain an inventory of a particular good. Rather than having money tied up in inventory, you can use it for other purposes. Along the same lines, you won't have to pay for a warehouse or warehouse employees, as you won't have anything to store in a warehouse.
Another advantage is that drop shipping makes it easy to test out new items and see how they sell. With traditional commerce, you would need to commit to making a large purchase and hope that the item sells. On the other hand, if you use a drop shipper, you are freed from the risk of purchasing a large quantity of a good that you are unable to sell.
Finally, using a drop shipper is fast--much faster than the traditional method of ordering a large lot of goods and then waiting for them to come to you, where they must be unpacked, inventoried, and stored pending sale to your customers. If you use a drop shipper, you can start selling the goods right away without the delay of waiting for the good to come to you.
Cons of Using Drop Shipping for Ecommerce
Of course, there are disadvantages to this arrangement. One of them is that you have no control over the quality of the item the drop shipper sends your customer. Given that your customer likely won't even know you are using a drop shipper, he or she will judge your company by the quality of the item that the drop shipper sends. This means you're putting your reputation in the hands of the drop shipper.
In addition, your profit margin won't be as high when you use a drop shipper, as you won't enjoy the bulk discount you get when you purchase a large lot of goods at once. On top of that, the drop shipper will likely charge something for the convenience of the service, eating into your profit margin even more.
What's more, most drop shippers use their own packaging, meaning you miss out on the chance to use the packaging as a marketing tool for your business.
Likewise, you won't have the opportunity to put coupons or other marketing materials into the box with the item, meaning you forfeit the chance to encourage return customers.
Finally, there are some very unscrupulous drop shippers out there, and it can be challenging determining whether the one you are working with is one of them. This means you bear the risk of being ripped off if you don't thoroughly do your research. This risk can be mitigated somewhat by being very selective in your choice of drop shippers, but it is still something that warrants consideration.
If you have any questions about drop shipping, or if you just want to know more about Web marketing in general, please feel free to contact us.