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Dropshipping is an eCommerce model in which the retailer doesn’t possess or store their products but has them shipped to different suppliers. Thus, the eCommerce business is in charge of the sale, but the product never passes through their hands. The supplier delivers the products directly to the end customer.
Online shops that use this system don’t need to have a warehouse or an inventory since they don’t physically have products and buy them according to demand. This doesn’t prevent the companies themselves from setting their prices based on an appropriate pricing strategy. Knowing this, if you’re thinking about opting for the dropshipping model, we’ll explain its advantages and disadvantages.
Advantages of dropshipping: fewer costs for the eCommerce business
Through the dropshipping model, the costs for eCommerce businesses are significantly reduced. There’s no need to rent a warehouse, hire staff to manage your products, or have efficient stock management. The amount of investment is much lower than the classic online store model and there’s very little risk of financial loss. At the same time, management and the sales teams have more time analyse the business processes and improve the customer lifecycle.
On the other hand, eCommerce businesses have access to all of the stock held by their different suppliers or wholesalers. They’re not limited by product availability and so can meet high demand at any time of year. In addition, the supplier will also take care of the returns process—you only have to refer them. Together, these advantages make it a very profitable model for small businesses.
Disadvantages of dropshipping: less control over the logistics system
On the other hand, we find that dropshipping means losing control of the logistics, shipping, and delivery of your products. Although the customer will hold you responsible for any delay or loss, the products will be in the hands of a third party that you have no control over. At the same time, the profit margin for sales will be limited since you have to pay the supplier for the product and its shipping. In this scenario, any discount or sales campaign would entail a loss for the eCommerce business since the wholesaler won’t have to reduce their costs.
Among the disadvantages of dropshipping, we should also mention that it’s more complicated to build a brand image through this model. This is because the products that go from the supplier to the customer generally have no logo or distinctive feature to set them apart from the competition. They also lack the unique packaging or other elements that could complete the users’ shopping experience.
Tips for launching an eCommerce business with dropshipping
After analysing the pros and cons of dropshipping, if you decide to implement this system in your eCommerce shop, we recommend that you follow these guidelines:
- Carefully select the products to be included in your catalogue.
- Consider the location of the supplier that’s in charge of transport along with their shipping terms.
- Optimise the SEO of your eCommerce website. There will be many other stores with dropshipping, so you need to stand out.
- Invest in inbound marketing campaigns to attract new customers.
- Ensure that the customer is satisfied.
Finally, analysing the prices of the competition is also essential so that you can use them to set prices that are as competitive as possible. Knowing the price range of other eCommerce businesses will allow you to adapt more easily to changes in the market since you can’t use the exclusive nature of your products as a selling point in this case. To set prices properly, you can use automated competitor price monitoring tools to speed up the process and accelerate decision making.adas de monitorización de los competidores con las que agilizar los procesos y acelerar la toma de decisiones.
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