We have briefly discussed ecommerce fulfillment business models in our previous article Ecommerce Fulfillment 101. One of the business model was dropshipping. Let us expand on this a little bit further as it was found in the end of that article that it is the best model for startups. It is like a playing ground where budding retail traders can experiment with very little risk of high financial loss.
What is drop shipping?
On Wikipedia Dropshipping is defined as follows.
Drop shipping is a supply chain management method in which the retailer does not keep goods in stock but instead transfers the customer orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer.
Is it Legal?
Let us clear out another important question in the beginning which has been asked so many times about the legality of dropshipping. Yes, it is 100% legal. In fact lot of big traders are using dropshipping including Amazon. Only caveats is that you need to have an agreement with the supplier whose products you are dropshipping. In the absence of such agreements you might be denied from using platforms like Amazon or eBay etc. Some other platforms don’t require such agreements like Facebook. In the past there has been reports of misuse of dropshipping by swindlers and spammers. Their easy target are new startups.
Heads up to new drop shippers, please be very careful from gurus of dropshipping asking you for paid information, services or material.
Also be careful from swindlers sitting all over the internet looking for easy targets. You don’t need to pay a single penny to anybody to start dropshipping. Only pay when you really know exactly what you are getting and the source is reliable.
Do Drop Shippers Add Value
Another very important question which has been asked so many times is, whether drop shippers add any value or not. Why cannot end users just buy from the origional stores at cheaper rates. For example lot of drop shippers source their products from Aliexpress.
Fact is that some people do buy products directly from Aliexpress. Lot of them do not buy either because they do not know about products or they are not ready to take risk of buying from a foreign source mainly because of following reasons.
- Language barrier.
- Customer service expectations are different.
- Product descriptions are not good.
- Trust issues, people are scared of getting scammed.
- Delivery times are very long.
Also it is very difficult for Aliexpress to market their products all over the World and target different communities from one source. Drop shipper take these products and market them locally using available channels and sell them through their ecommerce stores. They create product reviews, demos and descriptions, targeted to their local audience.
In short, drop shippers fill gaps by creating ecommerce stores which are based in USA for example or any other country. They write product descriptions in a way which is easier for locals to understand. In many cases they introduce foreign products to locals first time. They also take care of marketing in local communities. They also take risk of getting scammed on themselves.
In return they are rewarded quite well if they are able to create success. Sad reality though is that between 90-95% fail during first few months of their business.