What is dropshipping and how it works
Dropshipping or Drop Ship or even Dropshipment is a form of sale that involves a triangulation between the producer, the seller and the final consumer.
In the Dropshipping model, the seller sells the goods without having them in stock. Once the product has been sold, the seller sends the order to the producer who makes the shipment directly to the final consumer.
Selling in Dropshipping mode therefore represents an opportunity to:
- the seller who saves on the costs of procurement and storage of the goods
- the producer who can develop his sales network by involving a multitude of subjects operating online
The origins of dropshipping can be traced back to the late 60s, even before the internet and the web were born, when JCPenney & Sears started a remote sale on catalog.
Soon the business took off and the seller had to equip himself with warehouses set up for retail sale which, even if it took place remotely, involved large volumes.
Shortly thereafter CompuCard seized a great commercial opportunity in the use of the JCPenny warehouses, and decided to publish the products stored in the competitor's warehouses in its paper catalog.
The ingenious model required CompuCard to apply a markup on items stored in JCPenny's warehouses. Once the order was obtained from the consumer, CompuCard "placed" his in JCPenny who then sent the goods to the customer's home.
With the development of the internet and marketplaces such as eBay and Amazon, dropshipping has also developed in Italy, opening business opportunities to small entrepreneurs who - with very small investments - can carve out market shares in some cases substantial.
The digital catalog is the key tool for any company that wants to launch a dropshipping business, so it is also for you if you have this desire.
The first thing you need to do, therefore, if you want to start this kind of business is to find a catalog from a supplier who can provide you with information on all the products you want to start selling.
The catalog of a dropshipping supplier consists of a file in .csv format or in .xml format even if - often - those who want to reach customers are not very familiar with information on items in this format.
This method of transferring data, that is through .csv files, can be impractical for those who want to dedicate themselves to distributing articles on the platforms most suited to them.
This is why another key element of Dropshipping is the software with which you manage the price lists (price list is synonymous with digital catalog, here). The software should allow you to have access to:
- speed of publication
- flexibility in the selection of articles
- integration with the most well-known marketplaces and the most popular eCommerce engines
Suppliers that offer Dropshipping products do not always have software to make available to their partners and, even more often, they do not know how to recommend a suitable platform that makes their life easy. So don't be surprised if you catch the producer you want to involve unprepared.
At the end of this article you will find out how we solved the problem at eDock, providing sellers with a solution that includes the software and catalogs of numerous manufacturers.
A single starting point for Dropshipping and a space for commercial exchange between producers and distributors.
Advantages for the seller
A seller who starts Dropshipping enjoys a myriad of benefits.
The most obvious are:
management of outsourced warehouse activities.
Selling in Dropshipping means forgetting about shelves, forklifts, transpallets, porterage operators, etc. In fact, the logistics operations are completely delegated to the supplier.
- initial investments close to zero.
Starting a Dropshipping business requires very low initial investments. Finding a business that allows you to monetize your audience with costs close to zero is the dream of every entrepreneur. With the advent of the internet, and with the explosion of eCommerce as an established consumer habit, it is now possible to start by adopting this modality.
- monetization of their fan base
Dropshipping makes a lot more sense if you already have your own fan base to build on. These represent your traffic to monetize, your customers who can make your business sustainable from its inception. Having a fan base, however, means not disappointing their expectations and with Dropshipping you can make a selection of the items that best represent your way of being and the tastes of your customers, without necessarily having large capital to procure the goods to be selected.
The advantages we have just mentioned, however, are not the only ones of the Dropshipping sales model.
Even the producer enjoys a series of benefits from this distribution method and which makes this formula truly winning for all the players who are part of it.
If you want to sell online you need to acquire the eCommerce Manager skills
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Advantages for the supplier
As mentioned a few lines above, the advantages of Dropshipping are also, perhaps above all, for the manufacturer who has the desire to acquire a massive number of online distributors and which translate into an increasing number of orders collected. The advantages can therefore be summarized as follows:
- risk sharing
Growing their business outside of a single marketplace, such as Amazon, should be a priority for every manufacturer. In principle, when a customer represents more than 15% of a company's revenues, they become an "inconvenient" customer to be watched.
- organic growth
Having countless business partners means reaching countless audiences indirectly. The growth in the reputation of the products, at that point, becomes an organic growth, operated through third parties who become an "automatic" commercial engine for every producer who takes this path.
- brand positioning
Placing your product in an existing showcase means enjoying the induced reflection of the products in that same showcase. Similarly, distributing your digital catalog on websites that contemplate a certain type of article can give the manufacturer's product range access to positioning opportunities.
But not all that glitters is gold.
In fact, there are disadvantages, both for the seller and for the producer, although the advantages are the point on which to focus one's attention when venturing into a business.
We address them in the next section, mentioning what we have learned in over a decade of experience.
“For over 8 years I have been helping sellers form different product categories, company sizes and with even specific needs. I am happy when I help organizations to achieve the goals we setted up.”
Disadvantages for seller and supplier
Dropshipping requires maximum efficiency, especially in those contexts where margins do not allow manual operations.
The fact of having to automate processes implies, on the part of producer and seller, a form of agreement that is not always easy to mediate that regulates:
- the catalog update policy
The products must be up to date in terms of quantity and price. An outstanding sale by the seller to the detriment of the final consumer can imply negative feedback.
- order fulfillment
For the seller, being able to communicate with the manufacturer quickly and automatically represents an unparalleled added value. Also for what concerns the order progress flow, with the related fulfillment statuses, it represents an area to be explored with a view to process efficiency.
Other disadvantages for the seller are related to the business model. The salesman who has to go on the hunt for online customers will have a harder time than the one who already has a fan base to turn to, perhaps to contact through social networks.
The type of product, then, has its own relevance. Not only for the purposes of margins but also with respect to how it is placed on the market, on the demand and supply side. The best would be to have products that are one of a kind and that have many buyers willing to buy them. Unfortunately for the sellers, however, in many circumstances we find ourselves in a diametrically opposite position with products with common characteristics, with great competition and with a hard market to penetrate.
For the manufacturer, however, the disadvantages are related to the governance of their catalog. Having a large number of commercial partners managed in a completely uncontrolled way can mean particularly aggressive pricing policies applied by sellers, distribution of the digital catalog on the most disparate properties and fragmented brand management.
With eDock we have faced and solved every problem that sellers and producers who want to approach Dropshipping have.
If you are a seller you can start your online business in Dropshipment mode quickly and easily.
If you are a manufacturer you will find a multitude of sellers to select and to sell your digital catalog, your most important resource.
We have solved the solution to the problems of sellers and producers with our platform that:
- allows the seller to select items, choose which markets to sell them on and publish them
- allows the producer to intercept the sellers and select them according to the desired criteria
- automates order fulfillment, from seller to producer and vice versa, to allow both maximum efficiency and minimum effort
eDock: discover all the advantages
Real-time updating on all platforms
eDock has a powerful notification engine that sends every single change relating to the quantities available in stock and prices in real time, to give you the opportunity to synchronize the stock of your products in stock with eBay, Amazon and other available marketplaces, in Italy and in the world. Thanks to this automation, eDock allows you to avoid negative feedback for those orders that you are forced to cancel if the purchased goods are no longer available.
API for integration with your management system
The set of REST APIs that we provide you with allows you to make technical integrations with any software, using the eDock engine as if you directly own its technology. Many companies have already integrated their company management with Amazon or eBay, through eDock. In this scenario of use, eDock allows you to receive orders from Amazon or eBay directly on your management system or on your ERP and to keep the stock of your products in stock in the "online shopping centers" synchronized.
Differentiated price lists by market to sell at different prices on the platforms
With eDock you have the maximum commercial flexibility and the possibility to differentiate the selling price by market. You will thus be able to sell the same product on eBay Italy at a price, different from the one at which you sell it on eBay Germany, different from the one you sell it on Amazon. The flexibility of eDock, in this sense, allows you to be present with a commercial formula of appeal even when you "drown" the shipping costs in the price of the product.
Communication flows to facilitate your team in order management
eDock provides flexible and efficient order management. You can decide, in a completely personalized way, which "path" to take your order once it has been received. For each change to what is defined as "progress" of the order, then, you can trigger automated email communications that are directed to the customer or to the members of your organization.
Order tracking id on all markets
If you sell on marketplaces, you know the importance of keeping the "online shopping center" informed about the status of the shipment. With eDock you have the possibility to enter your "tracking number" so that eDock is concerned about communicating it to the reference platform.
Export to courier software
Exporting orders to your trusted courier is a useful feature to save you a lot of time. The function allows you to export all data relating to the recipient and to the destination to send the goods to the applications of the carrier called to perform the shipment.