As a businessperson, the ultimate goal is profit-making. However, the underlying costs of manufacturing, advertising, shipping, and operations eat away at the possible profits. Dropshipping provides a solution to circumvent these cost drains and make reasonable profits. Dropshipping relies on order fulfillment and does not require the business owner to have stock inventory, ship products, or manufacture the products. In the Dropshipping model, the seller finds a list of reliable suppliers to supply products for their online website—the seller markets these products online via the web or other digital marketing applications. Customers view and make orders for their preferred products or services. Now, the business owner does not hold this inventory, as is the case for wholesale and retail FBAs, but instead lets the third party 9manufacturter or wholesaler) handle all logistics and shipping. The third-party ships the product to the customer on the internet business owners' behalf. In simpler terms, the business owner does not handle the inventory directly but gets a cut of sale for every order fulfilled.
Problems Associated with Dropshipping
Dropshipping as an online business idea seems like easy money, in terms of, few startup costs, no manufacturing, shipping, or warehousing costs incurred by the business owner. However, this is not as simple as it may appear. There are several problems associated with dropshipping businesses. First, dropshipping startups are likely to make razor-thin profit margin gained from the business? This is owing to the fact that the business owner does not source, manufacture or ship the products hence has little bargaining power on how much it is sold for. Second, the business owner does not have control over the product itself; therefore, customization and branding, which are profit boosters, are left to the supplier. Third, with dropshipping, there is the problem of shipping complexity. For example, a customer requiring three products which are only available from three separate vendors will complicate and possibly increase the shipping costs, which is not feasible. Fourth, due to the lack of direct control over the product, it is hard to differentiate the business and compete effectively against other competitors (Khalil, 2017). Supplier errors will be blamed on the business owner. This includes delayed shipments, low-quality products, missing items, botched goods, improper packaging, all of which the business owner does not have control over. This results in constant frustrations and needs to apologize to clients for what is not the business owner's mistake. Shipment errors pose a risk of damaging the reputation of the business owner.
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Target Market and Customer Profile
For an online business, the target market is unlimited. Any digitally savvy individual in any place in the world can be a potential client to the dropshipping business owner. The target market depends on the capacity, products or services, and most importantly, the reliability and number of vendors available to the business owner. However, a dropshipping business owner who wishes to reach a greater height must develop segmentation criteria for the vast market niche. For example, the owner may decide to segment based on geographical boundaries both urban and rural, on demographic characteristics such as age, gender, life-cycle stage, and occupation, or on psychographic and behavioural characteristics including, spending habits, personality traits, user status, and social class, lifestyle, and loyalty trends.
Features and Benefits of Dropshipping
The first feature of a dropshipping business is that it is easy to start. The benefits here are that it takes less time and fewer resources (human, capital, and technological resources) to get started. Additionally, there are many resources available to guide the business owner on how to start and make profits. The second feature is that there low start-up costs. The benefits underlying this feature are that there are no warehousing costs, no manufacturing costs, or shipping costs in some instances. This leaves more funds available for marketing, advertising research and development. The third feature is that there is a wide selection of products to choose from. The benefit here is that it will be easy for the business owner to find items to sell or change the products they offer in case they are not profitable. Another feature is that the business owner does not require having inventory on hand. The benefits are that there is no storage or warehousing cost incurred. The final feature is that there is no shipping associated. The benefit is that it saves time and money required to package and transports the products to consumers.
Dropshipping Competition Analysis
As inferred earlier, cutthroat competition is one of the most profound challenges business owners face. Due to its ease of startup and low costs, and limited barriers to entry, many people, have attracted this business. The value of the global dropshipping market in 2018 was US$102.2 billion. There exists numerous dropshipping companies in almost every country and city in the world. One hard truth is that it will be impossible to succeed in dropshipping business if the seller does not come up with ways to gain a competitive edge of other competitors who may have the scale and resources to undercut prices that small startup businesses cannot afford.
To stand out from the competition, business owners need to invest heavily on branding and advertising, that is, make a name for their brand, like Amazon, and Shopify has. A heavy online presence is required for such. Next, the business owner's can offer free shipping for a minimum order amount to increase sales volume. Ensure high quality in terms of products delivery, packaging, and even the experience itself. The shopping experience should be memorable to the customer, and loyalty will be guaranteed. A dropshipping business is only as effective as the ability of the business owner to overcome competition.
References
Khalil, I. (2017). Advantages and disadvantages of drop-shipping. Young scientist , (7), 410.
Statista. (2020). Retail e-commerce sales worldwide from 2014 to 2023. Retrieved 7 th February 2021 from https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/
