Advantages and Disadvantages of Dropshipping Business
Dropshipping is a type of trading in which retailer does not keep stock but passes order to wholesaler or manufacturer. This is virtual showroom with virtual inventory and run through e-commerce websites or personal e-commerce websites. This kind of business is in a sort of a boom, certainly there are advantages associated with this type of supply chain management but there are some disadvantages too. Here we are going to discuss both sides of the picture and let reader decide whether it is good or not so good.
Let us start with dropshipping advantages first. Amongst most popular one is non-need for keeping stock. This is really a heavy point in favor of dropshipping business. It saves time, cost of postage, and in case of items which are big and heavy is very useful as these get supplied directly to the user. This also keeps price of products from going up unnecessarily. In traditional method goods are moved out of manufacturer’s warehouse and transferred to wholesaler and retailer. These are moved from there to retailer and again to customer, cost of this entire transportation is added to product’s selling price. In dropshipping this entire cost is cut down and product leave warehouse only once.
Goods are stored in manufacturer’s warehouse or wholesaler’s so cost of storage is incurred at one place and not with wholesaler, retailer both. End user gets a cheaper product if it is dropshipped to him. The cost of transportation can be hefty in case of items which are heavy and bulky. The chances of damage during transit also increases overall price of the product as manufacturer or wholesaler include the mean average of losses due to breakage during transportation in selling price of the product.
Efficient replacement and less over heads are other dropshipping advantages. Imagine a manufacturer working in traditional style. He needs to market products and appoint distributors/wholesalers etc. but if he works with dropshipper who appoints resellers/online marketers and wholesalers further the team becomes so big that marketing budget can be very small comparatively. In case of customer demanding replacement the pick-up and replacement is done by manufacturer directly so it is done in much lesser time and shipping charges too are minimum. Dropshipping takes out the limitation of region or boundaries. Retailer or reseller can access customers in any part of the world and even supply them with orders by using manufacturers or own supply chain network. This adds another flavor to this style of business and is one of the special advantages of dropshipping business. Dropshipping advantages are many, now we will see some shortcomings of this business model.
But as we mentioned there is nothing as perfect in this world and it applies to dropshipping as well. There are few disadvantages of dropship business model as well. One of the major demerits of dropshipping is customer service. In case manufacturer has run out of stock and there is any item to be replaced it is the dropshipper whose reputation and credibility takes a set-back. Even during normal sales low stock with manufacturer can be severe headache for dropshipper and he can lose his sale without any of his fault. Many dropshippers engage contract manufacturers for producing their products. In such cases dead stock is entirely dropshipper’s loss which is irrecoverable in most of the cases. All of these are dropshipping disadvantages which makes one think twice before entering this model of business.
Product details are things which a seller is expected to know deeply. Dropshipper may at times do not get chance to hold the product in his hands, whereas retailers deal with the customers and also store and sell the product physically, they may even give demonstrations which makes them aware about qualities and shortcomings of the product deeply. While selling the product and making commitments to customer this knowledge and can be very handy and difference between a successful or failed deal. Lack of practical acquaintance with the product you are dealing with can have serious drawbacks and is one of the dropshipping disadvantages. You act as an owner but you are not, this contradiction whenever becomes real it is crushing. Change in prices, refund policy, replacement policy etc. are decisions made by manufacturer or real owner of the product. Ideally dropshipper needs to be taken in loop but many times they may deliberately or wrongly miss out. If you are missed out of these vital changes you appear as petty thing in front of your customer. This can be damaging for your credibility.
Overall dropshipping may sound as not as smooth as expected but it is way of the future. After all the disadvantages which we have discussed related to dropshipping, most of them lie with traditional model too. And one must not forget that one should be seeing road and not the stones over it. Dropshipping advantages can never be with traditional model but yes the disadvantages can be minimized with proper communication and clear agreements. The low capital needed to start the business and flexibility of location and practically no overheads like salaries of staff etc. make it easy to handle and increase survival span of dropshipper even if sales are down.
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