What is dropshipping?
The dropshipping modality consists of receiving orders from your customers and forwarding these purchase orders to your supplier, who will take care of sending the products to your customers on behalf of the company. Thus, the contractor of this modality acts as an intermediary (in this case, e-commerce) and does not need to manipulate or have access to the product.
Dropshipping can happen nationally or internationally. In this article we are going to deal with national dropshipping. The figure below shows an operational flow illustrating the relationship between supplier, customer and the virtual store as an intermediary in the transactional process. For this, we will understand the 4 basic steps of the dropshipping process.
1 – e-commerces (sellers) import product lists from partner suppliers (usually factories or distributors)
The initial assessment of the dropshipping model is based on a transparent and usually contractual relationship between sellers and suppliers (factories or distributors). E-commerce selects the types of products that will be marketed through the prospecting of suppliers. Next, suppliers are qualified to meet the consumer needs of e-commerce customers.
Generally, points of attention are restricted to location and assortment. The location is a factor that interferes in the pricing of the item for e-commerce (EC 87), as well as in the availability of the logistics network (possibility of deliveries by region of Brazil). The assortment is related to the brand strategy.
2 – The customer places orders on the e-commerce platform
Dropshipping is a model of logistical intermediation followed by billing. E-commerce attracts customers through marketing actions and manages sales through a functional and intuitive store. In addition, it offers customer service channels efficiently (usually: email, chat and phone).
The customer is not aware of dropshipping, as it is a practice agreed between e-commerce and its suppliers without changing the stages of the online shopping experience.
3 – E-commerce sends the customer’s purchase orders so that the supplier can bill orders
Once an order is placed through dropshipping, e-commerce seeks payment approval. If approved, forward the purchase order to the suppliers. The supplier then invoices customers.
4 – Suppliers make deliveries to customers whose orders have been captured by e-commerce
Suppliers will be responsible for deliveries, including from packaging to last mile transportation. In this step, it is crucial to send the carrier tracking codes so that e-commerce makes available to your customers the updated order status until the delivery is completed. Generally, it is expected that the flow will obey 5 stages in the virtual store, as shown below:
- Approved order (Platform);
- Payment approved (ERP);
- Separating (WMS);
- Dispatched (TMS enters this status);
- Delivered (TMS).
At this point, the customer becomes aware that he bought in a virtual store and received the invoice from another company. This can be a dropshipping operation if the website used is not a marketplace.
Benefits
Low cost is one of the most attractive features of dropshipping. The fact of not having a physical or virtual store, which implies high fixed costs (rent, employees, insurance and inventory), suppliers can sell their products through partner websites that take care of the online stage with customers.
In the case of online shopkeepers, the last mile logistical operation and transport taking place in a single channel (supplier or distributor), facilitates obtaining tracking information, as well as outsourcing billing, which is then the responsibility of the supplier.
It is simpler to manage, since the virtual store does not manage physical inventory, one of the aspects that promote greater operational savings for the virtual store. The stages of storage, separation, packaging, shipping and screening become the supplier’s, which reduces costs with people from the perspective of e-commerce.
The benefit on the supplier side is in capturing this customer’s data, which can mean a wide field of action to meet retail demand.
The flexibility of this model is another great benefit. With dropshipping, the online shopkeeper is not anchored anywhere (no need to open tax or branch offices). It is possible to sell almost any product from anywhere and be able to scale the business without worrying about the logistics operation. This is as long as it is a transparent and win-win relationship with its suppliers.
Disadvantages
While the dropshipping model has a low acquisition cost, which is its main attractiveness, this model appropriates a very low profit margin for both parties (supplier and e-commerce). E-commerce often competes with other online stores that use the same product portfolio. The differential migrates to the services that each virtual storekeeper offers to its consumers.
In the case of suppliers, there is an adaptation in the fractioning of orders, in which before the volumes had a corporate complexity (B2B).
Supply and shipping of products can become an issue depending on the location and availability of the item. In the event of an item rupture, for example, if there is no systemic integration between the supplier’s WMS / ERP and e-commerce, the information may burden the customer service process. This can culminate in notifications and legal resolutions to reverse nonconformities.
Another critical point of integration is the TMS of the suppliers’ carriers, which often do not have tools that provide the status of deliveries in real time to e-commerce platforms. Thus, problems in social networks grow due to lack of access to care.
One of the biggest disadvantages of dropshipping is the lack of control due to the lack of technological integration between suppliers and virtual storekeepers. The factories that own the products and are responsible for shipments, need to take care of picking, packing and shipping of fractional orders.
If there are service levels that are not defined in any of the previous steps, customers may receive products with missing parts, damaged products and in this case the contract between the supplier and the virtual storekeeper must explain the responsibilities of each party in order to reverse conflicts with the clients. One of the ways to resolve these impasses is by connecting the factory information with e-commerce via API’s.
Important considerations when choosing dropshipping
The key to finding a good dropshipping solution is to do a due diligence process to qualify suppliers. Among the main checkpoints, it is worth mentioning the order processing, picking, packing and separation times (Logistics Operation Variables – OPL). In addition to considering the service levels (SLA’s) of the carriers that work with the factories that will promote deliveries to customers.
It is highly recommended to contact the company (usually a factory or distributor) that adopts this modality and speak with a representative to ensure that all doubts about the logistics operation are detailed and with agreed service levels for each stage.
An alternative that can enrich the experience is to carry out a pilot with some orders in e-commerce that already operate with this modality and follow all the steps from the approval of the payment until the arrival of the order via dropshipping. Then, build a SWOT analysis of some e-commerce to seek to leverage opportunities to mitigate risks.
Here are some reference sites that practice this modality: Milanoo.com, LightInTheBox.com, DHgate, and AliExpress internationally. Domestically, it is possible to check directly with the supplier who practices this methodology with each segment of activity (clothing, furniture, food, automotive, etc.).
How to avoid some barriers when hiring dropshipping?
If a customer needs to exchange or return your product, the return and / or chargeback process is also up to the supplier. The customer contacts e-commerce, which bridges the gap with the supplier to ensure that dissatisfaction is documented and resolved.
It is good to make it clear that, in every dropshipping process, the supplier is invisible to the consumer (end customer). For him, from the moment of purchase to the receipt of the product, there is only a virtual store in which the customer purchased. For this reason, it is extremely important to find committed partners who adhere to the site’s policies. These include freight, privacy, exchange and return, chargeback, etc.
5 advantages of choosing dropshipping in an online store
Achieving competitive differentials that make the online store more attractive to consumers is a constant challenge, which requires maximum attention to e-commerce trends. Dropshipping, for example, is an alternative that has been gaining more and more market share. But do you know exactly what it is about and when it is really advantageous? Next, we’ll explain all of that and more. Then stay with us!
What is dropshipping?
Dropshipping is a practice that consists of sending the goods from the e-commerce supplier directly to the customer who made the purchase in the online store. In this case, therefore, the storekeeper does not need to have his own stock, as he basically acts as an intermediary between the public and the supplier company.
With the solution, the virtual store starts to receive purchase orders from customers and forward them directly to the partner supplier, who is the one who will effectively take care of the stages of separation and sending the order to the consumer.
The strategy is very popular among individual entrepreneurs who work with marketplaces. But this feature can also prove to be quite effective for stores that are in the process of consolidating an online expansion, see?
It is important to note, however, that in this type of strategy the storekeeper remains responsible for the sale, including problems that may arise. After the product has been dispatched by the partner, the supplier forwards the order tracking data to the virtual store, leaving the merchant in charge of forwarding this information to the end customer.
With this put option, the merchant’s profit refers to the difference between the supplier’s price and that available to the customer. It is worth noting here that, due to high competition, the profit margin per sale is usually lower. However, there is also less spending related to inventory, infrastructure and logistics, which balances the balance.
What are the advantages of practice?
Dropshipping is indicated mainly for small entrepreneurs, who are still starting to work with online sales. In any case, companies that are already more consolidated in the physical environment, but that are looking for a digital positioning, can benefit from the practice. In these cases, the main advantages are associated with greater availability of products in e-commerce and reduced costs in the logistics area.
Keep following to know the main advantages of dropshipping for e-commerce!
1. Relationship between cost and benefit
As we said, dropshipping generates a smaller margin for the selling store. However, it allows savings in other areas, such as logistics and infrastructure. In sum of the advantages and disadvantages, the cost-benefit tends to be positive when the strategy is implemented correctly. A scenario in which this practice can prove to be extremely efficient is for companies that started in e-commerce, but have not yet achieved the desired results.
Some inventory gaps can be complemented with this type of solution, attracting customers for certain products and encouraging an increase in the average ticket or return for future purchases, through a segmentation strategy in email marketing.
2. Absence of stock
The extinction of the stock: this is a great benefit generated by dropshipping, mainly for retailers who are starting their online operations or for those already consolidated companies interested in diversifying their operations, but who cannot make a large investment in this expansion. As the virtual store acts only as a mediator between customer and supplier, the storekeeper does not need to store any product internally, facilitating the process.
3. Variety of products
Because it does not require the storekeeper to have physical inventory or even need to worry about internal inventory and logistics controls, dropshipping makes it possible for more products to be added to the online store portfolio. With this, it becomes possible to establish partnerships with several suppliers, increasing the options for consumers, attracting a wider audience, and retaining customers.
Another differential of this model is that e-commerce is not dependent on stock. So, if a product has more output, but the company can only store 50 units at a time, it repeatedly needs to refuse sales because the product is in short supply, right? The flow is then stopped. With dropshipping, the store no longer has unavailability problems, losing sales thanks to its limited space or the lack of variety in e-commerce.
4. Integration with the platform
Integration is an essential aspect for virtual stores to expand their sales, but for that, it is necessary to rely on specific tools and platforms, conducive to the development of e-commerce, in order to allow the integration and automation of processes. In the case of dropshipping, the integration of the virtual store with marketplaces, combined with an automation system, allows that, instead of the storekeeper having to manually forward each order placed, the system itself makes these requests.
All this facility makes it possible for the shopkeeper to receive more orders, requiring less time in operational activities. The agility to forward the order to the carrier is essential to make a delivery on time and according to the customer’s expectations.
The integration tools allow you to manage in a practical and fast way all the demands associated with the virtual store. In the case of e-commerce that opts for dropshipping, it is also possible to reduce the burden with manual activities, leaving the shopkeeper even more time to dedicate himself to strategic activities and business expansion.
5. Sales scalability
Due to the facilities provided by dropshipping, sales escalation is streamlined. Imagine a virtual store that has to manage its own inventory, following logistical steps of dispatch and deliveries. In this case, the manager must have good control over the amount of sales so that it does not exceed the structural capabilities of the store. As for e-commerces that work with dropshipping, the margin for sales scalability is much greater, since the work does not increase proportionally to the sales volume. Thus, the shopkeeper can sell much more by dedicating the same time to the virtual store.
This facility also extends to stores that are looking for consolidation in the digital environment. If sales have not achieved the expected growth, opting for dropshipping reduces operating costs and helps to increase sales, all without affecting the financial health of the business.
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