What Is Dropshipping Or Drop Shipment?

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It’s a popular and efficient business model allowing businesses to sell products without maintaining an inventory and profit easily, unlike traditional models with investments in inventories and management. It gives the business the benefit of not looking for and managing warehouses and still offering a wide range of products.

Key Takeaways

  • Dropshipping is a business strategy where a retailer takes a customer’s orders for products without keeping any of that product in stock and instructs a third party to arrange and deliver the order to the customer.The major stakeholders associated with the model are the seller, third-party supplier or drop shipper and the customer.Its advantages are: Helps to have competitive advantages, a wide range of products, potential to reduce expenses and risks, etc.Disadvantages: Complex and risky practices, reduced quality checks, low-profit margins, etc.

Dropshipping For Beginners Explained

Dropshipping meaning implies a supply chain management technique that avoids the time and expense associated with obtaining, stocking, and shipping the product. As a result, it simplifies the process of delivering products to customers.

The dropshipping method was popularised in the 1960s when anyone could order items from a mail-order catalog. They choose a product, call, and have it delivered to their doorstep from a warehouse.

The major steps involved in the drop shipping process are as follows:

  • The seller signs the dropshipping agreement with the manufacturer or supplier.The customer places an order online.The seller receives the order.The seller sends an order confirmation to the customer.The seller passes on the order to the drop shipper.The drop shipper sends the products to the customer.The customer receives the product.

Examples

Let us look at some examples of online dropshipping businesses to understand the concept better:

Example #1

Imagine that Mrs.Dorothy has an e-commerce business where she sells customized handbags. Dorothy does not keep bags, belts, threads, embroidered handmade flowers, or leather in advance or store them in her warehouse. Instead, she has an agreement with Clarie, a drop shipper/supplier who stores the products in her warehouse.

Once Annie makes a purchase directly from Dorothy’s ecommerce website, on receiving an order from Dorothy, Clarie immediately sends the product to the customer on their doorstep.

Example #2

Example #3

Alibaba launched Aliexpress in 2010. International customers could buy goods from Chinese companies, businesses, or individual sellers on this website. In other words, it provides a platform for small businesses to attract and sell products to customers globally. In addition, it eliminated linguistic and cultural obstacles and made the procedure much simpler.

Pros And Cons Of Dropshipping

Here are some possible benefits and drawbacks to think about while deciding whether dropshipping is the best option for the ecommerce business:

Pros

Cons

  • Complex and risky practice: Maintaining logistics can be challenging when the business expands. It will be even more challenging if the business deals with products from multiple warehouses and suppliers. It is possible to have a poor logistics experience due to incorrect tracking numbers, incorrect addresses, and delayed shipments.Escalate prices: Sometimes, product prices in this category will be higher than the normal selling price.Low margin: Involvement of third parties lowers the margin and increases the dependence on companies. Furthermore, due to the fierce competition in the industry, businesses may end up competing more aggressively on pricing. As a result, selling at low prices might lower profit margins.Reduced quality check: Since the seller is not dealing with the inventory directly, the span of quality control is also affected.

This has been a guide to guide to What is Dropshipping. Here, we explain its meaning for beginners, pros, and cons, with examples. You may also find some useful articles here:

It is an online retail business model technique that allows businesses to start an online store and sell products to customers without having the product in their warehouse. Instead, they have an arrangement with a third-party supplier or manufacturer. The customer’s order is forwarded to the supplier based on the arrangement. Subsequently, the supplier ships the order to the customer.

The initial phase entails choosing the niche of the online business, conducting research, locating a trustworthy supplier to act as a drop shipper, and steadily developing the online store and its activities. The key to success involves selecting the right niche, items, and the right suppliers.

Since retailers are not in charge of procurement or shipping, dropshipping can be a successful business model for retailers. It’s a low-risk business strategy that doesn’t have the high expenses that a wholesaler would typically have. As a result, the seller or the retailer can make a reasonable profit margin with the appropriate suppliers.

  • Inventory ManagementBusiness StrategyInventory Control