What is dropshipping is shown in comparison to other sales and delivery models, in which an intermediate step takes place in contrast to dropshipping.
Delivery method: What exactly dropshipping is
Dropshipping is an e-commerce business model that allows entrepreneurs to sell products online without having to store or ship them themselves. This model has gained a lot of popularity in recent years, especially through platforms such as Shopify or AliExpress.
- While in traditional retail a retailer purchases goods in advance, stores them and then sells them to end customers, with dropshipping there is no need for storage as an intermediate step. Instead, the retailer takes on a kind of mediating role between customers and suppliers.
- In the online store, a customer buys a product based on dropshipping. Once the purchase is completed, the merchant forwards the order to their dropshipping supplier instead of stocking the product themselves.
- The supplier who owns the goods packages and ships the product directly to the end customer. The retailer therefore does not have to worry about storage or shipping.
- In this model, the retailer earns from the price difference: they sell the product at a higher price than they bought it from the supplier, thus making a profit.
Advantages and challenges of the dropshipping model
Dropshipping offers many advantages, especially for aspiring entrepreneurs who want to enter e-commerce with minimal risk and little start-up capital.
- Since they don't have to buy products in advance, they don't need to invest heavily in inventory. Often, a small sum is enough to set up an e-commerce platform and start marketing.
- Warehousing can be expensive and time-consuming. With dropshipping, this problem doesn't arise because the supplier takes care of the storage. Dropshipping also allows retailers to offer a wide range of products without having to buy in bulk. In addition, the business can be run from anywhere because there is no need for physical storage.
- Unlike traditional retail models, where growth often comes with higher storage and shipping costs, dropshipping can be scaled more easily. The logistics tasks are left to the suppliers, allowing retailers to focus on marketing and customer service.
- But there are also disadvantages to dropshipping: It is easy to set up, which is why many people try it out. This creates high competition in many markets, which makes it difficult to differentiate your products. Since many dropshipping retailers access the same suppliers, there is often strong price pressure. In order to remain competitive, many retailers are forced to lower prices, which can lead to low profit margins.
- In addition, the retailer is heavily dependent on the suppliers – both in terms of the quality of the products sold, which they never hold in their own hands, and in terms of availability and possibly longer delivery times from various countries.