In recent years, the world of retail is ever more competitive. With more and more shoppers purchasing on the internet and the growth of huge brands such as Amazon, small and middle-sized companies have to innovate and evolve just to keep their market share.
It seems that one of the best and most cost-effective solutions comes with drop shipping.
According to Shopify, “drop shipping is a retail fulfilment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer”.
This model has many distinct advantages, but the biggest benefit for the customer is convenience. Drop shipping has played a huge part in the success of Amazon, with people loving the hassle-free shopping experience. No struggling with crowds, or trying to find a parking space, delivery direct to one’s door, and a virtually unlimited range of products have made online shopping the perfect pastime for many shoppers.
Drop Shipping Pros
- A rise in customer satisfaction – The efficiency of drop shipping enables the retailer to offer a virtually unlimited range of products. This means that their customers spend more time on their site, and get into the habit of visiting it on a regular basis. Secondly, because the orders are fulfilled by third parties, with locations all over the world, many products arrive quicker than if they were being dispatched from one location. Customers looking forward to their new purchases hate any delay, so the quicker they receive their goods, the happier and more likely they are to order again.
- Massive cost reductions – One of the biggest issues for any eCommece business, regardless of size, is keeping control of their cash flow. Drop shipping boosts cash flow because it eliminates the need to tie up large amounts of money in stock. This also means that storage costs are virtually eliminated for any items that are being drop shipped, so the financial benefits can be very significant.
- A wider range of choice – Without the need to invest in stock and storage, any company considering the drop shipping model is free to expand its range of products, which should lead to increased sales. A company selling men’s shirts could expand into suits, footwear and perhaps even pocket watches. All of these additional items are complementary to the original stock and will generate additional sales, without increasing costs.
Drop shipping is not entirely perfect, however, and there are a few things that need to be considered. There will need for investments in IT systems so that both parties can track orders, payments, and delivery.
Packaging presents another issue, especially for smaller retailers, as they will need products to be delivered with their branding, both to drive growth and to avoid confusion for the customer. If the client is expecting a product from the red company, but it turns up from the blue company will they feel it is the exact product that they ordered?
With all that being said, the benefits of drop shipping outweigh the negatives, and drop shipping provides huge opportunities especially for small to medium sized businesses.