Drop shipping is used by manufacturers and wholesalers as a marketing technique to sell their products at little cost. For the retail sellers, this is a low cost option to sell products without stocking merchandise. It is thus a win-win situation for both distributors and final sellers.
Drop Shipping Explained
- No Merchandise Stocking: Unlike the traditional retailers, the retail seller does not stock the merchandise. Instead, the drop ship retailer passes on all orders received to the wholesaler or manufacturer.
- Shipments under Your Name: The wholesaler or manufacturer then ships the order directly to the customer indicated by the retailer. This might be done in a way to make the shipment seem to have come from the retailer. Private labeling or attaching a customized packing slip with the retailer’s name, address, contact details and logo might be used to achieve this end.
- Profits & Payments: The drop ship retailer sells at a price higher than the wholesale price. The margin between the retail and wholesale prices constitute the drop ship retailer’s earnings. While the customer pays the retailer, the latter pays the wholesaler as agreed in the drop shipping contract.
How Does the Drop Ship Retailer Sell?
The retailer can use different methods to sell the merchandise. Some of these are outlined below:
- Online Promotions: The drop ship seller might put up a website with product sales copy and then promote that site using Web Site Promotion techniques. The retailer can also conduct Email Marketing Campaigns to sell the merchandise.
- Online Auctions: The seller might list the items at online auction sites like eBay and profit from the difference between the bid price and his costs (wholesale price plus listing/promotional costs).
- Offline Promotion: The seller might keep a few samples to show to prospective customers and pass customer orders to the manufacturer/wholesaler. Alternatively, the retailer can conduct a direct marketing campaign using a product brochure or other promotional material.
Whatever approach (or combination of approaches) the drop ship retailer uses, the selling prices and volumes must be sufficient to recover the amounts paid to the supplier plus the marketing costs. It is hence important for the drop ship retailer to be a good marketer.
Drop Shipping Success
- Marketing Skill: You have to organize convincing sales copy that will appeal to your customers. You will then have to promote your business to bring your offer to numerous prospective customers to achieve sales volumes.
- Product Selection: Even the best marketers would find it tough to achieve sales and volumes if they are selling something that large numbers of other sellers are selling in the same market. So you will have to select a product that has less competition, say, a niche product.
- Drop Shipper Selection: You will have to locate genuine drop shippers – wholesalers or manufacturers – instead of working with another retailer who is masquerading as a drop ship wholesaler.
- Drop Shipper Quality: You will also have to select a drop shipper who is conscious of product quality and customer care. Otherwise, you might be flooded with complaints from your customers.
So proceed carefully, fully aware of the above success requirements.