The Meaning of Drop shipping : Understanding, How it Works, and Its Advantages and Disadvantages
What is drop shipping?
In the business world, the meaning of drop shipping is a way of marketing a product in which the seller or retailer does not need to buy and store the goods being marketed, and when the seller receives an order, the seller will forward the order and delivery details of the goods to the supplier / manufacturer.
Another opinion said, the meaning of drop shipping is an online marketing method where the seller does not need to carry out stock activities and delivery of goods to the buyer because the activity is carried out by the supplier or manufacturer.
Many consider the drop shipping system model to be the same as a reseller, even though they are different. If the reseller has to buy goods from the supplier first and store (stock) of goods before marketing.
In the drop shipping system, the businessman (drop shipper) only serves as a marketing force and serves the buyer in terms of communication. Drop shipper does not need to buy goods, no need to stock, no need to do packing and shipping, all of these processes are carried out by the supplier.
The Meaning of Drop shipping and How It Works
Since internet technology has increasingly developed in around the world, the drop shipping business has also experienced very rapid growth. Anyone can act as a seller or retailer and cooperate with suppliers of products that are sought after via the internet.
Actually the way this drop shipping business works is quite simple, consider the following picture:
Explanation of the picture:
- Seller or retailer markets a product through the internet; be it through websites, marketplaces, social media, and other e-commerce media.
- Buyers who are interested in these products contact the seller and order goods to the seller.
- Customers make payments to sellers, payment methods can be via Bank transfer, internet Banking, Paypal, and many more.
- The seller takes advantage of the difference in the price of the goods he sells. Then the seller orders the goods to the supplier and pays the price according to the supplier. In addition, the seller must also send customer information for shipping goods.
- The supplier packs the goods and prepares them according to the order. In the packing section, the sender’s name uses the seller’s name not the supplier’s name.
- Goods are sent to customers by suppliers using goods delivery services,.
From the explanation above, we see that the seller’s work process stops after sending an order, payment, and customer details to the supplier. However, in reality the process does not stop there because usually the customer will always contact the seller if there is a complaint or ask the status of the shipment of goods.
Advantages and Disadvantages of Drop Shipping
Every business model and marketing system has advantages and disadvantages of each. Referring to the meaning of drop shipping above, as for some of the advantages and disadvantages of the drop shipping business are as follows:
1. Advantages of Drop shipping Business
- Small capital, to start a drop shipping business turns out to be very small, even without capital. The reason is, we do not need to buy goods in advance, and do not need land / warehouse to store goods for sale.
- Tend to be easy to run, drop shipping businesses tend to be easily done by anyone because the process is simple and short. The hardest part is finding the best supplier and product marketing process on the internet.
- Small operational costs, the operational costs of an online drop shipping business are very small because there is no need to rent a physical store. But of course the costs of the internet, electricity, and other expenses must be taken into account.
- A small risk, in the drop shipping system, when the goods are damaged or not sold, the seller will not lose anything. That is why this business has so little risk.
- Work flexibly, at online drop shipping the seller can run his business from anywhere and at any time. However, of course the seller must have a laptop or smartphone device and also a stable internet connection.
2. Disadvantages of Drop shipping Business
- Intense competition, because it is considered an easy and inexpensive business, many people who also run the same business even sell the same goods. This results in even greater competition, especially for certain niches.
- The profit is relatively small, intense competition among sellers makes some people reduce prices. With this price competition, the profit from each item sold becomes smaller.
- Difficult to manage the stock of goods, this often happens when the product selection is massive so it is difficult to know the stock of goods that are still available at the supplier. In the end it will make it difficult for sellers to develop their business
- The complexity of shipping, when sellers market products from several suppliers, this will cause shipping costs to swell. For example, customers order 4 items each provided by three different suppliers, so the shipping costs cannot be combined and become more expensive.
- Receiving complaints, the seller is a party that deals directly with the customer. It doesn’t matter if the mistake is made by the supplier or the shipping service, the seller will receive the complaint.
- Low brand control, sellers cannot use special packaging or include free products (for example promotional stickers) on goods purchased by customers because the packing and shipping processes are carried out by suppliers.
That is a concise explanation of the meaning of drop shipping, how it works, and the advantages and disadvantages of drop shipping business in general. Hopefully this article is useful.