Do you fancy yourself as a digital-savvy marketer?
Are you proficient with social media, SEO and online advertising?
Drop shipping has taken the world and India by storm and is a business model that utilizes an entrepreneur’s digital skills and
marketing acumen. According to a market report by ResearchAndMarkets.com, the drop shipping market was valued at US$ 162.44
billion in 2019 and is expected to grow to US$ 591.77 billion by
2027. Drop shipping is essentially a business model where an entrepreneur does
not manufacture, hold inventory or physically arrange delivery of goods to the
consumer but builds a digital store and an online customer base. The seller has
to identify the right partners for supply and distribution and ensure a
seamless buying experience for the consumers.
Like any business model, drop shipping has certain core elements.
The Right Supplier: One may think that the
products need to be selected before starting any business. Drop shipping
differs in this aspect. Since the drop shipping business does not control the
manufacturing process or inventory, it is important to partner with a supplier
that can manufacture and deliver goods of high quality at the agreed price and
schedule. The location and distribution power of the manufacturer can also
impact consumer experience. Without the right supplier, any drop shipping
business would fail as e-commerce customers have more control now through
instant feedback and influence on social media platforms. One bad customer
review on an Instagram story or YouTube channel can sink the business if the
product is poor in quality or packaged badly.
Profit Margin : When choosing the right supplier, the seller has
to consider if one or more products have sufficient profit margin to resell on
the digital store. Typically, suppliers and delivery partners prefer long term
agreements and require advances for manufacturing and distribution which means
that the seller has to have financing in place. Apart from costs of financing,
the e-commerce entrepreneur will incur selling and administration expenses. It
is also possible that customers may return goods to exchange or cancel their
orders for reasons such as delay in shipping or unmet expectations.
Cash-on-delivery (COD) has become a popular payment mode and impacts the
working capital. Costs of returns have to be factored by the seller to arrive
at whether the profit margins are sufficient to operate the drop shipping
business. A breakeven analysis would help the seller to understand what is the
minimum quantity to be sold in order to achieve operational feasibility.
Consumer experience : All e-commerce platforms
need to ensure a seamless consumer experience but this is especially heightened
in the drop shipping business model. With a rush in e-commerce accelerated by
the pandemic, drop shipping entrepreneurs need to differentiate their stores
from other competitors. Fortunately tools and plugins offered by Woo commerce,
Shopify and others support e-commerce businesses. Sellers have to be skillful
in managing flow of supply-demand, especially if products being offered are
shipped from overseas. Many drop shippers offer products from China and have to
manage availability of products from and relations with manufacturers when
demand picks up or slows down.
The concept of drop shipping is not new in India and there are
multiple independent ecommerce platforms across the country selling goods such
as ethnic wear from Gujarat to electronics from China. Drop shippers in India
face intense competition from Amazon and Flipkart who have huge financial
resources to increase their product portfolio and discount prices as well as
brick & mortar retailers such as Reliance who have jumped online. Large
e-commerce platforms have negotiating power with their suppliers to demand
preferential treatment in terms of supply, price and availability of products
over smaller retailers. In addition, online fraud involving fake or defective
products has made Indian e-consumers wary of unknown online retailers.
Like all businesses, the drop shipping business has been impacted
by disruptions due to the pandemic. The opportunity for drop shippers lie in
selective curation of products that appeal to the sensibilities of the growing
online consumer base and unwavering customer service to build loyalty and
repeat purchases.
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