Future of Drop shipping in "INDIA"

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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