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Dropshipping How the “third-party deal” known as the “dropshipping” trend is filling retailers with enthusiasm

Published on 24.07.2019 by Alexis Chappatte, Product Consultant, Post CH Ltd

For two or three years now, “dropshipping” has been electrifying the e-commerce scene. But how does the business model behind it work? Can “dropshipping” also be a long-term success factor for Swiss companies? And what are the challenges that come with it?

As new and modern as the term “dropshipping” sounds, the idea behind is far from it. This is because “dropshipping” is what we know as “third-party sale” in traditional trade. But having become really en vogue again in US trade, the term “dropshipping” is being used worldwide.

In a nutshell, it is a business model in which retailers only buy the goods once they have sold them. Retailers focus on establishing an online sales channel and marketing the products. As soon as they have sold the goods, they order the products from manufacturers or wholesalers, who are then also responsible for shipping the product to the end customer.

The retailers earn their profit from the difference between the selling price and the purchase price. This is a model that can be benefit both parties. On platforms such as Amazon or Aliexpress, online retailers can find a huge assortment of products that they can sell themselves. An advantage of “dropshipping” is that the business model does not need much start-up capital to work. As products do not have to be purchased in advance and there is no need for a warehouse and personnel, the business risk is negligible. For manufacturers, cooperating with the retailer offers the option of opening up new sales channels and selling goods in countries where consumers are not yet familiar with the brand.

Why has dropshipping become a trend?

Dropshipping has gained importance since trade with China was intensified via international marketplaces. Platforms such as Aliexpress, Wish and Amazon have significantly simplified the contact between manufacturers and dealers. Software companies such as Oberlo have specialised in the integration of products from Chinese marketplaces. Oberlo has now been taken over by Shopify and is now available as a native module in every Shopify shop (Shopify has used this as a sales argument).

You can find numerous online reports or quotes from online retailers such as Kris Stelljes from Germany or Yomi Denzel from Switzerland, which explain how everyone can get rich “quickly and easily” thanks to dropshipping.

But that is not how it works in reality. Due to the many challenges associated with dropshipping, such as depending on manufacturers, shrinking margins, difficulties in the shipping and returns process, there are many more losers than winners.

Due to numerous cases of fraud, the number of people criticising the business model is increasing. For example, many social media influencers have marketed products on their channels which they advertised as “special offers” with high discounts; the same products were often offered 5 to 7 times cheaper on Aliexpress or Wish.

Recommendations for beginners

Dropshipping with international suppliers is certainly a new opportunity for online retailers. However, it is neither simple nor particularly cost-effective.

  • The marketing investment should not be underestimated. Successful dropshippers first had to successfully master marketing on Facebook and Instagram.
  • It is very important to find your own product niche. Anyone who relies on purchasing their products from China must accept the fact that they will be copied quickly. When this happens, the product is no longer niche. Searching for European suppliers seems to be a more sustainable approach.
  • Searching for reliable suppliers or wholesalers is equally important if you want to be successful. The service quality for shipping and returns should be agreed with the suppliers and wholesalers and be communicated transparently in the online shop.
  • Last but not least: dropshippers should offer clear and fair added value with their products. The many cases of fraud have made end customers cautious.
Interesting

Alexis Chappatte, Product Consultant, Post CH Ltd

Alexis Chappatte is a Product Consultant in Swiss Post’s Digital Commerce Competence Center.

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