A Quick Guide to… Dropshipping
Dropshipping is another relatively new term in retailing that refers to the logistical process of getting a product from an external supplier or manufacturer to the customer without the retailer it has been purchased from having to hold the stock. Here’s our quick guide to all things dropshipping.
Help me understand what dropshipping is?
It’s a two part-process whereby a customer makes a purchase (that requires some sort of direct delivery) from a retailer and then behind the scenes, that order is passed directly to the manufacturer/supplier for them to fulfil directly in behalf of the retailer.
So are customers buying directly from the manufacturer?
No, it’s purely a logistical process to get products from point A to point B and in many cases, the customer won’t even know it’s happening that way. The retailer that a customer purchases through is the retailer that they will continue to deal with for any ongoing requirements or support.
Think in terms of Argos or Next – the customer will browse on their website, make a purchase through their ecommerce platform and receive confirmation emails directly from these companies, but the delivery of their product could come directly from the brand that these retailers’ stock.
It’s about saving delivery costs then?
Yes; it’s more efficient as there are no requirement to bulk-ship products to a retailer for them to store, to then ship on to a customer. But there’s more to it that just logistical savings, and it’s also worth remembering that lower delivery costs benefit customers too so that’s definitely a win win.
Go on then, tell me more...?
For a retailer, this approach to the shipping of products can bring significant benefits, particularly for start-ups or those with limited storage capacity. Regardless of size though, using the manufacturer for direct shipping means significantly reduced storage/warehouse costs as retailers can create a ‘virtual’ inventory. Investment in IT systems between retailer and manufacturer that talk to each other also means greater understanding of stock availability so retailers can see in real time whether products are available and when they can be dispatched, supporting an improved customer experience.
What’s in it for the manufacturer?
In simple terms, access to a potential customer base that for whatever reason they have not been able to, or chosen not to, access directly. This is worth its weight in gold for both increased sales and increased brand awareness.
And for the customer?
Dropshipping is another area enables retailers and brands to offer choice to their customers, which is all part of differentiating themselves and offering the best possible experience. From being able to offer a greater product range as part of their virtual stock to a quicker turnaround (same day delivery anyone?!) and cheaper fulfilment costs, every little helps in the very crowded world of retailing.
Dropshipping isn’t in itself an industry disruptor; at best it’s a logistical level that can help create efficiencies whilst delivering a quality customer experience. It’s hard to deny the positive impact it is having and the potential it offers for more brand partnerships in the future. It’s a process though, and that means it needs regular attention to make sure it’s fit for purpose, technology to support it working and to achieve outcomes that are strategically important to the parties involved for it to remain a workable industry option.
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