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|Does drop shipping create mistrust with customers.|
Why do so many e-comm sites avoid mention of drop shipping.
In our industry, close to 100% of ecommerce merchants have adopted drop shipping as a business model. And Im talking about mature businesses in a mature niche industry; not some coffee table operation.
Yet very few mention that the products are shipped directly from the manufactuer.
Drop Shipping (with real time inventory control integration, etc), is a win-win situation with the consumer, from receiving there shipment quicker, greater stock choice, and a reduced carbon footprint from the enviornmental side.
Yet I have not seen a company proudly promote that they drop ship; and list all the advantages; as a marketing tool.
Why are ecommerce sites lurking in the shadows when it comes to drop shipping?
The closest I have seen, is mention that products may ship from multiple warehoues (that just happens to be in the same city as the manufactuer).
We are thinking about comimg out of the closet about or drop shipping activity, and where the label as a proud progessive company with envionmental concerns.
Maybe because there is an intuitive feeling by those ecommerce operators that the income is being earned without an accompanying effort to work for it and that makes them feel uneasy deep inside?
From my perspective it is a form of multi level marketing (MLM) which I've always said just adds to the spiraling costs of consumer goods.
Personally, as a developer, I will turn down requests to develop ecommerce sites if it is based on a MLM model. I consider drop shipping business models MLM.
I think it's a matter of trust and understanding. As a consumer,
Why should I order from someone who doesn't really 'have' it?
Why should I trust your product description if you've never actually 'seen' it?
Why should I consider you an expert if you're just a middle man?
Why should I pay you to pass my order along to someone else?
Come clean about drop shipping. Your competition will be thrilled.
A company who's business model is to promote a product line, attract customers, add industry/product value, etc. is not an MLM.
Why? Quite possibly, cost and shareholders return.
In our industry the model goes something like this:
1. Manufacturer makes the goods
2. Wholesale distributor purchases and inventories goods from the manufacturer
3. Dealer purchases and inventories goods from the Wholesaler
4. Consumer purchases and inventories goods from the Dealer
For the MLM fanatics, one could argue that the "Dealer" in Step 3 is participating in MLM. Wait.......for that fact, why not include the "wholesaler" in Step 2 also? Why not have ALL manufacturer's ship direct to the consumer?
Not all industries, manufacturers and products lend themselves to this type of direct nature due to the operating costs of servicing a direct business model. When you start ramping up the costs it generally means a decreased shareholder return. We know shareholders want good returns, so many manufacturers don't do this.
We are a "Dealer" or Step 3 from above.
We are primarily a construction company and we don't stock much.
Does this make us an MLM?
We also sell online.
Does this make us an MLM? Not Hardly.
Why do we have to stock something in order to be an expert on the product? Why do we have to promote the concept of drop-shipping when all the consumer wants is the lowest delivered cost?
The reality is that it's the delivered cost of products which really gets a consumers attention. Now, this is not to negate the value-add which some online companies add. Believe it or not, yes there is a lot of value-add which we bring to the table but that's a whole other discussion.
As far as promoting the concept of drop-shipping..........most consumers don't care.
Because I can get it and deliver it for less.
|Why should I order from someone who doesn't really 'have' it? |
Are you sure I haven't actually seen it? We actively install all the products we sell in the local market so that we're certain not to be shipping out product with a high failure rate.
|Why should I trust your product description if you've never actually 'seen' it? |
Just because I'm a few steps off the manufacturer does not mean that I'm not an expert.
|Why should I consider you an expert if you're just a middle man? |
Maybe because you either can't get the product direct or for less anywhere else?
|Why should I pay you to pass my order along to someone else? |
In answer to the thread. I don't think drop ship causes mistrust with the consumer when you're upfront about it. We are and it works to our advantage when we discuss the fact that we are in the business of installing the products we sell. The point of having a wholesaler or manufacturer drop ship then becomes mostly irrelevant.
I don't know why you want to mention that you drop ship, unless you present it in a way that would make a difference to the buyer. If your buyers are looking for best prices... that's a dangerous piece of info to share!
When you say - "We don't stock products and have a third party company handling the order fulfillment" the buyer hears... "I can get this cheaper elsewhere, since we are just a middleman"
If you are talking pennies in price difference like DVD's, its not a big deal, since everyone operates on the same thin margins.
|Because I can get it and deliver it for less. |
I'm not arguing that drop shippers are inferior, or the merits of one business model over another. I do a fair amount of dropshipping myself.
My point is that the perception to the consumer is different. Even though a large percentage of ecommerce is drop-ship, it is my belief the the vast majority of consumers truly believe that the company they buy from carries inventory.
I also think that carrying inventory (or the perception of) imparts some legitmacy in the eyes of a consumer. ie less likely to be a fly by night operation. Simply because carrying inventory requires investment (not that drop shipping doesn't, but inventory is an obvious investment).
*Some* consumers will see a dropship only web store the same way as a dressed up shop window with nothing behind it.
Edit: If you are in the business of installing, that's different. You are primarily selling a service, not a retail product.
I also want to say I'm not convinced that drop-shipping has a lighter carbon footprint, unless you ship from a single warehouse. The number of miles each product travels may be less, but the number of times the miles need to be traveled may be more...if that makes sense
To give some clarification, we are not a MLM. We deal directly with the manufacturer (although the manufacturer may outsource some of the actual production [but not the concept and design specs] to China).
Yes there is middleman out there that pray on novice e-tailers, and I believe these con artists, are what are giving drop shipping a bad name among e-tailers. I don't believe consumers are aware of this however.
Our business model is also very environmentally friendly, as it dramitically reduces distance traveled for the product's.
The drop shipping aspect is something that will come out of our green e-tailing business; but maybe we should refer to it as green logistics rather than drop shipping; when we show those diagrams reducing the road travel that their product travels.
As far as the competition finding out; well in our business everybody is drop shipping anyways; If they haven't, they have already gone out of business.
I actually see three phases in the developement of ecommerce.
Stage 1) Ecomerce storefront with traditional backend, where product is shipped to the store and then to the customer. These are the dinasours
Stage 2) Ecomerce storefront whith dropshipping of the product from the manufacturer/primary distributor. This is already standard in many industries.
Stage 3) Eccomerce storefront with drop shipping, and integrated order fullfillment with the manufacturer/primary distributor. Features include real time stock, and automatic transmission of tracking to the customer. This is the golden age of e-tailing. Actually, many sites that are selling electronics are already doing this, since their razor thin profits, mandate the minimizing of customer service inquires.
In my niche there are three or four online retailers who do far more business than anyone else. Two of them I know for sure keep at least some of the products on hand.
The third has rapidly become very popular because their prices are far below anyone else's. In fact, their prices are in many cases just $10 or $20 above wholesale on items that cost $200 to $800 or more. According to reliable sources, they sell an average of 200 items per day.
The nature of the products prohibits drop-shipping. By law the product must be sent to the retailer first. In the case of the new low-priced retailer, they have a disclaimer on their site that says "please allow 3 to 7 days before your order is shipped."
Why? Because they're ordering products from the wholesalers when the orders come in. They're not stocking anything.
It costs money to maintain inventory. You either have your money tied up in the inventory, and are thus losing money on interest you could be earning elsewhere, or you're paying for borrowed money. Either way, you need to recover the costs of carrying stock, and that means higher prices.
If the consumer wants low prices, he's going to have to accept drop-shipping and/or retailers without inventory.
Just looking at it from an average joe's point of view... They aren't going to care about all the economics of it. I think if the average person knew that the products are coming directly from somebody else, or various somebodies... the first thing many people will think, is that they're paying some guy for being a middle man and doing nothing but answering an email... and maybe they can get it directly from somebody else. I'm not saying that's the logical way to think of it, I'm just saying that I would bet many people would view it that way.
Me personally? I'm the wrong guy to ask, because I bust my butt 7 days a week doing everything drop ship people do, then I have to manufacturer all the stuff on top of that.
I've ordered stuff from places that I later found were drop-shipping, and it turned out to be a problem, because it was very unprofessional. I'm not saying all people who do it are bad, but everybody knows there are some bad ones out there... Literally, guys running stuff from their bedroom and don't have a clue about a single product they sell. I actually have guys like that referring customers to ME, because they know so little about their stuff, they can't even answer their customer's questions. So I think it's the 'one bad apple' scenario. Anybody that has been down that road will most likely not have a positive opinion about drop-shipping. Therefore, advertising it... probably not a good idea.
|I've ordered stuff from places that I later found were drop-shipping, and it turned out to be a problem, because it was very unprofessional |
And those that used good drop-shippers? You would never know.
That's the problem with drop-shipping. Their mistakes become your mistakes and reflect on your company.
|Yet I have not seen a company proudly promote that they drop ship; and list all the advantages; as a marketing tool. |
What advantages to the customer? That you have access to lots of stock from the drop-shipper? How is that any different from a company that has access to lots of stock from their shelf?
The advantages to drop-shipping are to the business and not really to the consumer.
agree 100% as many that buy off my site actually call first and ask "do you carry stock" I assume they have been burned before by drop shipping sites.
|The advantages to drop-shipping are to the business and not really to the consumer. |
Had a guy call me couple years back he just opened a site and did all this work adding hundreds of products. He was asking me if we would ship for him because the dropshipper he was using was taking forever to send out and all these customers were calling him.
Took a look at his site and asked him what are you thinking with your prices, his reply was the dropshipper told him the best way to get started was be the cheapest on the net. I said man your not gonna be in business long and showed him from his sale he only made $1.00 and he was losing $ on every sale from cc processing. Not to count the PPC he was spending to make the sale, so there are dropshippers that decieve many to profit.
So to answer the question yes I am sure the reason why is that customers mistrust of dropshippers. I am not indicating all dropshipping sites are not great sites but the nitch I am in they are a problem, and from the read on the site with the cheapest prices I tend to believe they to won't be around long either.
Threads like these tend to generate rather strong responses from forum members who have competitors undercutting their prices by using drop-shipping, not charging MAP, or engaging in other practices. That's understandable, but it's wrong and probably not wise for those folks to paint their competitors with such broad brushes. If you dismiss the competition as idiots, you may miss the methods they're using to overtake you.
I just had a call minutes ago from a customer wanting to know if I had an Acme model XYZ in stock. He said that most of the sites he went to didn't have it in stock. Of the five distributors I deal with, two had the XYZ in stock. That distributor has at least three dozen of each of the fifteen or so different models Acme makes in stock. That's over $200,000 in inventory just for one small manufacturer. Hard for a small online store to match those resources if they're selling from their own inventory, and a great resource for someone who sells by drop-shipping.
As for drop-ship retailers not knowing their products, that's not something exclusive to drop-shipping, that's everywhere. There's morons in the brick and mortar world just as there are online. You have to know your product, whether you stock it or not.
Manufacturers sell to distributors because they're in the business of manufacturing, not wholesaling. Distributors sell to retailers because the retail business is entirely different than wholesale. To be successful, the retailer has to use a variety of means to get customers to buy. That's true whether it's a brick and mortar store, a stocking online store, or an online store that drop-ships.
I have a very successful client who does only drop shipping, their turnover is 12million a year, they have a website alone and sell cookers, the order is placed on the website and then the order is shipped straight from the manufacturer.
Mind you we do a great job with SEO on their website, which helps.
Me and my wife also run a business from home and drop ship the items which take up the most space, because we do a fair amount of business, we have managed to get a decent discount from our dropshipper.
The difference with using them is our goods get sent out same day. I dont think the customer cares whether the retailer carries physical stock or not, as long as they get their goods they ordered in a reasonable time.
Well after looking at all the comments; I have found that dropshipping can either be associated with a well design business model right down to scam operations.
Well if most consumers don't care about dropshipping and only care about price and delivery; I will stick with the going green theme, integrated shipping, tracking, real time inventory and delivery from our centralized warehouse (which is actual fact is our manufacuter's warehouse).
I don't think it's "most consumers don't care about dropshipping and only care about price and delivery." I think that's true only if that is the kind of customer you want to attract. If you want customers who are motivated by "I want quality" or "I want service" or "I want custom," then you can design your business to attract those customers.
I make a large percentage of my products. I supposedly compete against many people who simply buy their products from distributors and use canned descriptions, pictures, etc. They HAVE to compete on price. I don't. That's one of the advantages of NOT dropshipping.
|I don't think it's "most consumers don't care about dropshipping and only care about price and delivery." I think that's true only if that is the kind of customer you want to attract. |
Thumbs up to this. Is also going to vary significantly by niche and target demographic.
Give you an example of an order my mother-in-law just placed on the internet. Making a baptismal gown for a grandchild and wanted some fancy type of yarn that some lady makes in her attic in California. Atrociously expensive but she didn't care. It was 'special'. Finds a shop that carries it. Orders a couple balls of this yarn, couple balls of this other yarn, and some needles.
When she gets that box, she doesn't want just the one kind of yarn, then the next day the other kind of yarn, and then 2 days later the needles in yet another box - or even 2-3 boxes that all arrive the same day. She wants all the balls of yarn, arranged neatly, with the needles, in a single box. If the needles aren't in there, she's going to call customer service and assume they forgot them. The only way it would work is if there was a distributor that carried every last kind of yarn that anyone made in their attic, so that everything could be shipped together.
Point being that for specialty products, there aren't monster distributors, so often the retail entity takes on that role. Buy cheap from individual manufacturers on some things, buy wholesale on some other things, keep a lean, smart inventory, and you are in good shape.
Because of the breadth of our product catalog, I get approached several times a year by folks asking if we will act as dropshippers for them. So far I've always turned them down.
We do dropship several large, big-ticket items, things that a customer wouldn't expect to come all together.
Electronics, whole different ball game. If I order a Samsung TV and a Nikon camera, I'd be surprised to see them come in the same shipment.
And of course the last thing, maybe I'm paranoid, but I don't like to have a large part of my business model depend on any one other entity.
One company that I have used a lot, which has been around since paper catalogue days, explicitly states beside certain big ticket items that they are shipped direct from the manufacturer. No problem with that and I don't expect them to turn up with the rest of the order.
A good personal example for me would be Amazon... Maybe it's just my imagination, but it seems like they have less actual products on hand then they did a number of years ago. Or maybe it just seems that way, because there are more third parties selling through them now. But at any rate... In the last couple years, I've had them do a thing where it says it's coming from them and in stock, then it's obvious that it's really not. That doesn't happen on everything, but it does happen. I go out of my way to pick items that are coming directly from them and in stock whenever I can. In one instance, I actually picked an item that was a few dollars more than a third party, just because it came from them. Then it didn't. It's not a huge deal... You still get the free shipping and everything. But it's just one more thing to have to be around to accept when it shows up. And they also break down the billing on the different items, which is a pain in the butt to fix in your register when you're doing your bills.
So not the end of the world. But for me personally, I don't like that.
We are always looking for new products to sell and being a small company anything that can dropship is appealing to us. It takes time and labor off of us. I do, however, think it's important to make sure the customers know up front and are made to feel comfortable with your company's website. Other customer's reviews are a great way to do that.
Can't see why it would matter if you have good relationships with the shipper and it's packed well. Same as using a fulfillment warehouse, or hiring your own people to do it.
All of the distributors I use for drop-shipping have people who do nothing but handle drop ships for retailers like me. Packaging is professional, and the box contains an invoice with my company name and address.
Up until a two years ago, the largest wholesale distributor in my niche refused to drop ship, instead only shipping to the retailer.
As they watched other distributors take in millions of dollars by drop-shipping for online retailers, they had a change of heart. If they hadn't made that move, they'd now be #2 or #3 in the industry.
It's all about setting expectations and educating the customer.
Customer frustration only comes from hiding business practices and not explaining to the customer what to expect.
Come out of the closet, explain that since it comes direct from the manufacturer they're saving on duplicated shipping costs and wasting energy moving products twice for no real purpose.
Wrap a "green" label on it and promote yourself as energy saving BECAUSE you drop ship, good for the planet!
When the products are placed in the cart it should group them based on shipping locations, explain it'll be 3 boxes instead of 1. Make sure the final order says how many boxes, the boxes themselves should plainly state "1 of 3" or whatever on the shipping label in big letters. Additionally, the customer should be able to track the entire order from your site and reinforce the order tracking on every packing slip, etc. to keep people off the phone as much as possible.
Explain why your prices are better because you're saving on warehousing costs, also explain how eliminating the warehousing redundancy saves energy too, the fewer warehouses, the greener!
Make the customer understand you're doing business this way to give them the best deal possible while doing what's best for the planet as part of your business model.
Make it a marketing win and send your competitors off the deep end trying to figure out how to combat your honest and "green" approach!
Heck, if you know your competition is drop shipping as well, out the competition by telling people that nearly everyone in your industry drop ships, they just don't tell you they do.
Be the honest guy and make the others look like shady jerks ;)
In the consumers' mind I think when they visit a website where the dollar value is of consequence and the product may require warranty, parts and service in the future they're asking themselves:
Are you a source of information or are you a source of information and product and can I trust you? If you're a trusted source of information and products I think you win hands down on high value purchases and win again on even lower value commodity items since "trust" is such a driving consideration when a visitor to your website is trying answer the first question: Who are you?
A Drop shipper need two things- a computer and an internet connection. Is that a legitimate business model? The consumer decides or is oblivious. One other point- manufacturers and distributors need to build in more margin to cover the cost of drop shipping (adding staff, fulfillment, support, returns, etc.) so you could argue drop shipping is inflationary.
Does anyone advertise that they DON'T dropship? That they ship direct from their own company?
We've done that. Makers often run out of hot products when demand is highest. We anticipate that and sometimes have items in stock when no one else has.
Besides, I don't trust suppliers with info about our best customers. Many seem to be preparing for the day when they "go direct."
|Yet very few mention that the products are shipped directly from the manufacturer. |
People start to wonder why they're not just ordering directly from the manufacturer when they learn of things like that.
The key to being the middle man, is mentioning that you're a middle man as little as possible.
I have to wonder if the consumer really have a concern in this area. I personally would not advertise anything that discusses the finer details of shipping and handling e.g. drop shipping.
I'm a distributor of printing and promotional products (schwag). All of our products are drop shipped, does that make us an MLM? The manufacturer WILL NOT work directly with the consumer.
|I personally would not advertise anything that discusses the finer details of shipping and handling e.g. drop shipping. |
Ever run a big ecommerce site?
Customers are bonkers about shipping costs and shipping details, lack of disclosure can cause problems IMO.
Used to own a site with stock in a warehouse, plus drop shipping of larger items, and each product in the catalog said, depending on the status, one of the following: "IN STOCK", "ON BACKORDER" or "DIRECT SHIPPING". We just didn't call it drop shipping to the customer at the time, it was shipped "DIRECT" from the manufacturer.
Set their expectations properly and you have less problems when packages arrive from other unfamiliar locations.
I can be very long-winded about this, but in short, I think the underlying reason it's kept under the table is that it's part of a new economic model, and nobody trusts that it's legit, including the drop shipper.
Before you needed a physical bridge between the manufacturer and the consumer, because everything went in a store. Bricks and mortar.
Now the sales force can safely depart from the product's locale, because there's no infrastructure link. Even if a manufacturer is online and ecommerce-enabled, you still need to find consumers and sell them on product, unless the manufacturer somehow reaches all its target audience on its own, which is doubtful. That's what merchants who use drop shipping, affiliate marketers and advertising based publishers do.
People have it totally backward. Now it's not the sales affiliate, not the online storeless "merchant," not the AdSense publisher, who's the middleman. It's the bricks and mortar retailer. Why do you need them except for extremely local and immediate products?
It's why Amazon moved away from being exclusively warehouse. Every year they move closer to becoming an all-inclusive retail search engine and farther from a store.
|It's why Amazon moved away from being exclusively warehouse. Every year they move closer to becoming an all-inclusive retail search engine and farther from a store. |
And this is why jsinger's point is worth repeating. If you have the reach of Amazon, you have the footing to negotiate with your supplier as an equal.
If you're a small to medium site outsourcing your fulfillment to a manufacturer (particularly one that has a shopping cart etc already for merchants to use) you are turning over specific customer sales information to a company that may become your competitor in short order.
It's a ready-made business plan for a manufacturer as well. Make something, build a following for it through retail drop-shipping...once you have a couple years worth of data and sales leads, hire a marketing department or agency, get good serp for your brand name, then pull the plug and go exclusive.
If your business plan is to drop ship, if you have a robust list of vendors, or established ones with no interest in direct sales (that you know of) you might be ok.
If you're a small shop that works with one or two dropshippers, one of them pulling the rug out could do you in.
|It's a ready-made business plan for a manufacturer as well. |
Yes, that's where we're headed. No reason why not.
But why wouldn't they choose to pay the people who are already doing it?
Some things can and will be automated, but sales people and manufacturers will always have leverage. I can see where eventually manufacturers won't need web developers - opening a store will be easy and quick - or tax accountants - everything could be done automatically.
But they'll always need product reviews and product expertise, whether on their own websites or elsewhere - ideally, elsewhere, where they'll be considered independent and trusted. Even crowdsourcing isn't automatic - those crowds will want to be paid.
Admittedly, I think this will happen in the farish future.
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