September 2021 | by Lili
Dropshipping and fulfillment explained
Table of contents
Dropshipping and fulfillment are two terms often used in e-Commerce when we talk about services that help sellers succeed. But are we all on the same page about what they actually mean? Here’s a little help if you’re unsure.
Dropshipping
Dropshipping is a form of selling where the seller doesn’t come into actual contact with the product. Instead, when the order comes through via the seller’s online listing, they contact a third party to fulfill the order and send the product to the customer. This means that dropshippers do not hold physical stock. They set-up shops online and then sell products on for a higher cost than what they are purchasing them for.
Dropshipping is attractive to sellers as there are very little start-up costs and not much to do other than setting up an online shop and finding a service to do the actual shipping for them. Dropshippers can pick and choose various services that take care of as much or as little of the selling and shipping process as they need it.
There are four questions a dropshipper has to take care of before they can set up shop.
Question 1 — The Product
The first step in the process of dropshipping is picking a (or several) product(s). Successful dropshippers do well because they think of lucrative niches and are great at advertising their products. And since they don’t have to deal with logistics, storage and all the rest, they can put all their energies into finding the perfect niche, and coming up with the best way to catch customers’ attention.
Question 2 — The Online Shop
Dropshipping itself requires a little bit of internet know-how. There are a lot of companies, i.e. Shopify, offering hassle-free storefronts that can integrate with social channels like Facebook. For the customer, there is often no way to determine if an online shop is operated by a dropshipper or a traditional seller. Just like any other vendor, dropshippers can make use of social media or PPC online ads to drive traffic to their online store.
More often than not, one of the biggest challenges for dropshippers is how to make their store stand out from the competition. Social media is a widely popular way for dropshippers to advertise their products. Paid ads on Facebook, Instagram and Twitter will direct the customer through to the online store.
While most platforms perform some kind of verification for these ads, sometimes fraudulent sellers can still get through and publish IP-infringing ads using stolen imagery or promoting fake goods. This is why brands can’t forgo a comprehensive online brand protection program complete with social media monitoring that detects and eliminates these threats.
These fake ads usually lead to beautifully crafted online stores. (No, not all fraudsters are IT wizards, but services like Shopify allow them to build incredibly authentic-looking online stores.)
Question 3 — Shipping
Once an order has been made via the webshop, a third party called the dropshipping supplier will ship the order straight to the customer. Most dropshippers will never even need to see the product they are selling. Which is fine if it’s the 1000th product that’s shipping out, but have they actually ever seen what they are selling? If not, then this obviously raises a number of questions about quality and authenticity.
Good dropshippers who set out to build a long-lasting company will more than likely purchase the products and test them first. This also gives them the ability to write better content and descriptions about the products in their ads. However, many fake sellers or scammers will never even lay eyes on the product they are selling to you.
Question 4 — Returns
If you are unhappy with a product as a customer, then you should have the right to return it. Dropshippers should expect a small percentage of returns (that happens with even the best products) and have a good returns policy. Unfortunately, dropshippers with bad intentions tend not to bother with this issue at all. Even though most services that help dropshippers create their online storefront will have advice or templates on a returns policy.
As a customer, a good way to separate genuine sellers from fraudsters is to look for a returns policy, as many fraudsters will not bother putting this into place.
The pros and cons of dropshipping
So is dropshipping worth it? For some, maybe, for others, maybe not. Here’s a list of pros and cons to summarize our findings.
The pros of dropshipping
- Minimal start-up capital is needed
- It’s easy to set-up
- Overheads are low
- Can work from anywhere in the world
- Large selection of products
The cons of dropshipping
- Profit margins are usually low
- Tracking sales can be hard as you are not holding the inventory
- To make any real profit you will need to rely on more than one supplier which means more shipping costs
- You won’t always be able to ensure that customers get a quality product
- Similarly, returns may be a challenge for the customer
- As dropshippers themselves are not in charge of the process, they are unable to directly provide shipping codes to the customer
Another popular service that helps sellers navigate the challenging waters of e-Commerce is fulfillment. Many large marketplaces, including Amazon offer fulfillment to their sellers. But what is it?
Fulfillment
Basically, fulfillment means the completion of an order. All businesses selling a product will have fulfillment as part of their process, but many don’t do it themselves. In this case, fulfillment refers to contracting a third party (often the marketplace itself where the product is listed) to complete a customer order.
Where in the process does fulfillment occur?
Once an e-Commerce business sets up their online shop, they need to deal with the logistics of filling orders, which includes packaging the product and shipping it to the buyers’ address. If a seller wants to deal with fulfillment in-house, they need a warehouse and partner with a delivery company.
A person preparing a box for shipment
Setting it up in-house is a reasonable option if you are starting small. But for someone who might want to start a big dropshipping business with loads of different products, outsourcing fulfillment is probably the best bet. Indeed, many products you see advertised on marketplaces like Wish or on Facebook are fulfilled by third-party companies. As we mentioned earlier, this is why social media monitoring is an unmissable part of your online brand protection strategy.
How does outsourcing fulfillment work?
As we said, many marketplaces offer varying degrees of fulfillment services to their sellers. But there are also companies that specialize in the creation of a type of product and fulfill customers’ orders, like printing T-shirt designs.
Depending on the degree of service, there are a number of different types of fulfillment companies.
Full-service fulfillment
A full service fulfillment company will take care of the whole process end to end. They take customers’ orders both on- and offline, then pick and pack the item or items and make sure they get to the delivery company. After this, they will email the customer to let them know the order is on the way. A full service fulfillment company will also help sellers with stock control.
Other fulfillment options
If full service isn’t something you need, then various companies exist to take care of different steps, e.g. packaging and shipping. If you want, you can even mix and match providers, and use one fulfillment company for your warehousing and another one for packaging needs.
Potential problems
Fulfillment may further aggravate the already highly complex IP-threats brands face online.
Because of the large number of actors and everybody only responsible for a small section of the process, it may become harder than ever to track down who actually infringes on your IP rights. And this is true even if all participants act with honest intentions and they may not even know they could be hurting your copyright by using a protected image, for example.
But it gets even more difficult when some of the actors enter the scene with harmful intent. These are the fraudsters and scammers to watch out for, but since they’re usually very well aware that what they're doing is wrong, they’ll do everything to hide from you.
Which is why it’s more important than ever for brands to put an effective online brand protection program in place that detects and eliminates these threats.
Contact us to find out what globaleyez can do for you.