Drop Shipping: Do’s and Don’ts
This article was originally published and is republished here with permission from doba.com
10 Drop Shipping Tips that Lead to Success
In just about any endeavor — whether you’re coaching someone in the intricacies of golf, fishing or, in this case, online retailing that employs drop shipping for fulfillment — there are time-tested tips that always work if the student is willing.
In golf, it’s “Keep your head down.” In fishing, it’s “Keep your rod tip up.” In online retailing that uses drop shipping, well, let’s explore some of the techniques that work best with our top 10 tips for drop shipping success list:
1. Don’t Try to Compete on Price Alone
The most common beginner’s mistake in drop shipping (and perhaps retailing in general), is competing based solely on price. If the only thing that differentiates you from the competition is price, you’re going to lose all your business and all your profits the moment someone else undercuts you and you find yourself on the losing end of a price war.
The only businesses that can truly afford to sustain a “lowest-price” strategy are the 800-pound retail gorillas with the buying power of Walmart who can get the absolute best wholesale pricing on any given product by simply purchasing enormous quantities up front.
Does price matter? Yes.
Is price all that matters? No. If it were, Walmart would have a monopoly over the entire retail sector.
So instead of trying to offer something for a lower price, look for ways to offer more and justify a higher price. Whether it’s product knowledge and expertise, service, packaged deals, free shipping, or something else, there are plenty of ways to command a higher price while still getting the sale.
2. Don’t Sell the Same Thing as Everyone Else
The fastest way to fail in online retailing is to try and sell the same “hot products” as everyone else — like consumer electronics or name-brand clothing.
When a large number of businesses and sellers try to sell the same product, competition drives prices down — often to the point where the only businesses making a profit are those who receive steep discounts for buying in enormous quantities, like big box retailers (the aforementioned 800-pound gorillas of retail). And even then, the profit margins are incredibly slim.
As you’ll discover in the next section, picking a niche to sell in is a much more sustainable strategy, as is developing product knowledge and expertise in your niche.
3. Do Focus on Niche Merchandise
One of the greatest advantages of working with a drop-ship supplier is the freedom it gives you to experiment with selling all sorts of merchandise. In a traditional retail operation where products are purchased up front and in bulk quantities and then inventoried in-house, retailers aren’t going to risk purchasing inventory unless they are reasonably certain they’ll be able to sell at a profit within a short period of time. That’s why you’ll often have a hard time finding really specialized merchandise like — let’s say an automatic shrimp-peeling machine— on the shelves of your local Walmart. Walmart doesn’t know how well that product is going to sell so they’re not about to risk their money to stock it.
But what about online retailers who drop ship? Because online retailers who work with drop-ship suppliers aren’t buying any inventory up front and only pay for the product after it sells, they don’t have to worry about that same risk. You can list an automatic shrimp-peeling machine on your website and if it doesn’t sell, the only thing you’ve lost was the time spent listing it. As a result, merchants who drop ship are in a unique position to offer all sorts of products that the big-box retailers aren’t trying to sell because they’re deemed too risky.
The smart online merchant understands that she can’t go head-to-head against Walmart or Best Buy, which is why she focuses on selling niche and specialty products that Walmart and Best Buy won’t risk carrying.
4. Do Cash in on Seasonal Merchandise
Seasonal merchandise can be a serious cash cow for online retailers who drop ship because typical retailers don’t usually carry enough of it for fear of overstocking. For example, they don’t want to run the risk of having leftover summer merchandise taking up valuable warehouse space in December, not to mention having their money tied up in “hibernating” inventory that isn’t selling. This means there’s a huge opportunity for online retailers who drop ship because they don’t have a care in the world about overstocking because they’re not carrying inventory in the first place!
Seasonal products include everything from holiday merchandise (Christmas, Easter, Mother’s Day, etc.), fan gear for sports teams, spring/summer/fall/winter weather products, back to school accessories, and so forth. Do yourself a favor and set up a year-round merchandising schedule for when you plan to offer specific products. That way you can be sure to have them available well before the season or holiday in question.
5. Do Offer Product Bundles
A fundamental merchandising strategy is bundling related products together and offering them as a package deal. This especially holds true for drop-ship retailers because bundling can significantly reduce shipping costs if all the products are coming from the same warehouse. And that provides you with a huge price advantage over the competition.
If you see that a particular product is selling well, but you don’t have a great margin on it, look around at what people might want in conjunction with that product and bundle them together. Then use the extra margin from the add-on products to offset the low margin from the big product. This strategy is especially common in selling electronics, where retailers often make a bigger margin on the cables sold with a big-screen TV than the television itself.
6. Do Sell What You Know
One of the greatest ways to secure higher profit margins is to be an expert on the products you sell. This means you know the product itself, but more importantly, you know what people are looking for in that kind of product based on your own firsthand experience. This knowledge enables you to write more compelling product descriptions, offer superior customer service, and create more attractive package deals based on which products you recommend buying together. You don’t need to be certified or formally recognized as a wizard or an expert. All that’s necessary is that you know more about the product than the average buyer or seller. So reflect on the lifetime of personal experience you’ve gained from your hobbies, passions, and interests. What kinds of products have you used the most? What have you learned from using these kinds of products that most sellers don’t know about?
7. Do Try Different Marketplaces
Many of the most successful drop-ship merchants are what we call multichannel merchants, meaning they sell their products at more than one location online. Some products sell more often or at a higher price on Amazon.com than they do on eBay.com. Others do especially well on your own website or Facebook storefront because each marketplace attracts a different demographic and calls for different marketing techniques.
Ultimately, however, the biggest reason to experiment with different marketplaces is that when you limit yourself to just one selling venue, you miss out on customers who are looking for your product on all the other marketplaces. So why leave all that money lying on the table?
8. Do Provide Superior Customer Service
One of the biggest fears consumers face when shopping online — especially on sites like eBay.com — is getting ripped off. With all the time you’re saving by working with drop-ship suppliers, there’s no reason you can’t offer the best customer service available.
If a customer emails or messages you, a swift and personal response will quell their concern and encourage them to continue shopping with you. Be sure to keep the customer in the loop with what’s going on with their order every step of the way, confirming receipt, shipping dates, etc.
The name of the game here is trust, and top-tier customer service is by far the best way to obtain positive feedback, reviews and ratings. Furthermore, every interaction with a customer should be taken as an opportunity to demonstrate your expertise (No. 6) and encourage repeat business to your store over that of a competitor, even if they have lower prices than you.
9. Do Experiment with Shipping Rates
A study conducted by Amazon found that 46 percent of customers will abandon their shopping cart if free shipping is not offered. On the other hand, 75 percent will purchase more when free shipping is offered to them. Those are some compelling numbers that attest to the power of free shipping and the psychological impact that shipping rates can have on consumer buying patterns. Even if your drop shipper is charging you shipping drop-ship fee, you don’t necessarily have to pass that on to your own customers. Instead, you can simply build the shipping cost into the price you charge and then advertise free shipping. Although the total dollar amount may be the same, the psychological impact of free shipping cannot be underestimated.
The lure of free shipping is especially potent when offering bundles and package deals (No. 5). If your customer is already somewhat interested in a related product, why not offer it to them in a bundle with the original product at a slightly higher cost and then seal the deal by offering free shipping? You may be surprised at how many people go for this option because it provides a sense that they are stretching their dollars for the maximum value.
10. Do Optimize Your Product Descriptions
From the words you use in your product descriptions to the background of the photos you upload, the quality of your product listings makes a huge difference, regardless of whether you’re selling on your own website or on Amazon.com or eBay.com. Many retailers will simply copy the manufacturer’s product descriptions and photos, which is the quickest way to be overlooked in a crowded marketplace. It is far better to write your own detailed description and use your own photos. It may take you longer, but it draws attention, and that’s the whole point.
Better yet — and even though you don’t have to stock a product to sell it — you might want to consider ordering in a sample of any product you are seriously considering selling. That way, you can take your own unique photographs of the product and get a better feel for describing that product. Your photos alone will ensure your listings stand out in a crowded marketplace, garnering more views than those generic photos provided by the manufacturer.
Like golf and fishing, learning the best ways to market your product line comes with trial and error, with some pretty embarrassing miscues and some disappointments along the way. But by adhering to these 10 dos and don’ts, your chances of drop shipping success are substantially increased. And once you’ve begun to get a handle on it, Doba has dozens of educational articles, tutorials, webinars and product research tools so you can continue to hone your skills and reach and surpass your business-related goals
If you are in need of working capital to help you take advantage of innovative strategies to market your product line, consider Kabbage. Our business loan application can be completed in minutes so you can quickly and easily access the funding you need to grow.