Being successful in retail these days is no easy task. The current 5-year success rate of retail businesses is between 40-45%. If you want to make it in retail, you have to constantly be growing and expanding your business. This is where dropshipping can help. This post will look at what dropshipping is, how it can help your business, and some use cases. Let's get started!
What is dropshipping and how does it help?
Dropshipping is a method of product fulfillment where the supplier ships the product directly to a customer, removing the need for a retailer to stock the products in their warehouse. This model drastically reduces the risk of stocking a new, and relatively untested, product. It also frees up retailers to spend more time and money on marketing and analyzing the sales of their new product.
Adding new products to your company’s catalog presents a lot of different challenges. For most retailers, a new product rollout usually means stocking a large amount of the product in their warehouse, with no guarantee that the product will actually sell. That’s why market testing is so important for retailers. Gauging the interest of consumers in what you want to sell is invaluable when trying to diversify your product assortment. A product that hasn’t been thoroughly vetted could end up costing your company a sizable amount of money.
The only real investment a retailer will make when using dropshipping to test the market is time. Listing the new product online, marketing it via social media and other channels, and analyzing the sales data is still a very cheap investment when compared to the cost of buying and stocking a product that’s not guaranteed to sell.
Even big retailers use dropshipping models
Even vertically-integrated brand retailers can use dropshipping to their advantage. Take a look at Apple. They’ve acquired Beats and sell Nest products in their Apple Stores, effectively introducing long-tail products to their lineup while gaining valuable sales data at the same time.
Dropshipping is viable for all life cycles of a product. At first, gauging interest in a more niche-focused product may be difficult, but if sales take off, your company always has the option to move to an in-house inventory of the product. After the product has peaked, and demand isn’t as high, you can move back to a dropship inventory position to capitalize on the remaining viability of that product without being burdened by a large warehouse inventory.
Seasonal products are great dropshipping items
Seasonal products are great options for dropshipping as well. Christmas lights, Halloween decorations, and fireworks sell well at certain times of the year, but keeping them on hand year-round isn’t a smart move. Dropshipping allows you to profit off those items without taking up warehouse space to store them.
The dropshipping model also enables retailers to add more long-tail items to their catalog, increasing product assortment while not taking on the risk of products that lack consistently high demand.
A few drawbacks to dropshipping do exist - you lose direct control over fulfillment, can’t personalize the product as much as you’d like, and the inevitable supplier issues. However, when compared with the cost of taking on a new, untested product, these drawbacks are far better, and more affordable, issues to deal with.
If you’re looking for a more affordable solution to market testing, dropshipping is a method you should seriously consider. You can find more information about retailers and dropshipping by downloading the free whitepaper, The Retailer’s Guide to Dropshipping.