What Drop Shipping Model Is Right for You?
By Logicbroker | June 18, 2020
For brands that have just begun to investigate drop shipping, it might seem like setting up a drop shipping operation takes a one-size-fits-all approach:
You partner with retailers and sell your products through their channel. They send you orders. You fulfill those orders. In doing so, you expose your products to a wider audience.
Seems pretty straightforward. But brands that begin the implementation of a drop shipping operation quickly find that there are lots of questions to be answered, like who is the merchant of record, who handles returns, who owns customer information and so on.
Every organization has different needs. Meeting those needs effectively will change how a business implements drop shipping. Fortunately, we can simplify things by sorting the different drop shipping models into four broad categories:
- Drop shipping via a retailer
- Drop shipping via a third-party marketplace
- Drop shipping via flash sale sites
- Drop shipping via third-party logistics
In this article, we’ll break down these different drop shipping models and discuss their key characteristics so you can decide which works best for your business.
Drop shipping via a retailer
Under this common model, brands present their full assortment (or a significant portion of their assortment) to customers via a retailer’s site.
In contrast to traditional order fulfillment models, drop shipping in this way enables retailers to present a larger assortment of products, as they don’t have to manage inventory.
The only limit to what brands can present to customers under this model is what retailers permit — some items may not be ideal for the retailers’ customer base, and so they may refuse to present them in their channel.
This model takes a lot of responsibility off of the brand and puts them in the retailer’s instead. Typically, the retailer handles returns and provides the bulk of customer service — but they also own the customer data as a result.
Drop shipping via a third-party marketplace
Under this model, marketplaces like Amazon or eBay provide a governed environment that brings brands and customers together. Each marketplace differs in its specific rules, so the exact nature of this model varies widely.
For example, some marketplaces decide when products go live, while others allow the brand to release products at will. Marketplaces also vary in terms of who manages returns, customer service and customer data.
Typically, however, the brand has significant control over which products they sell through the marketplace, unlike in the retailer model. Often, brands also sell their products directly to the customer at retail prices, though it is possible to sell wholesale to some marketplaces as well.
Drop shipping via flash sale sites
This drop ship model serves a much more narrow purpose than the previous two. Where selling via a retailer or third-party marketplace acts as a method of presenting a brand’s entire assortment, flash sale sites offer an avenue for brands to offload excess product.
Sites like Groupon Goods, for example, connect with brands to purchase excess product wholesale. Flash sale sites then offer limited-time sales to their customers at a low price. Of course, brands don’t make significant revenue when liquidating inventory in this way, but they do typically earn more than if they had sold their excess inventory to more traditional middlemen.
As with a retailer-based drop-ship model, the flash sale site handles customer service, owns the customer data and has control over which products they offer. Typically, the products they choose to offer are highly curated into themed sales — like offering discount winter clothing at the start of spring.
Drop shipping via third-party logistics
Under this model, a brand establishes its own eCommerce site, essentially cutting out the middleman role of the retailer or marketplace. The major differentiator for this drop-shipping model is that the brand gets access to customer data. Any transactional data on the site can be retained and analyzed by the brand. When a customer makes an order, the brand then ships that order out via a third-party logistics partner.
While this model enables brands to collect customer data, it doesn’t expose a brand’s products to new audiences. Typically, the customers visiting a brand’s site will already be familiar with that brand.
And many variations
Of course, many brands tweak or combine these drop-shipping models, and even take different approaches altogether. These four, however, will meet the needs of most businesses looking to start their drop shipping journey.
Now that you have a sense of which approach your organization should take, it’s more than likely that you’ve discovered an entirely new set of questions that you need answered.
You may find it beneficial to read through Forrester’s Definitive Drop-Ship Guide for Brands and Retailers. In it, you’ll find a broad overview of drop shipping, more detail on the drop shipping models discussed above, as well as the foundational tech elements needed to get started, among other subjects.
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