According to Forrester, in 2020 41% of retail and brand professionals have a drop ship program in place while another 16% plan to implement one within the next few years. If you’re on the fence or find your company asking why you should become a drop ship supplier read below:
- What are the top benefits of a drop ship program
- How to avoid the perceived negatives
- Key steps to optimize your program
A major benefit to becoming a drop ship supplier is expanding sales channels. Connecting to various retail channels exposes your products to a wider audience and enables more sales. Retailers that may only be selling a small amount of inventory in stores can carry your full assortment online. Since there is much less inventory risk for retailers in a drop ship model, they are much more likely to expand their partnership with you, thus adding new SKUs to their site. Through expanding sales channels and selling more SKUs, suppliers also benefit by increasing their brand exposure. Forrester reports that 67% of online consumers believe they can find products online that they could not find anywhere else.
Assortment testing is another perk for drop ship suppliers. As previously mentioned, because of less risk, retailers are much more willing to experiment with the inventory offered in their online stores. Through increased brand exposure and full product offerings, you have new data on what’s selling and can make more informed planning and merchandising decisions. To strengthen business relationships, you can mark certain items as ‘retailer exclusive,’ offering certain SKUs to just one retail partner.
Suppliers who drop ship can also use this model as an inventory liquidation outlet. With the right retail channels, shoppers looking for overstock deals can easily access your goods. There are many well known flash-deal and discount sites that online audiences are familiar with, giving you better odds at selling through excess inventory. Using a drop ship model also facilitates better recovery than traditional bulk liquidation.
It is worth noting that there are a few cons to the drop ship model. As the supplier, you absorb all inventory risk. You would be responsible to manufacture and store all offered inventory and handle the fulfillment costs of the pick, pack and ship process. Fortunately, there are 3PLs that can aid in both holding inventory and fulfillment should your own warehouse(s) be at capacity. 3PLs also enable you to cut down shipping times, as they have a network of locations.
While drop shipping can be a lucrative business model, it is not initiated without additional fees. Large retailers often have strict SLAs that they expect their suppliers to adhere to. These retailers likely have supplier integration requirements to enable the seamless exchange of procurement information, which typically has a fee. If you have multiple retail partners with different integration requirements it can save costs to utilize your own drop ship EDI provider. With the right tech partner, you can eliminate these excess fees and have complete visibility to your order lifecycles. Additionally, you can leverage your tech partner to meet SLAs by reviewing performance scorecards, manage exception notifications and reports to quickly remedy any unforeseen issues, and easily share your product catalog.
In most instances, retailers own the customer experience. Customers often purchase drop ship items and believe they are buying directly from the retailer. You may lose some editorial control depending on the retailer agreement. And, if a customer has a negative experience with a retailer, your brand could be tarnished. When drop shipping, it is crucial you select trustworthy partners to minimize negative experiences. And with the right tech, the likelihood of order issues is decreased, and you have the visibility to act on any issues quickly, decreasing the impact.
As a supplier, choosing to implement a drop ship model can be a quick way to grow your brand exposure and capture more online sales. With the right retailer and technology partners, you can fill in any gap to minimize risks, cut costs and maximize your profits. To learn more about supplier drop ship benefits, view Logicbroker’s Connected Commerce NetworkTM.