What is dropshipping, and how does it work?

Discover the ultimate guide to dropshipping for exporters. Learn more about what dropshipping is and the pros and cons of it.
What is dropshipping
Starting and running an export business often comes with significant challenges, particularly when it comes to storing and managing inventory. High storage costs and logistical complexities can quickly become overwhelming. Dropshipping is a business model that is becoming increasingly popular among small businesses and e-commerce exporters as it allows businesses to sell products without having to handle inventory.

In this blog post, we will discuss what dropshipping is, its pros and cons, and potential alternatives that Indian e-commerce exporters can consider.

What is dropshipping?

Dropshipping is an order fulfillment method where e-commerce businesses outsource procuring, storing, and delivering products to a third-party. When a customer orders a product, the order is forwarded to a third-party manufacturing unit or fulfillment center. It becomes the third party's responsibility to manage the product, prepare it for delivery, and finally deliver it.

What is the dropshipping model?

In the dropshipping model, you promote and sell your products on an online storefront. When customers place an order, you forward the order to a supplier. From there, the supplier handles the entire physical fulfillment process, including packaging and shipping the products directly to the customers. In some dropshipping agreements, you may need to manage customer service, while the dropshipping service provider takes care of the physical goods and fulfillment.

How does dropshipping work?

Step 1: Order placement

The process begins when a customer places an order on a marketplace or website. For instance, consider that a customer has placed an order for a leather bag from the dropshipper’s website or an e-commerce marketplace like Amazon USA. The dropshipper has to ensure the availability of the product displayed. Once the order is placed, the dropshipper forwards the order request to the manufacturer, supplier or fulfillment center that stores the products.

Step 2: Order confirmation

As soon as the customer finalizes the purchase and orders a product, the seller sends a confirmation email to the customer, which includes the shipping and tracking details of the package. Simultaneously, the seller informs the supplier or fulfillment center about the product ordered.

Step 3: Delivery

The delivery process of dropshipping is simple. The entire process is just like standard shipping. The package is packed from the warehouse and delivered to the customer once the order is placed.

Advantages of dropshipping

One of the key benefits of dropshipping is that any Indian seller can start selling their products to customers without much upfront investment. In this section, we explore the potential benefits of dropshipping for Indian sellers who want to build a global brand:

1. Setup and overhead costs

In this business model, sellers do not have to store the products themselves, which reduces warehousing and storage costs.

2. Multichannel selling

In this business, multichannel selling is possible to attract more buyers. You can use dropshipping to sell products from your own website, through the Amazon Global Selling program, or social media.

3. Global delivery

Dropshipping allows you to deliver shipments to any place in the world, irrespective of your operating location. The store owner can run the business from anywhere.

4. Low operational cost

In dropshipping, the supplier ships the products, and the dropshipper does not have to maintain any inventory. Moreover, there is no need to purchase the products in bulk in advance, as the dropshipper only pays for the products that are purchased.1

Disadvantages of dropshipping

Dropshipping can also present certain challenges and disadvantages. Some of these are as follows:

1. Product quality

Dropshipping reduces your involvement in the order fulfillment process, limiting your ability to monitor and guarantee product quality to the end customer.

2. Fulfillment timeline

When a dropshipping service handles the fulfillment process, you do not have control over order selection, packaging, shipment, and delivery time.

3. Range of offers

Since you don’t handle order fulfillment, you may not be able to place special offers and promotions, such as bundling or free shipping, to attract customers.

4. Profit margins

Little to no product differentiators means your business may end up competing more aggressively on price. Selling at low prices can eat up your profit margin.

5. Legal liability issues

This problem isn’t very common, but it should not be overlooked either. It is important to check that the suppliers supplying have got their IP trademarked. Maintain a dropshipping agreement contract to ensure the legitimacy of the supplier’s business.2

Process to set up a dropshipping business

Here is a step-by-step process to set up a dropshipping business:

Step 1. Select a business idea

Create an outline of what and to whom you are selling. Dropshipping offers a wide range of choices, so you should start with a small selection of products you think will appeal to a certain market.

Step 2. Choose vendors

After you've finalized your business idea, it's time to select dropshipping suppliers who will ship your products to customers. You can attend trade shows to meet suppliers and reach out to export promotion councils that have a huge database of exporters and manufacturers.

Step 3. Establish an online shop

To sell your goods, you'll need to create an online store. Customize your storefront, upload product listings, and set competitive prices. Make sure your website is user-friendly and mobile-responsive. Alternatively, you can also consider selling your products on e-commerce marketplaces like Amazon to reach a broader audience and increase sales opportunities.

Step 4. Market your business

Develop a marketing strategy to attract customers. Utilize social media, email marketing, search engine optimization (SEO), and paid advertising to drive traffic to your store. Consider content marketing and influencer partnerships to boost visibility.3

Alternatives to dropshipping

While dropshipping offers several advantages, it also has key challenges. Some alternative methods of order fulfillment for exporters are as follows:

1. Outsource storing and shipping

You can outsource your warehousing and shipping needs to a third-party logistics (3PL) provider. Products are stocked at the third party’s warehouse, and they handle fulfillment on your behalf.

2. Create your own branded products

You can source items from manufacturers, brand them, and sell them directly to customers. This method allows you to build a unique brand and have greater control over product quality and customer experience. However, this involves greater upfront costs as you will need to invest in product development, manufacturing, and storage.

3. Try affiliate marketing

If you prefer not to handle orders, refunds, or customer service, affiliate marketing is an option. As an affiliate marketer, you promote products for an online merchant and earn a commission when customers purchase through your referral link. This model can help reduce startup and overhead costs while allowing you to build an audience and earn money from sales generated through your recommendations.4

Fulfillment by Amazon (FBA): An alternative to dropshipping

If you sell your products on e-commerce platforms like Amazon and prefer not to handle inventory storage and fulfillment yourself, consider using Fulfillment by Amazon (FBA). With Fulfillment by Amazon (FBA), you can store your products in Amazon global fulfillment centers while we pick, pack, ship your customer orders and provide customer service. FBA is designed to help you focus on your business while Amazon stores your inventory and takes care of shipping and last mile logistics (onward and return).

Why choose Fulfillment by Amazon (FBA)

● Inventory management: You focus on your business as Amazon stores your inventory and handles shipping and last-mile logistics (onward and return).
● Prime delivery: FBA products are eligible for Amazon Prime. They are displayed to Prime customers and are eligible for free international delivery.
● End- to-end logistics: Amazon provides 24/7 customer service for enquiries, returns and refunds processing in local languages.

How does FBA work?

Step 1: Set up your selling account on Amazon.
Step 2: Create your product listings/shipments.
Step 3: Prepare your products; package and label them correctly.
Step 4: Ship products to Amazon fulfillment centers, and we will take care of packing, shipping, delivery and customer service.

Our cross-border carrier shipping solution Amazon Global Selling SEND helps FBA sellers on Amazon ship their products globally at competitive rates.

Amazon Global Selling: Easy e-commerce exports and hassle-free shipping

If you are a business owner and you want to sell your products to the world, Amazon Global Selling enables you to list and sell ‘Made in India’ products on 18 Amazon global marketplaces. As an e-commerce exports program, Amazon Global Selling provides support and guidance at every step of your export journey, connecting you to Amazon’s Service Provider Network for tailored compliance, payments, and logistics support.

Registered sellers can choose to ship their products by themselves through Merchant Fulfilled Network (MFN) or they can opt for Fulfillment by Amazon (FBA) and outsource order fulfillment to Amazon including packing, storage, delivery, and returns. Amazon Global Selling simplifies the process of international shipping to the world, helping businesses navigate customs and reach a vast audience.

Frequently Asked Questions

What is dropshipping, and how does it work?
Dropshipping is a business model where a business sells products without holding inventory. When a customer places an order, the seller forwards the order to a supplier who then ships the product directly to the customer, handling the entire fulfillment process.
Can dropshipping be done with Amazon?
Amazon sellers can opt for Fulfillment by Amazon (FBA), which offers an easier alternative to dropshipping. With FBA, you can store your products in Amazon global fulfillment centers while Amazon picks, packs, ships your customer orders and provides customer service. FBA is designed to help you focus on your business while Amazon stores your inventory and takes care of shipping and last mile logistics (onward and return).
How much does it cost to sell internationally on Amazon?
Amazon Global Selling fees depend on your selling plan, product category, fulfillment strategy, and other variables. The options are flexible, allowing you to choose the most suitable business model for your export business.
Is dropshipping profitable?
Dropshipping can be profitable due to its low startup costs and minimal overhead, allowing businesses to scale quickly and efficiently. However, profitability can be challenged by thin margins, high competition, and reliance on suppliers for product quality and timely delivery. Success in dropshipping often requires effective marketing, niche selection, and strong supplier relationships to balance these opportunities and risks.
Published on September 27, 2021.



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