In this article we are going to discuss one essential step to successful online trading.
In the past you are likely to have purchased goods by mail order or on deferred delivery. This is when a retailer shows you their product range on a catalogue or in their showroom, accepts your order, takes your payment, and then delivers the order after xx days / weeks:
- The retailer holds enough stock to showcase it (sometimes only the pictures of the stock if selling through catalogue only), and then;
- Asks the manufacturer / distributor to (manufacture if necessary and) dispatch the order to the buyer as soon as possible.
You may feel more comfortable if we called this method of retailing dropshipping; dropshipping is just a new word, the concept has existed for a long time and remains more or less the same today.
This form of distribution was started in the USA, and was conceived much earlier than the World Wide Web. The idea was to allow retailers to trade with wholesalers and manufacturers located in far away states. A retailer would first sell the item and then pass the order(s) to the distributor to be shipped; goods could then be delivered directly to the buyer, only when required, and only once already sold. This setup was initially popular with bulky items and, as catalogue shopping grew in popularity, it was extended to smaller items.
With the advent of the Internet, some retailers realised they could use the web as a global mail order catalogue to exploit its far reaching powers and cost effectiveness. Retailers like Amazon started precisely this way, by using dropshipping (did you know that the eSources database includes the original Amazon dropshipper?). By using products which don't need face to face inspection by the buyer (in the case of Amazon, books), Amazon exploited the power of the Internet to become its biggest retailer.
Since then, many more businesses have started selling online; simultaneously the number of buyers has increased tenfold. However, while transactions are now being completed through a new channel, the fundamental rules of retailing have not changed. On the web every level of the supply chain is still duly represented, from the high end retailer, to the main stream retailer, to the retailer and market trader selling on eBay, to the manfuacturers and wholesalers coming online in increasing numbers. Yes the Internet has shortened the supply chain by removing many middle men, and you will experience more competition at each level as a result. However it has also substantially decreased promotional and administrative costs. If you are serious, and you select your position carefully, you can make bucket loads and more.
Therefore, if you are planning to start trading online, the first question you should ask is ''At which level of the supply chain do I want to position my business?'', which is the same question you would ask if you were planning to start trading offline.
- Do you want to fight to the cent and penny on eBay for mainstream products that sell fast (if you have the right price)? If so, do you have the financial strength to meet the minimum order requirements of the big distributors offering mainstream products at competitive prices?
- Do you prefer to buy surplus and liquidation to obtain cheaper wholesale prices? If so, can you handle the variation in the type of stocks that become available, and in some cases sifting through ungraded stocks to ensure sellability?
- Or would you rather create your own product idea and manufacture it, to distinguish yourself in the marketplace with a unique proposition and a strong marketing effort to allow your idea to pick up? If so, do you have the investment required to manufacture your own product line? The budget required for this option may be lower than you think; if you develop a mainstream product, but with the specifications sought by the market at the time of selling, you can make some seriously high profits. You would then keep on renewing your product offerings by listening to the market demand and by developing new and unique products (the minimum order requirements of manufacturers are not as high as you may fear, even for custom products).
- If you want to use dropshipping instead, do you have access to a wide range of verified dropshippers that offer a broad range of products and that allow you to vary your offerings regularly? Are you choosing products suitable to the level of competition in your market? If you want manufacturers and wholesalers to dropship for you, can you guarantee them the volume they require to setup such an arrangement? Manufacturers and large distributors can dropship for you, but they need you to prove to them you can generate volume, and that managing your dropship account will have a good return for the manufacturer / distributor as well. If you can guarantee the volume they require, how can you prove it to them in advance?
- Would you rather distinguish yourself as a trendy upmarket supplier, with your own website and a well thought out marketing plan? Is dropshipping suitable in this case (a good example of a market where dropshipping could work well is custom-made expensive furniture delivered directly from the manufacturer)? Do you need a showroom to maximise sales? (by the way, did you know retailers like MFI work using dropshipping? Surprising right? Can you undercut them?).
The choice is yours to make. As with any business, if you deal in branded products, the brand will sell itself and do a great deal of the work for you, however you will be competing with many more retailers, therefore price will be a big factor (especially on the Internet, where comparisons are quickly made). If you develop your own product(s), you must have a strong marketing plan in place (one way to reduce your costs of market research is to know what buyers are searching for on the Internet), and identify the unique selling points (USPs) of each product you distribute. This option offers lower sales volumes but higher margins; statistics show that, for small businesses, the higher margin for unique in-demand products will always outweight volume in the long run.
The options available are only limited to your creativity and your desire to succeed. There are many sectors on the Internet that have not been covered, or that have not been covered as they should. Now is the time to choose your position in the marketplace, plan your business, start unfolding your strategy, and take the bull by its horns.