What is dropshipping?

Dropshipping is a method which consists of selling a product without having possession of the stock. The seller does not have to manage the stock or the shipment of the products, the order placed by the customer is directly transmitted to the product supplier who is responsible for sending it to the customers.

Information to remember about dropshipping

How does dropshipping work?

The dropshipping system revolves around three main players:

• The customer who buys products through an e-commerce site from a seller
• The seller who offers products ordered from a supplier
• The supplier who sells the product directly to the customer who ordered from a seller’s site.

Is dropshipping lawful?

Dropshipping is a legal method that allows you to do business online easily and quickly. Under the law, a trader is not required to hold stock of his goods.

Is dropshipping a method that works?

Dropshipping is a method that significantly reduces costs and logistics/transport constraints. It is a method in full expansion, but which has experienced some scandals, particularly linked to the quality of the product. As the seller does not have the stock, he cannot ensure the quality of the products, so it is an activity that can expose him to certain risks. Strong competition and lack of product visibility have a direct impact on customer service and company reputation.

Dropshipping advantages

The dropshipping system has many advantages:

• This type of sale requires a low initial investment. In fact, the only initial expenses to plan for are linked to the creation of the website. Thanks to this system, the company does not need to mass-produce or order products in order to sell them on its website.
• Dropshipping management fees are limited.
• Dropshipping allows the seller to offer a wide variety of products without having to stock them.
• The dropshipping system optimises the company’s ability to adapt to a large increase in activity, such as when there is high demand for a product depending on the season, for example.

Dropshipping inconveniences

Despite the many benefits listed above, dropshipping has some disadvantages due to its particular structure.

• The main disadvantage of dropshipping is the difficulty in making high margins on the sale of products. Simplified access to this distribution method encourages competition, companies must therefore align themselves with competing offers no to loose credibility.
• Dropshipping generates a lot of expense for suppliers of the company’s products. Indeed, in the event of a stock shortage, there is very little room for manoeuvre. In addition, the company that engages in dropshipping may suffer the consequences of possible errors made by its supplier, which will have a direct influence on the reputation of the company.
• Dropshipping does not facilitate the management and cost of deliveries. The company having several suppliers charging different prices. Delivery costs will directly impact the customer who must bear them (particularly in the case where the customer orders 2 products on the site which come from two different suppliers).
• The company cannot directly assess the quality of the products it offers. Indeed, in dropshipping, the seller orders products from a supplier without necessarily having them in their hands, unlike products manufactured or stored by the seller directly.

Dropshipping vs Marketplace: What differences?

If the marketplace and dropshipping allow you to avoid the costs and logistics linked to the purchase of inventory, their strategies differ due to their respective structures.

The actors of the tri-party relationship

Operator/third-party seller/buyer for the marketplace, E-merchant/supplier/buyer for dropshipping.

The difference is subtle, but important because it distributes roles in fundamentally different ways:

• The marketplace operator manages neither the content of the offers nor their price, leaving third-party sellers with this responsibility, within the limits of the framework established by the platform.
• The dropshipping distributor, for his part, sets his sales prices based on the purchase prices negotiated with his suppliers in advance, and himself manages the integration of the offer into his catalog.

Very different professions and functions in the end.

The sales strategy

The marketplace strategy aims to put third-party sellers and buyers in direct contact, while the dropshipping strategy consists of selling an offer under the distributor’s name. The latter does not have stock since the goods belong to suppliers who are not known to end customers.

Remuneration mode

According to the most common business model, the marketplace charges a commission on merchant sales. Note that other methods of remuneration exist and are often combined: listing fees, subscriptions, sponsored links or even lead fees. Conversely, the distributor operating a dropshipping platform appropriates the total amount of the order which corresponds to turnover. The latter, who buys the product from the supplier when ordering, then makes a margin (difference between the purchase price and the sale price). In the case of dropshipping, there is a transfer of ownership of the merchandise.

Order processing

It is the third-party seller of the marketplace who ships his order to the end customer himself, in his own name. The dropshipping platform provider, for its part, delivers orders to customers but under the name of the distributor. For the buyer, the product ordered on the marketplace comes from the third-party seller from whom they made their purchase, and in most cases, they think that the product ordered by dropshipping comes from the distributor.

Customer relation

As part of a transaction carried out by the marketplace, there is no transfer of ownership of the merchandise. It is therefore the third-party seller who receives the returns and manages after-sales service as well as disputes. In the context of a dropshipping sale, it is the e-commerce which issues the invoice and ensures customer relations. Return requests are sent directly to him, and he is responsible for transmitting the return request to the supplier.

The legal facet

While dropshipping is subject to the same legal obligations as traditional e-commerce, the law imposes some additional rules on marketplaces, in the name of transparent, clear and fair information for the benefit of the consumer. If in the context of dropshipping, the e-merchant displays its own legal notices, CGU and CGV, without mentioning information relating to its suppliers, the marketplace on the contrary must be free from flawless transparency. Thus, the legal notices of a platform must include those of the publisher, the operator and third-party sellers.

In short

Single seller versus multi seller platform, remuneration based on a negotiated purchase price versus a single commission on each sale, opacity regarding the source on one side and transparency on the other, after-sales service involving an intermediary opposed to a service direct customer… The differences between dropshipping and marketplace are notorious and call for questions about their use and performance.