Drop Shipping and E-Commerce

February 7, 2010 by

Dropshipping has often been linked to the e-commerce world, such as sites as Ebay and Amazon. However, before the e-commerce world, dropshipping was still alive and thriving with door-to-door salesman. For example, those that sell Mary Kay or Avon are using the dropshipping method. They show products that are in catalogs and are available for anyone that wishes to buy them. This allowed these companies to still have the benefits of employees, without having to pay for insurance, vacation time and whatnot, which is all standard aspects that are involved with business employees. However, when the Internet introduced e-commerce, the idea of dropshipping went to this area, and it does not work.

Dropshipping and e-commerce does not work for two main reasons. These are buying power and market value destruction. Buyer power refers to the profit you make on buying and reselling the product. With e-commerce the buyer power is zero. That is because when you sell a product on Ebay you usually only sell one of the product. Dropshipping is all about buying in quantity. For example, if a gold necklace runs around $10 at the wholesaler, who ten sells the necklace to a department store for $11.50. They sell a case of 10,000 of these necklaces. The profit for the wholesaler on this sale is around $15,000. Now take the same example except use it geared towards Ebay and the profit would drop to a $1.50. Think about the amount of time the wholesaler would have to go through and all for a little over the dollar. It’s not worth it and no dropshipper is going to agree to these terms. In order for the Ebay worker to even make a profit, they are going to have to charge quite a bit more, and consumers can find it cheaper elsewhere.

The second reason is market value destruction. Market value refers to the price at which you can successfully sell a product. This goes hand in hand with buying power. Many times products on websites go for much lower than they are intended to go, just because the competition to sell the product is high. For example, a necklace that is valued at $30, may first be posted for $25, then drop until it reaches the ridiculous cheap amount of $10. No doubt, this is good for the consumer, however the profit for the seller is minimal if any at all.

Though most people who like for everyone to believe that drop selling works great for the Internet, it most certainly does not. The numbers speak for themselves.

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