SETTING UP E-MARKETING THROUGH DROP SHIPPING MODEL


By
Prof R K Gupta
BE (Hons), MBA, FIE
Aravali Institute of Management
Jodhpur (Rajasthan)
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
URL :
www.Geocities.com/rkgupta_india
 


The future challenges in marketing are very clear. With increasing marketing cost, it is often infeasible in competition for the firms to maintain huge physical marketing infrastructure. An element of outsourcing concept is entering the marketing function too. Here the drivers are tele-marketing tools, mainly website marketing. Although it has its own limitations , since, in many product/service categories customer wants to have feel of goods and meet the salesman or expert to get services, for example a doctor, an insurance policy  or a fashion garment. The customer is also wary of disclosing credit card details on internet connection due to security threats and lack of confidence in supplier. The delay in supplies is also an important issue in internet based purchases. The third major issue is quality guarantee and how it will be executed.

However, notwithstanding all the above mentioned issues/obstructions, there are large numbers of product categories and services that can be successfully marketed through internet medium, provided following issues are tackled:

    1. delay in delivery of goods

    2. Complete specifications available in electronic catalogue on the web

    3. Highly standardized quality and product which the customer is already familiar with or can easily understand

    4. Sufficient incentive in terms of price and exclusivity provided by the marketer for online sales.

    5. Replacement/quality guarantee and its execution.

It has a win-win situation for all the three players: The marketer (We treat it as contractor or external salesman to the companies-A specialist virtual super store), The Manufacturers of goods/their wholesalers or distributors and the end user.

While volumes of sales can be generated by these e sites for a margin, the manufacturer saves money in reduced distribution chain, particularly smaller wholesalers/stockists and mainly the Retailer which cuts into profit margins rather heavily.

Companies like Baazi.com and rediff.com are already success stories. Both are web based marketing firms. But a number of Tele-shopping firms through TV and radio media failed earlier, a case in point is Zee TV . One important aspect is logistics as said earlier including delivery time, and cost of delivery.

However, there is still a missing link in the supply chain management in this business model.

The shipper of goods ordered on the website and highly efficient low cost logistics services including transport and delivery to customer's doors.

The latter part is being played by many courier services. For example GATI started by TCI was an attempt for door to door high speed parcel delivery service. This has emerged to a large extent since then into a well established service model.

Now if we combine this courier service system with strategically located manufactures/warehouses for various traded products in target geographical markets for the web-marketer what we get is a fast emerging concept of Drop Shippers.

What is Drop Shipping?

Drop shipping can be a very effective and simple way to get involved in ecommerce. Many established online merchants are now turning to drop-shipping strategies as a means of minimizing stock on hand, decreasing overall shipping costs and cutting down on delivery times to customers.

Drop shipping allows web site owners to send single/low quantity unit orders gathered on their web sites to manufacturers, or major warehouses, who in turn "drop ship" the items directly to the customers of the web site owner i.e. you do the promotion and collect the payment, and the supplier looks after order fulfillment. The roles are getting polarized very clearly.

But keeping in mind the reach of website to almost all over the country or globe for that matter, the issue of defining target market segments is very important for success. You can't supply an individual customer's order sitting in a 100 kms remote village from Jaipur? Can you. This issue is tackled by preloaded Location window in ordering form so that customers located in service areas of drop shipper only can place order.

If the high rate of daily hits both from existing premium and regular customers and new visitors on the website can be strategically managed, web marketing through drop shipping can be highly successful business model in coming times with economic advantage to all stake holders. For this , several web marketing tools and techniques are now available. These coupled with carefully planned advertising campaign can drastically reduce the marketing costs  of manufacturing /wholesaling firms in terms of advertising costs, sales promotion costs and distribution channel costs. But quality of products and service, standardization and speed are pre- requisites for success of this model.

Another major obstruction is brand conflict between the name of web marketing firm itself and the drop shipping constituents of its marketing setup who supply goods in their own brand name.

One another problem area is to locate and motivate the reputed companies/wholesalers for various products offered by you to drop-ship your customers' orders.

Advantages:

  • Because a warehousing company can buy in huge volumes, they will also be able to offer you the best prices on products and shipping, which will return a greater profit to you.
  • There's no capital investment and no danger of you suddenly having a pile of outdated items in your inventory
  • Using drop shipping allows you great flexibility in terms of product range - promote a dozen items or promote a thousand!
  • Instead of worrying about inventory and delivery, you get to focus on listening to the market and discovering the products your visitors want - and then being able to rapidly add them to your site.

Challenges and Dangers?

Many companies will have an interest in teaming up with you in a drop shipping arrangement as it's an easy way for them to generate extra revenue, but there are a number of points to consider and things to look out for:

Pricing

The drop shipping firm may not offer the best deal to web marketer the fist time. One has to shop around

Fees and charges

Some companies will have a handling fee over and above freight costs - it's important to know all the costs involved so you can calculate your profit margins accurately. Any company that wants to charge you a regular "participation" fee should be avoided - the only time you should have to pay them *anything* is in connection with a specific order. 

Shipping

Are they using " A local sub standard courier or" or FedEx? Do you want and Will they ship international? You'll want to ensure their shipping methods will see your clients get their products in one piece. {FedEx and DHL are internationally capable but expensive}>it is prudent to start with domestic supplies and that too in big potential geographical segments like metro cities. 

Also bear in mind that you may need a specific type of shopping cart in order to handle drop shipping. Many shopping carts only allow for one "ship from" zip code in the configuration for freight calculations. If you are dealing with a number of drop-shippers you may have dozens of point-of-origin zip codes - and this can be a real headache if freight is based on distance.

Payments

Will the company automatically debit your credit card on each order you submit, or can you get monthly payment terms? When you are starting out with a company, they are unlikely to offer credit, but it's good to check if this will be possible once you've established credibility.

Support, returns and refunds

The last thing you'll want is to be caught up in a nasty situation where you have a number of returns - and have to foot the bill. Ask the company about their returns policy, what kind of support they'll offer you for their products and about any guarantees associated with their products - and get it in writing.

Credibility

How long has the company been around for? Do they respond to your requests for information rapidly and professionally? Young companies have the habit of going belly up quickly, or growing too rapidly and as a consequence basic good customer service suffers.

Customer Information is key success factor

The FAQs, the customer feedback, complaint replies and most importantly>> Order Tracking system- is most important for customer satisfaction and repeat purchases. This is only possible through excellent automated MIS system between Marketer and drop shippers.

How does One get into drop-shipping marketing business?

It's fairly simple:

  • Set up a web site that includes a shopping cart and credit card processing facilities (Through secure server facility like VeriSign ).
  • Find suppliers of products you wish to sell that incorporate drop shipping as a business method.
  • Open an account with them.
  • Gather content and images relating to the products you've chosen, incorporate them on your site and shopping cart.
  • Collect the order and payment from your site.
  • Provide the supplier with the customer details.
  • The supplier then bills you at the special price you have agreed upon; fulfills the order and sends it to your client - in most cases with labels referring to your business/web site instead of the company.
  • Keep the website interactive and fully informative with Order Tracking Status.
     


Prof R K Gupta
BE (Hons), MBA, FIE
Aravali Institute of Management
Jodhpur (Rajasthan)
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
URL :
www.Geocities.com/rkgupta_india
 

Source : E-mail June 12, 2004

 

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