Business Guides

Business Guides

Dropshipping Tips for Retailers

Written by David Niccum in

In just about any endeavor — whether it's golf, fishing or, in this case, dropshipping — there are time-tested tips that help achieve success. In golf, it’s “Keep your head down.” In fishing, it’s “Keep your rod tip up.” When it comes to dropshipping for online retailers, we’ve put together a list of some of the indispensable techniques and potential pitfalls of which every dropship retailer should be aware:

dropshipping-tips

1. Provide extraordinary customer service

One of the biggest fears consumers face when shopping online — especially with online marketplaces or auction sites like ebay.com — is getting ripped off. Although you are depending on a supplier directly shipping to your customer, you are responsible for the overall customer experience. With all the time you’re saving by working with dropship suppliers, there’s no reason you can’t offer the best customer service available.

If a customer emails or messages you, a swift and personal response will quell their concern and encourage them to continue shopping with you. Be sure to keep the customer in the loop with what’s going on with their order every step of the way,

  • Order Receipt
  • Order Shipped
  • Order Tracking
  • Shipping Dates
  • Confirmed Delivery

The name of the game here is trust, and top-tier customer service is by far the best way to obtain positive feedback, reviews and ratings. Furthermore, every interaction with a customer should be taken as an opportunity to demonstrate your expertise and encourage repeat business to your store over that of a competitor, even if they have lower prices than you.

2. Don't try to compete on price alone

The most common beginner’s mistake in dropshipping (and perhaps retailing in general), is competing based solely on price.  This is a business plan that is doomed to fail.  If the only thing that differentiates you from the competition is price, you’re going to lose all your business and all your profits the moment someone else undercuts you and you find yourself on the losing end of a price war.  

The only businesses that can truly afford to sustain a “lowest-price” strategy are the 800-pound retail gorillas like Walmart, with the buying power to get the absolute best wholesale pricing on any given product by simply purchasing enormous quantities up front.

Does price matter? Yes.  Customers won't pay more than they think a product is worth.

Is price all that matters? No. If it were, Walmart would have a monopoly over the entire retail sector.

So instead of defaulting to a lower price strategy, look for ways to offer more and justify a higher price. Whether it’s product knowledge and expertise, service, packaged deals, free shipping, or something else, there are plenty of ways to command a higher price while still getting the sale.

3. Avoid a "Me Too" mentality

The fastest way to fail in online retailing is to try to tap into popularity and sell the same “hot products” as everyone else — like consumer electronics or name-brand clothing. When a product niche is saturated, it can become difficult to differentiate your product offering enough to stand out in the crowd. Many customers have established preferred brands they purchase from and attempts to advertise on your part may quickly be overwhelmed by these established companies who are embedded in the hearts of their loyal customers.  Don't spend a lot of time trying to push products that are heavily marketed or have an oversaturated supplier pool.

Additionally, when a large number of businesses and sellers try to sell the same product, competition drives prices down — often to the point where the only businesses making a profit are those who receive steep discounts for buying in enormous quantities, like big box retailers (the aforementioned "800 pound gorillas" like Walmart).  And even then, the profit margins are incredibly slim.

4. Recognize categories in demand

While you shouldn't attempt to sell the same "hot products" as everyone else, don't ignore what's product categories are selling.  Another big mistake that online retailers make is trying to create demand.  You may have a few sales, but you'll never experience any large amount of success.  You're not offering what people want.

Pick product categories or subcategories that already have demand, then research which products are being undersold within those categories.  Focus on those which have a high demand, but aren't being overwhelmed by suppliers.  While it may seem difficult to differentiate between what's "hot" and what's in demand, working with a drop-ship supplier gives you the freedom to experiment with what you sell.

Don't be afraid to try a variety of products.  Since you shouldn't have much of an inventory, you won't need to worry about overstocking.  Once you find your niche, stick with it.

5. Find a niche in which to specialize

Find a niche and stick with it.  Drop shipping stores typically have more success the more they specialize on a certain product or niche. A common misconception about sales is that by narrowing their focus, the potential customer base will be limited, thus affecting profits.

In reality, the opposite is true. By specializing your product offering, you will more easily communicate on a meaningful level with your customers, improve customer loyalty, make a name for yourself against other competitors, and successfully compete against a smaller field. Once you have established a name and a brand as a retailer, you can look to expand your product offering into other categories.

The smart online merchant understands that she can’t go head-to-head against Walmart or Best Buy, which is why she focuses on selling niche and specialty products that Walmart and Best Buy won’t risk carrying.

6. Understand the seasonality of the market

Depending on the type of product you plan on selling, the time of year can play a big role in your success. Get a good understanding of how demand changes throughout the year and you can plan which products to sell at what times. Google Trends is great tool to monitor seasonal demands as well as similar searches.

In addition to simply monitoring seasonal demands, seasonal merchandise can be a serious cash cow for online retailers who drop ship because typical retailers don’t usually carry enough of it for fear of overstocking. For example, they don’t want to run the risk of having leftover summer merchandise taking up valuable warehouse space in December, not to mention having their money tied up in “hibernating” inventory that isn’t selling. This means there’s a huge opportunity for online retailers who drop ship because they don’t have a care in the world about overstocking -- they’re not carrying inventory in the first place!

Seasonal products include everything from holiday merchandise (Christmas, Easter, Mother’s Day, etc.), fan gear for sports teams, spring/summer/fall/winter weather products, back to school accessories, and so forth. Do yourself a favor and set up a year-round merchandising schedule for when you plan to offer specific products. That way you can be sure to have them available well before the season or holiday in question.

7. Don't lose track of pricing

This may seem like an obvious piece of advice, but you'd be surprised how many dropshipping stores do not account for a part of the pricing on a product they're selling.  Prices can be immediately impacted by a change in shipping rates or a wholesaler switching their product source.  It's essential that you have a system or some other means set up to notify you when pricing changes.  

If ever a price changes after a customer has made a purchase, it's better to pay the difference yourself (as long as it's not a large sum), than to charge the customer extra.  This helps maintain a good customer experience.  After the purchase you can make the appropriate changes to price.

If you run a dropshipping store with multiple suppliers, be sure you contact each supplier frequently to keep your prices up to date.

8. Offer product bundles

A fundamental merchandising strategy is to bundle related products together and offer them as a package deal. This strategy especially holds true for drop ship retailers because bundling can significantly reduce shipping costs if all the products are coming from the same warehouse. That provides you with a huge price advantage over the competition.

If you see that a particular product is selling well, but you don’t have a great margin on it, look around at what people might want in conjunction with that product and bundle them together. Then use the extra margin from the add-on products to offset the low margin from the big product. This strategy is especially common in selling electronics, where retailers often make a bigger margin on the cables sold with a big-screen TV than the television itself.

9. Sell what you know

One of the greatest ways to secure higher profit margins is to be an expert on the products you sell. This means you know the product itself, but more importantly, you know what people are looking for in that kind of product based on your own firsthand experience. This knowledge enables you to write more compelling product descriptions, offer superior customer service, and create more attractive package deals based on which products you recommend buying together.

You don’t need to be certified or formally recognized as a wizard or an expert. All that’s necessary is that you know more about the product than the average buyer or seller. So reflect on the lifetime of personal experience you’ve gained from your hobbies, passions, and interests. What kinds of products have you used the most? What have you learned from using these kinds of products that most sellers don’t know about?

10. Use generic products to your advantage

Many generic products are of the same quality as their name-brand equivalents.  When searching for a product to sell, don't overlook these generics simply because they're not from well-known companies.  Much of the time, big-name businesses charge quite a bit more simply because their name is on the product.  People tend to buy these higher priced products because they believe that they are higher-quality.

Research the products you are selling, but more often than not, you'll find that generic products typically are on par -- sometimes even higher quality -- than big brand products. By taking advantage of generic products, you can end up saving, and in turn making, quite a lot of money. Just make sure your customer is aware of the generic product they are buying.  Provide quality pictures and detailed information comparing the generic with its name brand equivalent.  Many customers won't be swayed from their buying habits, but just as many are looking for the best quality for the best price.

Make sure you exercise caution in this area.  While many products can be substituted for their generic equivalents, each market will have well-known brands (like Sony and Nike).  You should never try to substitute brands like these.

11. Try different marketplaces

The most successful retailers are taking advantage of multi-channel merchandising, meaning they sell their products in their store, online, on multiple devices and platforms AND at more than online marketplace. Some products sell more often or at a higher price on Amazon.com than they do on eBay.com. Others do especially well on your own website or Facebook storefront because each marketplace attracts a different demographic and calls for different marketing techniques.

Here are 10 Online Marketplaces to consider listing your products, today:

  • Amazon
  • ebay
  • Rakuten
  • Yahoo Shopping
  • Newegg.com
  • Fancy.com
  • Sears.com
  • Overstock.com
  • iOffer.com
  • eCrater.com

Ultimately however, the biggest reason to experiment with different marketplaces is because when you limit yourself to just one selling venue, you miss out on customers who are looking for your product on all the other marketplaces. Why leave all that money lying on the table?

12. Experiment with shipping rates

A study conducted by Amazon found that 46 percent of customers will abandon their shopping cart if free shipping is not offered. On the other hand, 75 percent will purchase more when free shipping is offered to them. Those are some compelling numbers that attest to the power of free shipping and the psychological impact that shipping rates can have on consumer buying patterns. Even if your drop shipper is charging you a shipping fee, you don’t necessarily have to pass that on to your own customers in the same form. Instead, you can simply build the shipping cost into the price you charge, and then advertise free shipping. Although the total dollar amount may be the same, the psychological impact of free shipping is significant.

The lure of free shipping is especially potent when offering bundles and package deals, as previously discussed. If your customer is already somewhat interested in a related product, why not offer it to them in a bundle with the original product at a slightly higher cost and then seal the deal by offering free shipping? You may be surprised at how many people go for this option, because it provides a sense that they are stretching their dollars for the maximum value.

13. Optimize the customer experience

Take a step back and put yourself in the shoes of the customer.  If you have a website, how does it feel?  Is it visually pleasing, inviting, and easily navigated?  Or does it seem outdated and bare-boned?  Sixty-five percent of online shoppers say that they don't trust a website if it looks unprofessional.  Most customers decide whether or not they like a website within the first three seconds, so it's crucial that your website is appealing.  In addition to how your website looks, you need to make sure your product and its descriptions are appealing as well.

From the words you use in your product descriptions to the background of the photos you upload, the quality of your product listings makes a huge difference, regardless of whether you’re selling on your own website or on Amazon.com or eBay.com. Many retailers will simply copy the manufacturer’s product descriptions and photos, which is the quickest way to be overlooked in a crowded marketplace. It is far better to write your own detailed description and use your own photos. It may take you longer, but it draws attention, and that’s the whole point.

Better yet — and even though you don’t have to stock a product to sell it — you might want to consider ordering in a sample of any product you are seriously considering selling. That way, you can take your own unique photographs of the product and get a better feel for describing that product. Your photos alone will ensure your listings stand out in a crowded marketplace, garnering more views than those generic photos provided by the manufacturer.

14. You can't target what you don't know

The customers that you'll be working with will have a variety of wants and needs.  Some customers will be more worth your time than others.  Keep an eye on the type of customer that is buying your products.  By focusing on the right demographic, you can experience a huge increase in success with your business.  Some types of people you may want to focus on are:

Hobbyists
This is the person who has a particular hobby or pastime that they are willing to spend an enormous amount of money on.  You'd be surprised how much a die-hard mountain climber will spend on gear.  People who enjoy building RC planes will spend upwards of $20K for some planes.  Be on the lookout for this type of customer because if you find the right niche and are able to cater to these special demands, your business will do extremely well.

Repeat Buyers
If you can find a product that's disposable or requires replacement parts, you could very well hit a gold mine with customers.  Once you find a product that customers want and has these qualities, you'll soon see an expanding customer base.  If you continue to provide these customers with superior service, you will have loyal customers and a recurring source of revenue.   

Businesses
Business buyers can be a tough market to serve.  They're typically more price sensitive than other customers, but they also buy products in larger quantities than other customers.  Once you open a connection with the business and have their trust, you gain the opportunity for a long-term relationship.  This gives you a reliable, high profit customer that will stay with you for as long as you can deliver.

15. Test, discover, and succeed

Many large online retailers have deepened their profits by employing dropshipping strategies. When you begin leveraging the benefits that can come by working with dropship suppliers, you won't be perfect out of the gate. If you encounter some customer failures, don't give up, use what you learn from those experiences to get better and don't delay. Whether you are working exclusively with dropship suppliers or are only augmenting your current business with supplier-direct shipping, you can find success.

Your company is organic, meaning: it's always going to be changing.  This is a good thing because the market is always changing.  Do an appropriate amount of research on products and suppliers to better your company, but don't get held up by trivial decisions.

Like golf and fishing, learning the best ways to deploy a dropshipping stragegy comes with trial and error, with some miscues and disappointments along the way. But by adhering to these tips, your chances of success are substantially increased. And once you’ve begun to get a handle on it, Doba has many educational articles, tutorials, webinars and product research tools to help you continue honing your skills in order to reach and surpass your business-related goals with dropshipping.

Did you find these tips helpful? If so, you might enjoy a few of our other business guides:

Getting Started Selling on eBay

The Quickstart Guide to Successfully Selling on Amazon

Online Marketplaces to List Your Products

Recent Guides