Traditional Wholesale Trading Vs Drop Shipping

Drop shipping differs from traditional wholesale trading in that it is a form of ‘just in time’ shipping. Basically, drop shipping means that the online seller will order the product from the wholesaler as and when customer orders are received. The seller simply receives the order and passes on delivery information to the wholesaler for delivery. The customer pays the seller, the seller pays the wholesaler and the seller earns the profit from the difference between the sale price and the cost price. So, the product does not pass through the hands of the seller at any time, and goes directly from the wholesaler to the customer in the drop shipping model.

The traditional wholesale trading method implies that the seller orders a stock of the product from the wholesaler and maintains this stock to service customer demand. The physical possession of the product is the differentiating element. This clearly has a cost associated with it. Firstly, there are storage costs, which can be daunting if the product occupies a large amount of space. Secondly, there will be shipping costs from the wholesaler to the seller. Additionally, there is the cost of carrying unsold stock for a long period of time that eats into profits from sold goods.

So suddenly, drop shipping seems like a great idea. But drop shipping has its drawbacks too. In most cases, especially if you are a small business, you will pay the full MSRP, which will squeeze your profit margins. Additionally, you may have little or no information on the status of your order from the wholesaler, affecting customer service levels. Since you are essentially passing on the cost of carrying inventory on to the wholesaler, you will be charged for it. But, on the upside, you will only need to pay when you receive customer orders.

Reliability is an issue when drop shipping – as a seller, you will be able to control and track your product’s delivery much better if you hold inventory. In case of drop shipping orders, the seller relies on the wholesaler’s delivery system, which may be surprisingly lax. Finding a reliable wholesaler is a critical task on its own.

If you are worried about the label on the box that is shipped to the customer, you may be pleasantly surprised to find that many wholesalers will include your packing slips and labels when they ship to your customers.

A couple of hybrids exist that are useful to know about: Buying from local wholesalers and hiring fulfillment houses. An alternative to carrying inventory and drop shipping is to buy from nearby wholesalers when you receive an order and ship it out immediately. Amazon started this way, but it works best for small start up businesses. The other option is to make a deal with a fulfillment house. This is an intermediary service that offers to maintain small amounts of inventory, assemble, order fresh stock, pick, pull, pack and ship out your product in accordance with your instructions and using your packing materials. A fulfillment house may provide a shopping cart online and customer call center, depending on the scale of operations. They will charge a fee based on various factors – amount of storage capacity etc, and may charge a small percentage of commission on sales. This model may work best if you are a seller of high margin items.

Role of customer service in success of business

Business success is dependent on a variety of factors – a realistic business idea, a well thought-out business plan, an appropriate marketing strategy and great customer service are amongst the top ones. While customer service is a part of marketing, it can be segregated as a separate field on its own. It’s important to define the term customer service before we proceed. Customer service includes all aspects of interaction with a customer and speaks to the organization’s image in the mind of a customer.

A customer provides an organization with that most organic of all advertising tools – word of mouth advertising. A happy and satisfied customer is much more likely to send more customers your way. Further, there is the potential for repeat business, which is the backbone of many businesses. It is obvious that a customer who has been provided with a product or service that he or she desired in the ideal way, would build a relationship with the seller.

Further customer relationship management teaches the business where there are flaws in the system and provides valuable customer feedback. When a business receives feedback, it is able to see the customer’s image of the organization and the impression of its services. This tool is invaluable in correcting systems as well as image management for the business. It is also an outsider’s perspective, which provides the business owner or management a unique insight.

Additionally, a satisfied customer would be more likely to participate in activities that help to generate customer preference data. This data goes back to the marketing function in assisting the organization to better target and attract it potential customers.

In fact, it would not be a stretch to say that without good customer service, a business would not survive. The old adage ‘The customer is always right’ has been the foundation of many an organization and what it really means is that keeping customers happy is the foremost principle of any business. The reason for the survival of many small businesses in a tough and competitive market is their ability to provide personalized customer service. It is the human touch that warms and enlivens an organization in the customer’s mind and goes towards building a relationship. This relationship is the basis of future growth for a business.

Regular and sustained interaction with a customer ensures that the customer feels connected with the business. For instance, a small pub owner who chats with his customers and knows them by name builds a relationship with them. Further, when he makes sure that their regular bartender makes their drinks and the food is fresh and hot, he is providing customer service. The customers have a good experience and feel that the establishment treated them well. Once an organization grows or goes online, there is less potential for this face-to-face interaction and then the business must find creative ways to ensure customer satisfaction.

The role of customer service to a business, online or offline, is essential to its growth and survival.