Pros and Cons of Amazon Drop Shipping
Drop shipping is the process of moving goods from the manufacturer directly to the retailer without going through the usual distribution channels.
Although drop shipping eliminates the need for a seller to handle the fulfillment process (receive and ship out products manually), it can cut into their profit margin and have a negative impact on their business.
Depending on the current status of your business and your future goals – there’s many pros and cons associated with the decision to use or not to use drop shipping.
Some sellers see drop shipping as an advantage (example: lower overhead, eliminates need for a warehouse) – but it can create additional problems (consumer – seller relationships suffer or cuts in bottom line revenue).
It’s important to evaluate how drop shipping can improve or potentially hurt your business goals and understand Amazon’s policy on third party fulfillment services.
Amazon Drop Shipping Policy
Drop shipping, or allowing a third party to fulfill orders to customers on your behalf, is generally acceptable by Amazon’s standards, but it’s important to be aware of Amazon’s drop ship policy.
If a seller intends to fulfill orders using a drop shipper, they must adhere to the following guidelines including:
- Be the seller of record of their products.
- Identify themselves as the seller of their products on all packing slips and other information included or provided in connection with them.
- Be responsible for accepting and processing customer returns of their products.
- Comply with all other terms of their seller agreement and applicable Amazon policies.
Examples of drop shipping that are not permitted by Amazon include:
- Purchasing products from another online retailer and having that retailer ship directly to customers.
- Shipping orders with packing slips, invoices, or other information indicating a seller name or contact information other than your own.
- Failure to comply with these requirements may result in the suspension or removal of your selling privileges.
Pros of Drop Shipping:
1. Lower overhead
When sellers are just starting out – one of the main benefits to drop shipping is that you can avoid the process of ordering, housing and shipping out your product inventory.
It can reduce your investment and the need for a warehouse (which most sellers don’t have access to starting out).
In the event your business doesn’t perform well (or you end up going through a product revaluation) you won’t have to deal with the aftermath – a warehouse full of inventory you can’t sell.
2. Good for sellers who distribute larger items
Larger products can be expensive to store and ship. Utilizing a drop shipping third party avoids the need for a seller to warehouse products.
3. Good for sellers who want to offer a broader product selection
Drop shipping can offer sellers additional freedom when it comes to expanding a catalog.Because you are not tied to the restrictions of a warehouse, it makes it easier to offer a broader selection of products without having to take on a lot of inventory risk.
4. Allow retailers to redistribute focus
Drop shipping can free up time for a seller since they don’t actively participate in the fulfillment process and allow them to focus more on their marketing or branding efforts.
Unfortunately, with Amazon this can lead to a number of cons as well – which we will talk about in the next section.
Cons of Drop Shipping:
1. Fees, delivery and returns
Fees associated with drop shipping services can make it difficult for sellers with low margins. Additionally, if there is a problem with your order – for example late delivery or return to seller – it’s the retailers responsibility to handle the issue at hand.Returns can be difficult for a seller if they don’t have any warehouse space or if a drop shipper charges restocking fees.
2. Lack of packing and customer experience control
Drop shipping also removes customization from the seller for specific packaging. Because the shipments come directly from the drop shipper to the customer – the seller doesn’t have the opportunity to include inserts or specialized promotions for their customers. The drawback is this can have a negative impact on your branding efforts and diminish the customer loyalty relationship.
3. Consumer – seller relationship can suffer
Because sellers are not directly managing their shipments – the interaction between a seller and their customer can suffer. The element of personalization and customization can be lost between the third party of the middle man handling the order process.
Amazon Drop Shipping Expert Tips
“I know of a seller that signed up to drop ship a few products and it somehow caused errors in their system that switched them from collect to prepaid,” Tony Bonello, Marketplace Channel Analyst said.
“Basically, he had to cancel thousands of dollars of product orders due to their mistake.”
“How you choose to fulfill your orders is up to the seller, as long as you meet Amazon’s service standards,” Pat Petriello, Senior Marketplace Strategist at CPC Strategy said.
“What’s unique to Amazon is the very high customer expectation level and the immediate feedback loop. Unfortunately, with drop shipping you lose control, which increases your risk, which increases the chance of a bad customer experience, which is bad for you as a Seller.”
For more on the pros and cons of drop shipping with Amazon, email [email protected]
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