Dropshipping Vs Traditional E-Commerce Business Models
Introduction: Comparing traditional ecommerce to dropshipping business models

E-commerce continues to grow rapidly, empowering entrepreneurs to start online businesses with low barriers to entry. Aspiring e-commerce merchants have two primary models to consider – traditional e-commerce involving holding inventory, or dropshipping which allows selling products without carrying stock. This article explains the differences between traditional and dropshipping e-commerce models, including capital requirements, fulfillment logistics, and other considerations.

Part 1: Traditional Ecommerce Business Model
The traditional e-commerce business model involves purchasing inventory upfront, then selling and shipping those products directly to customers. As the sole retailer, the merchant buys products wholesale from manufacturers or distributors and maintains their own inventory. When an order is placed on their e-commerce site, the merchant picks, packs and ships the items from their warehouse or fulfillment center.

Holding inventory requires significant upfront capital and carries ongoing inventory risk. The merchant must invest heavily at launch to buy enough products to fill their shelves, with additional ongoing replenishment as stock is sold. Carrying months of inventory requires financing capital, plus warehouse space to store those products. Excess inventory that doesn’t sell represents a sunk cost. Overall, the barriers to launching a traditional e-commerce business are high.

dropshipping
Part 2: Dropshipping Business Model Advantages
Dropshipping provides an attractive alternative to minimize the risks and barriers of traditional product retailing. With dropshipping, the e-commerce merchant does not hold any inventory. Instead, they act as a middleman between customers who order on their site, and third-party suppliers who ship products directly to those customers.

Without holding any stock, dropshippers avoid upfront inventory costs. Capital requirements to launch a dropshipping store can be as little as the cost of a website and marketing. By listing products from third-party suppliers, the dropshipper can offer a wide selection without having to buy and store those items. Product variety and new listings can be added instantly without pre-purchasing inventory.

With order fulfillment handled by the supplying wholesalers, the dropshipping retailer does not need their own warehouse space or packing materials either. The suppliers pick, pack and ship orders directly from their location to the customer. This makes expanding product selection and order volume easy since fulfillment tasks are outsourced.


Part 3: Dropshipping Considerations
While dropshipping has substantially lower barriers to entry than traditional e-commerce, there are still several key factors merchants need to address:

Vetting Reliable Suppliers
Since order fulfillment is handled by third-parties, it is crucial to choose reliable suppliers who ship quality products on time. Dropshippers should establish suppliers known for accuracy, fast shipping, and good customer service. Suppliers that are slow to fulfill orders or make mistakes can negatively impact the customer experience.

Efficient Order Processing
Order information and payments must flow seamlessly from the dropshipper’s website to the selected supplier fulfilling each order. Retailers must implement processing to accurately transmit orders, track shipments, and handle returns/exchanges through the supplying partner. Any miscommunication can cause fulfillment delays.

Providing Good Customer Experiences
While suppliers physically handle shipping, the dropshipping retailer remains responsible for overall customer satisfaction. Product listings must exactly match supplier inventory. Return policies need to be clearly stated. Customers expect the same level of service from dropshipped orders as traditionally fulfilled ones. Dropshippers must work closely with suppliers or risk losing repeat business.


Conclusion: Dropshipping Allows Low-Cost Entry But Has Fulfillment Challenges
In summary, dropshipping provides entrepreneurs a highly attractive e-commerce model to get started with minimal upfront investment. Avoiding inventory costs and risks allows launching an online store at low cost. However, critical factors around supplier relationships, order processing, and customer service must be addressed to succeed long-term. Dropshippers who carefully select partners and build efficient operations can reap the rewards of running an online retail business without major startup costs. But poor supplier choices or customer experiences will limit repeat business. Overall, dropshipping enables individual entrepreneurship, but strong execution on fulfillment and service is still essential.