Why are e-stores based on standard dropshipping 3 times more likely to fail than businesses based on digital dropshipping?
Online stores (or e-stores for short) based on the standard dropshipping model are gaining ground among inexperienced entrepreneurs. However, the more of them appear on the market, the more likely we’re to hear about them being closed. In contrast, we rarely hear about the failure of stores working off the digital dropshipping model. Why? We need to dig deeper to find out the reasons for this.
1. Update issues
The speed of updating offers is one of the key aspects of a business. It applies both to the price and quantity updates of products kept in a warehouse. This way, the store can offer products at prices that are currently profitable, which is of importance in case of sudden fluctuations of wholesale prices.
Another advantage of regular price updates is a better stock management. The client is notified about the product availability and will receive it immediately after the purchase. They won’t have to wait for the seller to replenish the stock. Or even better, they won’t receive an email notification about the product being temporarily unavailable, which turns out to be extremely annoying for the customer.
It is worth noting that you can update your inventory either manually or automatically. Companies operating within the traditional dropshipping model depend on manual updates, which are prone to human error. Businesses based on digital dropshipping, on the other hand, rely on automated processes that eliminate human errors. The in-built algorithms help to minimize the chance of an error once they have been properly programmed. This gives digitalization a huge advantage over manual processes.
2. Delivery issues
Delivery is a broad subject. First of all, let’s address the delivery options offered in stores. Those based on digital dropshipping offer automated delivery processes, where any upcoming issues are handled online. In e-stores based on traditional dropshipping, shipping is made offline.
Who decides on the shipping options in a store? Obviously, they depend on the third-party, that is, the dropshipper. Even if managers maintain a good relationship with their supplier, they’re not in a position to decide about this.
The manager could match delivery options to the needs and preferences of their customers, but this can’t be done with the traditional dropshipping model.
The list of drawbacks of the standard dropshipping model doesn’t stop here. Each time the dropshipper ships the product at a later time, sends the wrong product by mistake or provides faulty packaging, the customer’s dissatisfaction is directed at the store, not the dropshipper.
Going further, addressing customer complaints consumes plenty of time and energy. And, as a result, the manager can never be sure who is to be blamed for the existing situation, the dropshipper or the end-customer.
It has to be said that deliveries are fully automated in digital dropshipping. The whole process, starting from the supplier and ending with the customer, becomes automated and takes place in the blink of an eye.
3. Financial issues
Many entrepreneurs choose traditional dropshipping over digital dropshipping due to its simple and affordable operations. Unwilling to invest large sums in developing their own business, they fail to grasp the fundamental thing – standard dropshipping offers higher wholesale prices. As a result, their profits are diminished, which moves them away from the desired financial stability.
And one must also remember that every business has to pay fixed utility costs like electricity bills, fees for renting retail spaces, etc. If aspiring entrepreneurs miscalculate their stock and budget, they’re more likely to fail.
The situation is radically different with digital dropshipping where supplier prices are significantly lower. This allows for higher margins, for example, 30% per item.
As can be seen, the hurdles inherent in standard dropshipping are more likely to contribute to a company’s failure. Furthermore, trading digital goods is simpler thanks to automation and brings more benefits than dealing with physical products. This is why digital dropshipping has an edge over traditional dropshipping.