Dropshipping, where manufacturers fulfill orders directly to the consumer on behalf of a retailer, has become a popular service in e-commerce. Most content surrounding the topic of dropshipping will cover the benefits that retailers can experience by adopting this model, but manufacturers and suppliers are reporting the positive effects of offering dropshipping services as well.
A recent survey conducted by Lehigh University found that 53% of manufacturers who have adopted a dropshipping service say it has increased their profit margins. This may come as a surprise considering manufacturers have traditionally held mixed emotions about the dropship model. In this survey, Lehigh University offers insight into several factors that lead to an increased profit margin and other benefits for manufacturers and suppliers who adopt a dropship model.
Perhaps the driving force behind the results of this study is the process of rate negotiations that manufacturers and retailers engage in prior to working together. As a retailer, the dropship model is appealing due to its diminished risk and great potential reward. For retailers there is no inventory they must warehouse or fulfillment logistics they need to consider. By assuming these risks as a manufacturer, you’re able to negotiate more favorable rates with retail partners.
According to the survey, over 60% of manufacturers reported that their relationship with retailers dropshipping their products improved significantly. In addition to an improved relationship, there is a shared commitment to building trust and working together in the future. The level of communication and collaboration needed for a successful dropship model is likely the reason behind improved manufacturer-retailer relationships. Many manufacturers and suppliers have found that these relationships also introduce new, improved solutions for order fulfillment and information sharing.
As a business model, dropshipping offers a substantial increase in exposure for suppliers and manufacturers. Retail partners act as marketing channels by promoting and advertising manufacturer products to their engaged audiences. The result is manufacturers getting their brand and products in front of customers who may have previously been unreachable through their traditional retail partnerships.
While dropshipping does come with challenges for retailers and manufacturers, the benefits can make a significant impact on business for both parties when there is a commitment to communication and collaboration.