There’s a drop shipping business model mania right now so I thought I would look into it. In case you’re not familiar with it the seller markets a product heavily on social media. When he gets an order he fills it by buying the item at AliExpress or Alibaba and pays for it at that time. And then it is drop shipped to the retail buyer by AliExpress or Alibaba. The social media seller never has any money in the game except for marketing expenses, carries no inventory and handles no product.
I saw one item advertised today that felt I had a use for. It was priced at $29.95, marked down from $59.95. Save $30.00! It was obviously a drop ship seller so I went to AliExpress and looked it up there. I ended up buying the same exact product for $6.00 with free shipping.
I find the drop shipping model fascinating in many ways. In essence the seller is exploiting market inefficiencies: buyers are unaware of companies like AliExpress or are uncomfortable dealing directly with an Asian company. Many retail profits, like mine, are earned by adding value. But historically, many have been gained by exploiting inefficiencies in the marketplace. For example, before the internet, many local retailers gained profits simply by geographic convenience. Or lack of pricing information on the buyers part. That of course dissolved as the internet effectively eliminated geography and made pricing information ubiquitous.
When I first got involved in the internet (in 1995) we called this disintermediation. It’s been interesting over the years to watch various layers in business models being removed (think of travel agents). Another thing that occurred to me is that as younger generations grow up with the internet as an integral part of their lives and online sophistication grows, this removal of layers will most likely accelerate. In an extreme example, who needs Amazon when you can buy bare bones wholesale one item at a time from Asia, the same place Amazon gets most of their goods?
The prices at AliExpress are mind bogglingly low. Same old junk we buy here but at a fraction of the price. That’s what happens when layers are removed.
Your thoughts?
Cheers,
JohnA