Dropshipping...?

JMR

I run an eCommerce website, selling a fairly niche product directly to the public.
Although based in Ireland our sales are approx 65% UK and 35% Ireland.

A UK based retailer of a companion product has approached me with a request.
They asked if I would be willing to dropship my products for them to the UK.

Can anybody please explain exactly what dropshipping is and the benefits or otherwise from my point of view...?

I have done some web searching and it would seem that it is normally an arrangement between a wholesaler and a small retailer who doesn't want the financial burden of carrying stock so arranges for the larger wholesaler to send the product directly to the customer.

In my case though, as I am already selling directly to the public in the UK, I can't really see the logic in such an arrangement unless I can expect that the UK based website attracts customers that I would not otherwise see...?

Any thoughts or advice?

Peterdalkey

Your description of drop shipping is pretty accurate.
The issue for you is to decide whether this arrangement would add additional sales, though at a reduced margin ( I assume they will want to sell at the same price as you and have a margin for themselves). Depending on the volumes, this could still be very rewarding for you, especially if you can get some kind of unit sales volume commitment.
On the other hand, they could be using your facilities to grow sufficient volumes to put them in a position to justify sourcing the product directly for themselves, at which point they would drop you. If your product is unique and has proper Intellectual Property protection, this may not be a serious concern.
One scenario you might consider would be to have a reciprocal dropshipping arrangement with them for their companion product whereby you sell it to the same markets as your existing offering. This would give you a form of detente, you hurt me, I hurt you!
This is a classic conundrum which many of us who sell directly and are offered the opportunity to sell to our competitors face. To be honest, if you have a large enough margin to offer wholesale pricing, it can make a good business proposition. To make a decision, you need to consider the scale and capability of your prospective customer/competitor and size up the potential threat versus the returns from supplying them.
Another consideration would be if the additional volumes would reduce the unit cost. This would increase your own margin on all sales and afford additional price competition security.
It is not possible to be more specific without detailed information regarding the market/products/competition and would be greatly influenced by the durability of the market. If the product is a "hot" type item, like the rubber wrist bands, then go for it and get all the sales you can while it is in vogue. If it is a product with a long term market, then you are back to the tough stuff!

Good luck with your deliberations

Cheers

Peter

JMR

Many thanks for your detailed reply Peter, there's a lot in there to consider.
I suppose my main worry is that the UK company, having used my dropshipping service for a period recognises that a market exists and looks to secure the product elsewhere, thereby becoming a competitor.
This is a real possibility as I have exclusive distributorship rights in Ireland but not in the UK.

I already supply a number of retail outlets in Ireland at wholesale prices in addition to my direct online sales so have a pricing structure worked out there.
I would be more inclined to supply the UK company on a more traditional basis due to the fact that the product is such that the customer often needs it in a hurry.
I cannot offer next day delivery to the UK but could refer customers to "our UK distributor" should the need arise.
If the goods were still originating from Ireland in a dropshipping type of arrangement this advantage would be lost.

Also my product is not a hot type product, it is somewhat seasonal but other than that the same market exists each year.

As for me selling their companion product in a similar arrangement, this was offered by the UK company in their initial communication but to be honest I cannot see the market for it.
I could ask for their UK sales figures and scale it down for Ireland, I suppose...

Any further thoughts?

Peterdalkey

I sort of gave it my best shot first off! However I am not sure that you could not get a next day parcel delivery service to the UK at a decent price. Pickup may have to be by perhaps 1 pm, so last orders would be noon. Remember many UK inland deliveries do not make it next day as often promised! There have been some great posts on this topic by Sandin in particular, so so a few searches on this forum for rates and typical service times or PM Sandin .
Why not try to get,exclusive for the UK too, tell them most of your sales are already there!

Cheers
Peter