The Many Sellers of Amazon

Blogs | June 18, 2019

Drop Shippers

Third-party sellers on Amazon exhibit a variety of behaviors based on available inventory, sales volume, fulfillment methods, and catalog size. Sellers tend to fall into one of several buckets. In our “Many Sellers of Amazon” series, we’ll take a look at each type of seller and analyze their behaviors. First up, drop shippers.

What Is Drop Shipping?

By definition, drop shipping is a method in which the seller or retailer does not keep goods in stock, but instead transfers the customer orders and information to either the manufacturer, another retailer, or a wholesaler. It is this party that will actually ship the goods directly to the customer.

Types of Drop Shipping

There are a variety of drop shipping methods being used by third-party sellers, each with their own implications and varying degrees of legitimacy. If done correctly, drop shipping can benefit both sellers and brands alike. If executed poorly and without oversight, a brand’s reputation can be affected by a steady stream of negative customer experiences. Here are two of the most common forms of drop shipping:

Drop Shipping from Another Retailer

One popular tactic employed by Amazon sellers is online price arbitrage. In this scenario, a seller may notice a product selling for $70 on one website, yet they have identified an opportunity to sell that same product on Amazon for $100. The seller will list the product on Amazon and fulfill any orders by purchasing the product through the less expensive outlet and having it shipped directly to their Amazon customer. The seller incurs only Amazon fees and in this case pockets $30 for themselves.

This method is a violation of Amazon’s marketplace policy. The customer’s data is being supplied to a third party without their permission, while the package they receive has no connection to their Amazon order. Best of luck trying to make a return using a receipt or other information supplied by another retailer!

How this impacts brands:

This drop shipping method involves a number of potential pain points which can lead to poor customer experience. Over time this can diminish a brand’s reputation, both on Amazon and beyond. That said, brands can work to mitigate opportunities for this behavior by establishing proper dealer agreements across their retail landscape.

Drop Shipping from a Distribution Partner

Oftentimes it’s a brand’s authorized distribution partners who offer drop shipping services to Amazon sellers. By establishing relationships with these distributors a seller can offer an extensive catalog of products without placing large wholesale orders. Here’s how the process works:

* The Amazon seller receives an order and forwards the relevant information to the distributor who then picks, packs, and ships the product to the customer

* The seller pays an agreed-upon sum for the items shipped and pockets the margin for themselves

* In turn, the distributor establishes a consistent stream of smaller sales to supplement their larger wholesale orders

In the eyes of Amazon, this is a perfectly acceptable practice, as long as the customer receives a legitimate product, packaged appropriately, with all relevant Amazon order information included.

How this impacts brands:

It’s important that brands have transparency into which of their authorized distributors offer this type of arrangement and the portion of their business that’s conducted this way. Brands can potentially benefit from this type of drop shipping, as it increases the scope of their authorized distributors.

There should be transparency in how orders are packaged and presented to ensure a consistently positive customer experience. At the same time, brands will want to uncover any unauthorized distribution points that may be offering the same service so measures can be taken to stem the flow of inventory to these outlets.

With POTOO’s data platform and consultative services, brands can gain insight into inventory levels, price points, shipping methods, and catalog size, all of which help to pinpoint drop shippers whose behavior should be monitored.

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