Scott Fillmer

Are you tired of competing with a drop shipper or drop shipping company that does not ever touch the product, house, or package the product, seems to sell more, and make more money than your competing businesses? You probably are if you are a company that spends time finding wholesalers, buying inventory, cataloging, indexing, valuing, packaging, and all the normal business practices that go along with running a business that carries an inventory based product.

I received an email this week from a “buyer” on Amazon. He purchased one of our books and the subject of his email said, DON’T SEND PACKING SLIP OR INVOICE PLEASE, in all caps, but it was his email to me that told me the story:

Would you mind sending this package without a packing slip and/or invoice? I would really appreciate it. Also, please use delivery confirmation, if possible - I only make this suggestion, as the USPS is far less likely to lose the package.

[item sold and order number was inserted here]

If this item is a different condition (used/new/etc.), binding or media type softcover/hardcover/tape/disc/etc.), edition or version (international/etc.) or differs in any way from your listing, please refund this order immediately.

You don’t need to respond to this email unless there is a problem with the order.

Besides the fact that Amazon requires you to send a packing slip with each order, the shipping address was completely different than the email name or company, so it was obvious to me that this was a drop shipper and we were now the fulfillment company. This email was automatically generated and I had no choice at this point other than to just ship the order.

A little looking around and I could find a store with similar products and a name close to the email address where all the books were extremely high priced and “ready to ship” within 24 hours. The book we sold to this company sold for about $5.00, it was listed on their website for $35.00. You have to love that markup, I would, and if I could realistically sell this book on Amazon for $35.00 in a “reasonable” period of time, I would.

Even if you don’t know what I am talking about you are probably competing with them. Think about it for a minute. You can sell a product you don’t own, one you don’t have on hand, have someone else ship it (from anywhere in the world), not handle returns and customer service, and you spend your time collecting the money? Sound good? If you don’t like competing with these companies, you can always join them. Just do it using legitimate business methods.

There are many shady and just about unethical business practices that drop shippers and drop shipping companies will use, especially on the systems setup to amplify this type of service like Amazon and eBay. You can really apply this to just about any platform for selling like Amazon and eBay where you can setup and sell a product in a short period of time for almost no money up front.

What is a Drop Shipping Company

I have to say from the start, all drop shipping companies are not bad. Drop shippers do have a legitimate sales channel and do work with wholesalers and develop a relationship with their business partners and some times it works fine. That isn’t really what I am referring to in this article though. But lets look at the definition anyway.

Drop shippers are generally companies that specialize in one field or niche market that have setup wholesale or distribution channels to sell products (or services), most of the time to the end consumer, by doing the work of the sales person or sales company for the wholesale or distribution warehouse.

These drop shipping companies usually do not see the product, but they will setup a storefront with samples, a website with photos and generally information about the products with some type of eCommerce shopping cart system to sell the product. Once a product is sold, the sales data is sent over to the wholesaler or warehouse company and they ship it to the customer.

You as the dropshipper will most likely not pay for the inventory until it sells. So if Product A will cost you $5.00 to buy, you can setup your website to sell it for $10.00 and when you sell it, you have a net gain of $5.00. Probably the hardest part of this type of business is the website. You have to do the design, shopping cart system setup, marketing the product, in this case through Amazon and eBay.

Get Rich Quick Schemes?

Not all of these companies that are making loads of money are doing it in a manner that either Amazon or eBay would prefer, but they can easily just move from one login ID to the other without much trouble, so they can just continue their practices untouched, sometimes for a long time.

On Amazon, they do not care if your listings are for sale using a drop shipping company, as long as you don’t use listings from other sellers on Amazon and you still have to maintain the normal seller performance stats that they require of all media sellers on Amazon.

There are so many articles that have been posted on blogs about drop shipping that you can quickly see there are some schemes in this field, as there are in most fields these days, but one recent article, The Best and Worst Of Dropshipping, does show the pros and cons of drop shipping quite well.

If you are interested in a legitimate drop shipping business, just do your homework and go by a few quick rules of the trade.

• Pick your supplier or wholesaler very carefully.
• Develop a relationship with them so their shipping problems don’t ruin your reputation and cause you to loose your sales channel.
• A bad reputation on eBay or Amazon can quickly ruin sales regardless of your standing with either of those two companies.
• Consider the location of their warehouse and how long it will take for a package to arrive. A wholesale company in New York that is also an importer will probably deliver more quickly than a company located in China.
• Consider the quality of the product you are selling. Is it cheap for a reason? Lower quality items sell well, but they also have higher complaints and more returns to deal with.

How to Compete with a Drop Shipper

I always like to look at how the others do it so I know how I can adjust to compete, if possible, with those who choose less ethical business practices when selling online. If you are a company that does not drop ship then you carry a product, package, and ship the product. You have to buy shipping supplies, hire employees to package the products, AND you have to do all the website design and marketing as well.

Most likely you can’t compete with their costs. Just the fact that you have to buy your inventory gives you a cost they don’t have. COGS isn’t non-existent with the drop shipper, it just doesn’t take place until after the sale. Yours take place BEFORE the sale. If you can’t compete with the cost, don’t try, put your efforts in other areas.

Where you can compete is in the customer service and reputation. Many (legitimate) drop shippers will have to sell their products to a customer without knowing what it is that the customer is receiving. You know, you packaged the product. So provide the best customer service and your ranking or reputation will almost always be higher than that of a drop shipper just by the nature of the business. This will drastically increase the repeat buyer rates and the acquisition of new customers.

Have a superior product. Many drop shipping companies will ship products our of China. All you have to do lately is a search on “china lead recall” to see the results of low quality products. We competed with drop shippers on eBay for years by importing a superior product from Austria, into New York, then to our warehouse. Our competition would ship a “like product” out of China and the two products compared together were laughable.

How to Make a Fortune of Money Online, the Wrong Way

I said above that I always want to know at least “how” the other guys do it, so I can make adjustments, but sometimes you just can’t compete. If there is not a set of standard that people follow in business, you just can’t compete with it, and you shouldn’t try either.

Eventually these sellers houses will come crumbling down and they will have to move on to other areas. You just have to survive the short term while they are taking sales away from everyone else and hope they do get caught. On eBay and Amazon that might not always happen very quickly. In my own experience, after selling full time on eBay for about 5 years, I gave up hope these guys would be removed.

How to Do it On eBay

What is the official word on eBay? Well, eBay says:

Sellers must accurately represent the location from which their item will be shipped in the item location field. False, inaccurate or misleading information about the shipping location of an item is not allowed on eBay.

That sounds pretty vague, but it is clear to me they do not want a big volume of dropshippers. That says you can not drop ship on eBay, right? Well according to the article, Ebay and Drop Shipping, 95% of eBay home businesses drop ship? I am not sure how accurate that statement is but even if it is half of that, does that mean half of the sellers on eBay are violating the Item Location Misrepresentation Policy?

The wording use to be more clear than that, and I think it is still in place. You can not ship an item that you do not hold in your possession.

So, on eBay, you can just scrape content from the listings and sell for just a slightly lower price or sometimes a much lower price and ship a fake. This practice has been raging in the DVD / CD area on eBay for years. You just buy a counterfeit product out of China (we all know that is where a majority of the fake products come from) and sell them as genuine products.

eBay has been fighting with this for years and found it almost impossible to stop. In my own case, we would have other “sellers” scrape our listings, reproduce the exact same titles, content, and shipping rates, and sell cheap knock-offs of what we were selling. What was interesting is they weren’t selling a “fake” product. It was a real product manufactured in the Czech Republic but it was sold as the exact same product we sold, manufactured only in Austria, and they would just drop ship the product from somewhere in Asia, many times out of Hong Kong.

How to Do it On Amazon

On Amazon you can I think it is a little easier to setup and make some real money, especially if you know how to program even in the slightest bit. Amazon makes their API code available where you can pull large amounts of data just by writing a program.

This is the one, two, three of how they do it, and you don’t have to be a programmer to do it, just anyone with half a brain can accomplish this. Go through and find some good books on the Amazon ranking. Try the best seller rankings and you will see a list of some of the fastest selling books, but you don’t have to use these, just anything with a high selling price and a ranking will do.

Once you find something that will sell, and for a good price, just list it on your own store, usually for a much higher price, and wait for it to sell. Once it sells, you go buy the book from the lowest Amazon Marketplace seller and use the shipping address of the order you just sold. Now multiple this by thousands, sometimes tens of thousands. Using an API or some other method to scrape entire databases of listings, you can you pull the data into one single database, raise all the prices by 20-50% (sometimes even 100%), and wait for these to sell. When they do, you just go buy it from another Amazon Marketplace seller.

There are so many things wrong with this method, and you might even ask why would it even work. Well, why does spam work, because people buy from spammers. You wouldn’t think anyone would buy from a seller that sells the exact same product as you for 100% higher, but they do. Maybe the drop shipper has changed the description to read that it is a “collectible” or perhaps the buyer is just not very bright. If it didn’t work, they wouldn’t use this unethical method.

Conclusion

The two ways mentioned above are by no means the ethical way to do business on the Internet, and there certainly are legitimate drop shipping companies that work hard and make a good living. If you are not a drop shipper, you should still know how to compete with them and know how they operate. Ignoring part of the marketplace that you compete with is probably not the best alternative. So educate yourself with the practices of the legit, and perhaps not-so-legit, and it will strengthen your business to survive and compete with the other eCommerce companies selling on the Internet.

If you are competing in an area with high online fraud, an ongoing evaluation of your competition might show you that there are other niche markets that might be more suitable for your skills and ethical business practices. We learned this, not so quickly, after years of competing with drop shipping companies selling Product A, by buying product B for $.10/package and selling it as Product A. We would buy Product A for $1.00/package and sell it for what it was, a genuine, high quality product, with a good demand for sales. Sometimes you just can’t compete with a 1000% markup on your cost of goods sold.

What do you think? Has your online business been effected by fraudulent competition? Have you even looked into to it yet?