Drop shipping is an order fulfillment method in which a company, enlisting a third-party vendor, sells something that they didn’t actually manufacturer nor keep in stock.
Now imagine you are the customer, and a package shows up at your door from a company you’ve never heard of, with goods you ordered from a totally different company. After getting over your initial confusion and realizing you are now armed with the vendor’s information, you buy direct in an effort to save money. If you’re the savvy shopper, this is great. If you’re the seller, not so much. The seller is now cut out of all future business, and therein lies the problem.
I recognize the dilemma. What’s the solution?
The answer is blind shipping. Before we commence, it might be helpful to review the key players in all drop shipping scenarios: They are:
Blind shipping is the vendor’s role in the drop shipping process. You might also hear it referred to as a blind dropship. In an effort to conceal that the product was shipped from a third-party vendor and not from the seller, the third party’s information is removed from the shipping label and any documents that will accompany the shipment and replaced by the seller’s information. The customer is then “blind” to who actually fulfilled their order.
While blind shipping can stop the customer from contacting the vendor to buy direct, it does not prevent the vendor from contacting the customer, based on the shipping information given to them by the seller. Enter double blind shipping.
What is double blind shipping?
In traditional blind shipping, only the customer is “in the blind,” unaware as to where the product actually came from. In double blind shipping, the vendor is also “in the blind,” unaware as to where their the product is being shipped. Now two parties are blind, hence the term “double blind shipping.” To successfully double blind ship, a new player in the game is introduced: the shipping carrier.
To eliminate any information being shared about the customer to the vendor and vice versa, the seller coordinates the shipment directly with the carrier, or through a freight broker. In most cases, a pickup is arranged at the supplier’s warehouse and shipped out without the vendor ever knowing where it is headed.
Sound confusing? Well, it is. Because of this complexity, double blind shipping can be expensive, and is normally only utilized by businesses coordinating dropship orders at a LTL carrier or parcel carrier quantity level.
Should I be blind shipping?
If you are the seller in a drop shipping scenario, then the answer to this question is a resounding yes. Facilitating blind shipping is an important step in creating happy return customers. Depending on your business type, you might also take a long look at double blind shipping. While complicated and sometimes prohibitively expensive, it further impedes the vendor from selling directly to the customer. Either way, the livelihood of your drop shipping business depends on customers buying from you, not buying directly from the vendor.
Setting clear expectations ahead of time and continuous communication between yourself and the vendor is the most important thing in keeping this key relationship healthy. Suppliers have been known to include marketing materials in shipments that encourage the recipient to come directly to them for their next order. Only do business with vendors you trust.
If you are the vendor, then you might want to take a quick pause and consider the following before consent to a blindshipping agreement:
The more middle men involved in the sale of a good, the further the profit must be be stretched and divied up. There is a fixed cost involved in producing a product (the cost of raw materials, labor, overhead, etc.), and a limit on the amount of money consumers are willing to pay for the product. The manufacturer needs to profit. The seller needs to profit. Is the leftover margin enough?
Sales and Marketing Costs
While your margins might be lower, as a vendor, zero sales and marketing costs went into the order. Think of the seller as an external mini marketing agency and sales team that you spend absolutely nothing to maintain. That’s pretty nice, and, over time and with the right analysis, this can help you reduce overhead expenses.
Minimum Order Quantities
To enforce or not to enforce, that is the question. It might not be worth your time and effort to fulfill and ship small, one-off orders. However, if the seller is bringing you a lot of business, you might have to reconsider.
As the main contact for the order, the seller will be responsible any customer management, such as securing payment, returns, and product issues. In theory, this works out great for you, as you can employ a staff that focuses on other areas. However, this lack of accountability can be a double-edged sword. If the goods have your company logo, or your brand is so strong that the goods are instantly recognized as yours, poor customer service by the seller can be mistakenly attributed to you and tarnish your good name.
Time to Go Direct?
There are many advantages in selling directly to end customers, including higher margins and more control of your brand. All companies should regularly take a look at their sales strategy, including reviewing what is to be gained by going direct. But, as they say, never put all your eggs in one basket. Successful, stable wholesale businesses usually employ a mix of strategies, selling both directly and via other channels, fine-tuning how many eggs to put in each basket over time.