A Candid Disucssion About Drop Shipping

Drew Sanocki from DesignPublic.com is a drop shipping pioneer. He got his feet wet in eCommerce in 2003, and drop shipping allowed him to get started with very little capital.

This week I’ve invited Drew back on the podcast to have a very frank and candid discussion about his personal history with drop shipping, and the pros and cons of this polarizing tactic.

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Here’s What You’ll Learn

  • What has changed since Drew began using drop shipping as an eCommerce tool.
  • Things you can do on the front end to be competitive when you can’t be competitive with price.
  • How to choose your battles and keep a positive relationship with your suppliers.
  • How to use drop shipping as a means to get acquainted with a market before you fill a warehouse with inventory.
  • Whether drop shipping is still a viable approach for someone who is getting started in eCommerce.

What Was Mentioned

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3 Comments

  1. Hey guys! Andrew, great pod as always. Drew, love the insight. I’ve got a couple of notes on things you guys mentioned.

    Re: MSRP (actually, MAP)
    Man, I fought this battle hard back in 2005/2006/2007. I was working at LivingDirect (home appliance ecommerce), and a lot of our vendors where imposing MAP (minimum advertised pricing). Through this type of pricing, a dealer (aka us) can technically sell the products for whatever price they want, but they can only advertise the products at price x or higher. And, depending on the vendor, showing an item in your cart counted as “advertising”.

    The penalty was that the vendor would either cut us off or raise our prices if we did not comply.

    This sort of thing was a legal gray area until it was “legalized” in 2007 in a Supreme Court case:
    http://en.wikipedia.org/wiki/Leegin_Creative_Leather_Products,_Inc._v._PSKS,_Inc.

    I had lots of really tough meetings face to face with vendors arguing over this stuff until it finally stabilized after the court case.

    We used to break MAP a lot when we could, because we had more volume and pricing power than a lot of our competitors. Our marketing guys were pretty sneaky about it- often they would automatically set the prices to dip below MAP after 5p and on the weekends- banking on the fact that our vendors and competitors would not be monitoring our website after hours. This was before automated price logging software, of course.

    Good times…

    Re: dealing with dropship vendors- and getting an advantage
    Once you have some volume, many of our vendors were receptive to lower costing for us if we approached it as a rebate, rather than an up-front cost reduction. For example, with one vendor, we had rebates tiered. If we bought $800k in product in a year, we got a check the next April for .5% of purchases. If we bought $1M, the check was for 1%. This tier went up to 3%.

    Even if your volumes are lower, try to negotiate something like this.

    Another good thing to ask is if your vendor has an advertising co-op program. Advertising co-ops mean that a vendor will help you pay for advertising if their product is featured. We mainly used this to pay for physical catalogues that we sent to our mailing list (collected online, as we were ecommerce-only). However, you might see if your vendors are interested in placement in your emails, website, or even adwords. We successfully got LG to subsidize their own brand KWs in adwords for many years.

    Cheers!

  2. Hey Peter!

    First off, sorry for the *really* late reply to your comment. Obviously need to do a better job of diving in here for the podcast posts.

    GREAT info related to MAP pricing, thanks for sharing! And a script that lowered the prices just on the weekends? That’s pretty sneaky. 😉

    With TM.net, we had suppliers that also would issue some pretty big cash-back bonuses as well based on volume. So it was a way to get a bit extra margin even if you were abiding by strict MAP guidelines.

    Great seeing you in Austin and hope all is well!

  3. Hi Andrew. I like what you have to say about the value of offering a core, unique product. Is this even possible with the dropshipping model? Typically all of the products I see offered with the dropping model tend to be non-unique products (for obvious reasons). How would one go about setting something like that up? Would one contact a manufacturer and ask them to produce something to one’s specifications?