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4 Ways DTC Brands Can Beat Supply Chain Logjams

DTC

4 Ways DTC Brands Can Beat Supply Chain Logjams

With the holidays fast approaching, global supply chain disruptions are threatening to cast a shadow over the peak shopping season for both brands and consumers. COVID-19 related shutdowns, production delays, rising materials costs, labor scarcity, shipping container shortages, and port congestion could all leave retailers short of products to sell, and consumers without gifts to give.

That’s troubling for both digital and traditional retailers who rely on final-quarter sales to drive their revenues. For direct-to-consumer merchants, though, it isn’t all bad news. Despite the challenges, direct-to-consumer merchants have a real opportunity to leverage their brand equity, weather the storm, and come out ahead by capitalizing on supply chain disruptions this holiday season.

That’s partly because DTC sellers have less risk exposure than marketplace merchants or real-world retailers. More than half of Amazon’s sellers, for instance, are now based in China, meaning the marketplace could be especially hard-hit. Besides global shipping issues, China is also facing widespread power shortages that could curtail manufacturing operations and leave Amazon facing tremendous shortfalls in inventory — both for Chinese sellers and for U.S. sellers that import Chinese-made products into Amazon’s FBA network.

Traditional physical retailers face similar challenges. Their geographical footprint requires a multiple-step distribution process, creating greater costs, slowing down delivery times, and heightening the potential impact of logistical logjams and labor shortages. Full-truckload shipping is especially tough, with drivers in such high demand that high schools are now training teenagers to drive 18-wheelers. Inventory shortages are also likely to be more noticeable in brick and mortar stores, where empty shelves will impact customer experience and could dissuade shoppers from entering stores in the first place.

By comparison, DTC dropshippers have a much simpler task. Like any ecommerce operation, DTC brands have significantly lower fixed operating costs than brick-and-mortar retailers. That’s especially significant when inventory runs low: if nobody has products to sell, it’s far better to be on the hook for small, manageable hosting costs than to be stuck paying a sky-high commercial lease.

Better yet, DTC brands don’t just have lower costs and less risk exposure — they also have more control over the customer experience. While marketplace sellers have little option other than to simply remove listings for out-of-stock products, and real-world retailers are left with bare shelves, DTC brands can respond more creatively — updating their websites to guide shoppers to available products, say, or reducing SKU count to create a more focused browsing experience.

This agility, combined with deeper brand equity and a more loyal fanbase, gives DTC brands a path to generating revenue and deepening customer relationships even in the face of product shortages. The best approach will vary from brand to brand, but a few key strategies include:

1. Transparency. 

Be honest with your customers. Many will have read about global supply chain issues, but they may not be aware of how acute they are or how they are impacting your brand. While consumers will get frustrated by marketplace sellers or real-world retailers that don’t have the products they’re seeking, they will tend to be more sympathetic toward DTC brands that communicate about the challenges they’re facing in purposeful and honest ways.

Start by reaching out via your customer email list — an asset most marketplace sellers and real-world retailers lack, or fail to actively maintain — and follow up with a posting on your website. Strike a forthcoming and optimistic tone, and avoid defensiveness, and you’ll find your transparency will increase your credibility with your customers.

2. Assortment 

Because DTC brands often have lower SKU counts than other retailers, the impact of a single product being out of stock can be disproportionately large. To combat this, merchants should leverage their brand equity and promote available product-adjacent and brand-extension items, such as branded merchandise or related products and accessories.

Taken to excess, this could dilute your brand — but executed tastefully and in a way that’s still aligned with your core brand, it can be an effective strategy. Bringing new temporary products to market requires some additional research and investment, but it’s also an opportunity to learn more about your customers, and potentially identify new SKUs to incorporate into your permanent product lineup.

3. Promotions

Given the likelihood of shortages and delays, try to drive engagement by running one or more promotions. Easy options include gift cards and credits, discounts for late delivery, and freebies such as accessories and merchandise. You could also offer free gift-wrapping or small personal touches such as notes of thanks to customers whose gifts arrive later than expected.

The key is to offset late delivery or other inconveniences with an elevated experience — something that marketplace merchants simply can’t offer, but that can be a great option for DTC brands shipping high-value, high-demand items.

4. Pricing 

When supply issues cause order volumes to drop or COGS to rise, the easiest way to make it up is by increasing prices. This is harder to do in marketplaces where competitors’ products are only a click away, or in brick and mortar settings where overhead is higher, but DTC  merchants with strong brand equity are better-placed to command higher prices this holiday season.

If you pursue this strategy, distribute increases across your best-selling items to reduce the effects of price elasticity, and be forthcoming about why prices are going up to preempt sticker shock and underscore your commitment to transparency. Alternatively, consider pursuing a more aggressive bundling and up-selling strategy, including tailored product recommendations and checkout up-selling, to increase AOV without increasing item price.

Control your destiny

Of course, how well these recommendations will work for you depends on your brand and your customer base. The most important thing, though, is to realize that as a direct-to-consumer brand you have far more control over your destiny than pure-play marketplace sellers and traditional retail brands.

If there was ever a time to use the strengths of the direct-to-consumer model to your advantage, it’s now. The global supply chain disruptions will undoubtedly affect sellers of all kinds this holiday season. That makes it all the more important to use every tool in your arsenal to face these challenges head on, and to leverage your brand equity to strengthen customer relationships and drive revenues in the months ahead.

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Remington Tonar is the Chief of Staff at Cart.com, the first end-to-end ecommerce solutions provider delivering a fully integrated and owned suite of software, expert services, and infrastructure to scale businesses online.

dropshipping

Top Products You Should Avoid Dropshipping

There’s a reason why dropshipping is such a popular business model among aspiring entrepreneurs. Selling products that you don’t need to ship or store is accessible in that it doesn’t require much capital to get started. Also, it comes with low overhead, and, with such a wide selection of products available to sell, entrepreneurs can more easily experiment with their business without too much risk.

It’s an excellent choice for business owners who don’t have a large space to operate within, considering the dropshipping business model has built-in inventory management. Entrepreneurs who use dropshipping can run their business from practically anywhere and don’t have to worry about many of the logistics involved in running a traditionally supplied business.

Still, for all the benefits of dropshipping, there are a few drawbacks that may lead to financial problems.

Along with the labor involved in order fulfillment, you also export your trust. Too often, well-meaning and legitimate dropshipping businesses find themselves entangled with suppliers who are out to make a quick buck at the expense of the customer. This ultimately damages your business’s reputation and may cause consumers to perceive it as a scam when really, you aren’t the problem so much as the dropship supplier is (which is why it’s so important to shop around and try out a different supplier every now and then).

There’s no doubt finding a reliable supplier can be difficult. And, even when your dropshipping supplier does come through for your customers, sometimes you are met with such a low-profit margin that you may wonder whether running an e-commerce platform is even worth it.

An e-commerce store is a great way to earn an income — provided you’re selling the right dropship product. One of the most common mistakes entrepreneurs make is to sell items willy-nilly, without considering the possible complications of the sales channel or order fulfillment process. To aid your discretion in what products you offer your customers, we’ve compiled a list of items to absolutely avoid selling in your online business, so you don’t make financial mistakes.

Your Dropshipping Business Shouldn’t Sell 11 These Items

1. Large Items

As the owner of a dropshipping business, you may be tempted to sell large items like furniture with the expectation that they will yield you high-profit margins. The furniture itself may be worth big bucks, but the headache is not.

Here’s why; If you’ve been in the dropshipping business for a while, you’ve likely used ePacket, a shipping method that is offered by third-party providers operating in China and Hong Kong. ePacket is designed to ship lightweight items at low cost and high speed. This is the shipping option of choice for popular Chinese online store AliExpress.

For a dropshipping product to qualify for this super-cheap, super-speedy shipping method, the weight of the package cannot exceed 4.4 lbs. The longest side of the package cannot exceed 60 cm (if rolled, the limit is 90 cm). You cannot use ePacket to ship anything worth over $400 U.S. dollars. The shipping cost for large items often surpasses what the item itself is worth, making this a poor choice for the dropshipping retailer.

For obvious reasons, furniture is a no-go for ePacket shipping, which is why you should avoid it altogether as a dropshipping model. Not to mention, there is typically a higher risk of large items being damaged in transit than smaller items.

2. Items That Cost Over $100

If you want to keep your dropshipping company profit margins up, don’t bother with items that cost over $100 before shipping and handling. Of course, you can opt to have a pos financing system, but anyway, there are several reasons why selling expensive items doesn’t make a whole lot of sense.

For one, your customer base is looking for a bargain. They’ve come to your website because they think they’ll find a good deal there. Because the customer is coming in with that expectation, it’s unlikely they’re willing to spend any amount in the triple digits on a single item.  Customers who are willing to pay more will likely avoid a discount site altogether.

Secondly, it’s hard to justify the markup on items worth more than $100. If the wholesaler’s price is already high, there’s less of a chance you’ll be able to get away with charging the customer much more.

And lastly, items with a hefty price tag, such as specialty or luxury products, are already offered elsewhere in abundance. For instance, if someone wanted to purchase a musical instrument such as a bass guitar — which is a high-cost item, even at a discounted price — they would likely go to a specialty store rather than purchase from your business. While finding a niche for starting your own online store is a great idea, it’s highly recommended that your niche items are not inherently expensive.

3. Clothing and Shoes

One of the greatest woes of buying clothes online is that you can’t try on a piece before you buy. Sometimes you can’t rely on product descriptions or product images, either.

Too often, this leads to disappointment, negative customer reviews, and returns. The returns you may have to deal with as a merchant could be enough to make you vow never to sell clothing again. Any item that must be sized, whether clothing or shoes, has a higher likelihood of being returned by the customer.

It’s also very easy to unknowingly misrepresent an article of clothing. For example, if you are an e-commerce business that only ships to the U.S., but your dropshipping supplier is a Chinese clothing manufacturer, it’s likely that the clothing is sized incorrectly for a U.S. audience. Consumers may become confused about irregular sizing, leading to mixups, frustration, and returns.

A disgruntled customer may take to your e-commerce store’s website to complain that a pair of jeans don’t fit as specified or look like the picture, and a bad review will scare away a potential customer. For this reason, it’s best to stay away from any sized items at all — it’s just not worth the hassle.

4. Fragile Items

Fragile items, such as glass and porcelain dishware, figurines, etc., can present a problem in transit, especially when shipping internationally. Depending on the quality of packaging by the wholesaler, an item might arrive damaged or broken. The safer option is to only ship plastic and other non-breakable materials. If you’re determined to ship fragile items, it’s a good idea to consult your dropshipping supplier about their fulfillment method. Ask your sales channel how they package that particular item, especially if it is a new product about which you cannot find much information. You may also want to read reviews of the item to see whether customers experienced problems with how their package arrived.

5. Supplements, Diet Pills, and Health Products

It probably won’t surprise you to learn that Facebook has stringent advertising policies. In addition to an extensive list of products (healthcare items and supplements included) that cannot be advertised on Facebook, there are restrictions pertaining to how you can advertise a new product in your online store.

Supplements cannot be advertised at all, and images showing “before and after” results are also not allowed. You also cannot use product images in a way that implies achieving health goals, such as muscle gain or weight loss, will occur as a result of using a product.

Supplements, diet pills, and health products are all items to avoid, considering that Facebook is a major driver of revenue for many a dropshipper. Without Facebook advertising, it may be harder to move your products. That is the number one reason why the above items don’t make great products; however, there are additional arguments to be made about the legality and safety of these products — some of which may be unregulated by the FDA or may even be illegal in some countries and regions.

6. Safety Equipment

Selling safety equipment simply puts the merchant at a far higher risk of liability than is necessary. For example, say a customer buys a motorcycle helmet from your website. By virtue of being a helmet, it is meant to protect the consumer from a head injury. If that customer gets into an accident while wearing your helmet and the helmet doesn’t perform as promised, you may have a major lawsuit on your hands. Since you can’t check the quality of items yourself, you’re placing all your trust in the supplier’s quality control.

However, this doesn’t mean you can’t sell equipment related to activities like motorcycling — just steer clear of equipment meant to protect consumers from serious injury. Examples of safety equipment to avoid include:

-Helmets

-Shoulder pads

-Mouthguards

-Flame retardant clothing

-Safety gloves

-Safety glasses

To a lesser extent, this even extends to equipment for electronic devices, such as a supposedly waterproof phone pouch, screen protectors, or other hardware meant to protect electronics. While you’re less likely to get a lawsuit thrown at you over a broken phone screen, your customers will not be happy, and you can expect a rather scathing review.

7. Counterfeit Items

It should be fairly obvious that selling counterfeit items is yet another invitation for trouble — if not just for legal reasons, then for your business’s reputation. It is completely illegal to sell counterfeit goods, whether you are producing, selling, or transporting such goods.

The top five counterfeit items most commonly bought on the internet are:

-Watches and jewelry

-Handbags and wallets

-Consumer electronics

-Consumer products

Pharmaceutical and personal care products

Whether or not you knowingly sold counterfeit goods, you can get in a lot of trouble. This is why it’s best to keep a close eye out for products of the above types that appear to be replicas of branded items. If the supplier price seems too good to be true, it probably is.

8. Weapons

Even if you are selling weapons such as pocket knives in a completely legal way, they can be a major annoyance to sell. The legality of a particular type of knife, for instance, may vary from region to region. Someone who is unfamiliar with weapon laws in countries their online retailer ships to would do best to avoid selling weapons altogether. There may be legality issues with selling items across national borders as well. At worst, your e-commerce business has unwittingly sold weapons that are illegal in a particular country; at best, a shipment doesn’t make it past customs. In the end, it’s probably not worth the trouble and risk of selling dangerous items.

9. Common Household Items

Avoid selling common, everyday items that consumers can find at just about any corner store. The reason? Well, just that. If you’re selling a generic item that can easily be purchased at any other store, including brick-and-mortar stores, you don’t have much of a competitive edge. For example, if a consumer has run out of toothpaste, they’re likely to buy it at any nearby drugstore. There is no incentive for the customer to buy from you, especially if they will have to wait several days to weeks for the item to arrive. But, if you sold something that was unique, such as a trendy type of teeth-whitening toothpaste with “exotic” ingredients, customers may be willing to wait for your specialty toothpaste (and hopefully buy some regular toothpaste in the meantime!).

10. Cosmetics

The reason for avoiding cosmetics is similar to the reasons for avoiding items five and seven. Namely, you may end up accidentally peddling a good that is untested or unapproved by the FDA, and possibly even counterfeit. Counterfeiting makeup has become an extremely lucrative venture. Unfortunately for the duped customer, counterfeit cosmetics often contain unregulated and unsafe ingredients that can cause skin irritation, damage, and serious allergic reactions. The same goes for cheap makeup brands from foreign countries; they are often not regulated or held to the same standards as higher quality brands. They may contain highly toxic ingredients — something you definitely don’t want passing through your hands and into the hands of your customers.

11. Copyrighted Items

Selling copyrighted items is one of the biggest financial mistakes you can make on your e-commerce platform. Just like with counterfeit products, selling items that violate copyright laws is illegal. It may be tempting to sell items that are copyrighted because there is an existing fanbase you can target; however, it’s not a good idea. Should you be caught, legal charges can be brought against you, and your store may be shut down entirely. Companies like Disney and its subsidiaries are well-known for going after any instance of copyright infringement. A small dropship company that is found to be violating Disney’s copyright, for instance, stands almost no chance of recovering from a lawsuit.

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Mike Austin is a Content Director at Adrack.com. He has worked in the Digital Marketing industry since 2009. As a conversion-driven marketer, he is passionate about helping businesses expand their online visibility and reach their goals.