This commentary was written by Nicola Kinsella, senior vice president of global marketing for Fluent Commerce. The views expressed here are solely those of the author and do not necessarily represent the views of Modern Shipper or its affiliates.
Many companies today are realizing the benefits of drop-ship vendor (DSV) relationships to expand product range and offerings. DSVs allow retailers and stores to test new products to an increasingly discerning, trend-focused customer base with minimal risk. A greater network of vendors helps retailers engage new customers and retain existing ones, but it also adds a layer of complexity for businesses. There are several measures retailers can take that minimize the challenges of working with DSVs.
Service level agreements & compliance
Most customers have come to expect a certain level of service from their favorite stores. In order to build and maintain customer loyalty, businesses should ensure that the level of service remains consistent when a DSV is brought into the picture. A comprehensive service level agreement (SLA) can help retailers address the necessary details to help keep headaches at bay in the future (i.e. order processing speeds, order fees and minimums, delivery speeds and options, options for out-of-stock items, customer communication and order updates etc.).
At the end of the day, customers will hold the retailer responsible for any issues with a DSV, so it’s important to have a thorough outline of compliance protocols and consequences in case a DSV violates the SLA. By outlining challenges that may arise ahead of time, companies will be better prepared to mitigate issues, which will lead to a successful vendor relationship and happier customers down the line.
Financial models
It is important to decide what financial model will be used for each DSV. There are a few popular models that many DSVs offer. The first is a “pre-purchased” model where owned inventory is housed at the DSV’s warehouse and paid for upfront by the retailers. The second is a “purchase on demand” model, which, as the name suggests, means the store pays for the item only when a customer orders it. In this case, the retailer doesn’t own any inventory. Lastly, the “purchase to finance” model requires the store to pay the DSV for the inventory in full first before shipping to a customer who is financing the product instead of purchasing it all at once.
How and when DSVs are paid are important details that are often overlooked. Some DSVs want to receive payment on a per-order basis, while others want to be paid monthly or weekly. Some DSVs require the customer to pay for shipping costs, while others require the retailer to cover it. It’s important to note that retailers do not need to pay a DSV until a product is actually purchased by the customer, unless of course the store wants to own the product ahead of time. As businesses begin to work with DSVs, they should make sure to maintain ongoing evaluations to ensure they’re always getting the most competitive prices.
Data management
When working with multiple vendors, it’s important to have proper systems and processes in place to manage all of the data. Product data, inventory data and order data all need to be aligned and flow properly to allow for a positive customer experience. Stores should consider how their product information management (PIM) solution will work with the DSVs or how they are displaying product information in a way that will entice the customer to hit the buy button.
Data accuracy is paramount in retail. While some vendors do a better job at updating inventory than others, stores must stay on top of the details. It’s unwise to allow items to be sold if they are out of stock, and this can easily happen if a retailer doesn’t monitor the data provided by the DSV. Stores must understand what their DSV’s systems are capable of and be ready with the right systems and solutions in place.
Customer expectations
Customers tend to shop with merchants that provide things like quick delivery time, consistent order status updates or stand-out customer service. When integrating a DSV into its network, a store loses some element of control over these things. That’s why it’s important to be transparent and set accurate expectations with customers. How will customer support be handled? Will they be able to share order status updates? What if the DSV only provides some updates, but not all?
Customers will also react to changes in competitor supply, especially since there is such a high level of competition at play in the global marketplace. While a store might be carrying the same, or a very similar, product as its competitor, they need to communicate any dimension of exclusivity or special discount in order to stay competitive. Customers crave transparency when making purchase decisions now more than ever.
Navigating returns
Returns often become more convoluted when working with DSVs. Retailers must make sure they work out the details with a DSV, such as policies, processing time or customer service, from the start. One detail to consider is return shipping costs. Merchants should determine who will pay return shipping, remembering that free returns may attract more customers but taking into account the difference in customer lifecycle value of “repeat returners
It’s often helpful to review the returns experience from the customer’s perspective, asking questions such as: How will they initiate a return (online or by phone?) Will they print the shipping label themselves? Can they initiate a return on behalf of a customer? And lastly, how will return statuses be communicated?
While there are some challenges in working with DSVs, they are easy to overcome when the right solutions are in place and the details are refined prior to starting the relationship. For starters, having a comprehensive SLA in place can help minimize complexities and increase transparency. Utilizing a distributed order management system (OMS) also helps fine-tune the details by tying together data from all DSVs in one place. This means a retailer can easily sync inventory data in near-real-time, provide order status updates, optimize fulfillment practices, handle returns easily and more. By paying mind to the details and knowing the right questions to ask, working with a DSV can be a very productive, lucrative and beneficial relationship for retailers and customers alike.
About the author
Nicola Kinsella is senior vice president of global marketing for Fluent Commerce, which offers a cloud-native distributed order management system for omnichannel retailers.
