Driving CX Through Drop-Shipping: Key Considerations for SMBs

For small-to-medium businesses (SMBs), exceptional customer experiences are the key to building and growing a loyal customer base. Experiences like faster delivery options are attractive to customers, but as technological and cultural preferences evolve, it can be challenging for SMBs to keep up without sacrificing quality of service. As superior customer experiences can’t exist without superior quality of service, retailers are left with a delicate balancing act.

In order to maintain this equilibrium — especially in the wake of an increasingly volatile supply chain — more SMBs are turning to drop-shipping, a practice in which orders are handled directly between suppliers and consumers. It’s not only cost effective for SMBs, but it can improve delivery times for consumers. Per a recent report commissioned by UPS Capital, Personalized Shipping Experiences: The Next Frontier for eCommerce, 69 percent of SMBs reported increasing their use of drop-shipping since early 2020.

As its popularity grows, there are a few things to understand about drop-shipping before deciding if it's right for your business.

The Basics

Cost effectiveness is one of the more considerable benefits of this model. Because fulfillment is managed by the supplier directly, retailers no longer have to invest in housing inventory and associated costs. Those savings are then redeployed towards various customer experience programs and other key initiatives. Not to mention, by not being tied to their own warehouses and distribution centers, SMBs can offer a wider breadth of goods.

Shipping operated directly by the supplier allows for some added flexibility for consumers in their delivery options — key considerations for modern buyers. In fact, our research has shown that the more shipping customization options a SMB provides, the more it stands out among competitors. When polled, 87 percent of consumers say they would be more likely to shop with a merchant if it could personalize their shipping experience.

Taken together, these are powerful incentives. In a disruptive economy where trends shift quickly, being able to reliably meet core customer expectations while saving capital is vital.

The Risks

Despite the benefits, drop-shipping doesn’t come without a certain level of risk. This, unfortunately, is tied directly to one of its core attributes: suppliers. Given that suppliers manage the shipping process directly, retailers lose a certain amount of visibility into the process. Retailers no longer have the chance to provide a quick “quality check” before the item is shipped to a customer, and as a result may suffer the consequences of a lost or damaged shipment. SMBs drop-shipping today see this risk regularly. Our report shows 66 percent of SMBs reported more loss, theft and damage from drop-shipping as compared to shipping directly from the business.

Furthermore, considering that damages and delays are cited by two-thirds of consumers as the No. 1 reason they would leave a negative review, this risk can cascade. Partnering with businesses that have extensive quality controls and logistics expertise will set shipments up for experiential success from the start. For example, look for partners that use the correct packaging to withstand the rigors of transport and leverage the correct mode of transportation for the item being shipped. The use of address validation software can also help reduce mis-deliveries that could result in delays or potential lost shipments.

Finding the Right Middle Ground

Despite its high-risk nature, the proven benefits of drop-shipping indicate that it’s here to stay. The differentiator, then, will be identifying just how to mitigate the risks and ensure consistent, positive shipping experiences. It starts with how retailers assess and choose their supplier partner, which will ultimately have an outsized impact on the outcome. Any drop-shipping program being rolled out should be done only with trusted partners that have a track record of success.

Furthermore, there are additional customization options that retailers can deploy to not only safeguard against potential theft or loss but also provide customers with much needed peace of mind. By offering shipping insurance options, customers are protected from loss, and in turn, SMBs are protected from negative reviews. In fact, this is an option that customers are already demanding, with 65 percent of those polled indicating their desire for shipping insurance.

Balancing quality of service and sustainable business practices will always be a priority for SMBs as they seek to grow their business. Customer expectations change, and offerings must along with them. By listening to customers, whether it be for a higher level of personalization or positive shipping experiences, retailers can continue to stand out at a time when they can ill afford stagnation. Customers are challenging retailers to keep up — here’s their chance.

Eduardo Lopez-Soriano is vice president of marketing at UPS Capital, a financial services division of UPS that offers traditional and non-traditional financial services and insurance products..