Drop Shipping (also known as Arbitrage) is probably something you’ve never heard of. I certainly hadn’t until I listened to an episode of NPR’s podcast Planet Money, called ‘Cat Scam’.
If you’re a regular eBay shopper buying more than just the odd pre-loved or vintage item, you need to know about this phenomenon. Drop Shippers are more than likely taking advantage of your naiveté when it comes to online shopping.
They know that a large percentage of online shoppers will not do a price comparison or any research before they make a purchase. In fact, they are highly likely to choose their retailer before they choose their product. In this case Drop-shippers usually operate from eBay, but Facebook and self-hosted online stores are also possibilities.
Drop Shipping works like this:
- The Drop Shipper finds a bunch of popular selling everyday items on Amazon and copies the images and product details.
- They then upload these to their eBay account and create an identical-to-Amazon listing on their eBay store. Product will be described as ‘Brand New In Box.’
- They add a markup – around 33% of the Recommended Retail Price or the price listed on Amazon.
- They offer free shipping.
- A customer unwittingly searches for the item on eBay, finds one of these listings and makes a purchase without doing a wider web search and comparing prices.
- Only then does the seller order the item from Amazon, ship it for free directly to the customer with their Amazon Prime account and pockets the unnecessary markup.
They hold no physical stock. They offer no actual service. They make a profit at your cost with no risk to themselves. Its basically scalping and a total scam.
But here is the kicker: its a totally legal scam!
The moral of the story is, do your homework and don’t allow yourself to be taken advantage of. E-commerce companies like eBay and Ali Baba are not who you are actually dealing with when you make a purchase from these sites. Think of them like a shopping mall full of millions of independent retailers. Retailers who have no established and trusted brand name, no customer service division or actual physical store. It could literally be someone just like you sitting in their own living room at the other end of the transaction. Its these people who you are purchasing from and you often don’t have the visibility of who they are and where their products come from. How do you know to trust them?
My advice is to go to the offical source of the product you are interested in, and at least check the recommended retail price. When it comes to Amazon, use a price comparison site like camelcamelcamel.com to check the price history for the lifespan of the product since listed on Amazon.
If you haven’t already, listen to the full episode of Cat Scam from Planet Money, they get right into the detail and its so interesting. If the economy, marketing and commerce float your boat, then I recommend you subscribe to Planet Money and check out the episode #544: The M&M Anomaly. Yes, they mean the candy.