How Drop-shipping teaches me about the perception of value

Nana Nguyen
Nov 8 · 6 min read

Why do you pay $50 while it costs me only $10 for the same product?

Photo by Rupixen on Unsplash

We all want to find the best deals for every high-quality product. None of us wants to enter a bad bargain where we either overpay for a product and later find others buy the same one for a much lower price or buy low-quality products because of misleading advertising.

The reality may surprise many of us that we enter bad bargains every day without realizing it.

While working for a drop-shipping team, I have learned that many products sold mainly in the developed markets (like the United States or European Union) come from drop-shipping business. 22–33% of Internet retailers have adopted drop-shipping as their primary method of order fulfillment (E-DSS.org). This means one-in-three people reading my article may buy a $50 item which only cost me $10.

So what is drop-shipping?

Here’s the definition from Shopify:

Drop-shipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.

In short, drop-shipping sellers only use the product image and advertise it to you via social media then use your money to buy the products for you. This means if you find the first-party and buy products directly from them, you can save yourself 80% of your paid money.

It is normal to suspect the quality of a $10 products, you may think it is too cheap to be good. Especially when you have seen the same products (with better branding) sponsored to you under a price of $50, you may automatically conclude that the $10 products are fake and happily buy the $50 one without a doubt that they are the same products.

To help you understand this more easily, I will give you real examples of drop-shipping products.

A posture corrector I found on Ali Express only costs me $3.7 (total price $6 after adding shipping cost). I found the same products on Amazon (and many other e-commerce pages) at a price from $18 to $25 (excluding shipping fee).

Posture Corrector sold on Aliexpress at $4
Same posture corrector sold on Amazon at $24

The only difference I found out between these products is the brand labeled on the expensive ones which makes you think the cheap item is fake and low-quality. In reality, some big drop-shipping businesses often hire the manufacturers in China to label their brand names on the products (normally when ordering over 500 products at once, you can ask for this privilege). These 2 products are the same despite the gap in the price sold.

So how to find out the real value of a product and spend your money more wisely?

The main solution is not finding a way to reveal a drop-shipping product but to change your perception of value.

Currently, instead of paying solely for the functional value of a product, you mainly pay for the intangible value perceived from the marketing and the branding of it.

A few years ago, I bought a pair of glasses with $10 and found out that my classmate paid $50 for the same one. The only difference between our identical glasses is her buying from a popular brand in a big mall while mine from a low-key market. Nevertheless, it’s from the same manufacturer since I heard my glass seller chatting about how she and big-glass-brands import products from the same place. I used that $10 glasses for 6 years until I had eye surgery to treat my nearsightedness (just so you know that the quality of the glasses is good).

I observed that my friend was satisfied with her glasses and the fact that it was more expensive than normal glasses made her happier (I never told her my glass price by the way). My friend’s perception has been highly affected by the intangible value.

To her perception, the value comes from:

  • The price: if you pay more money, it must mean the products are high quality
  • The brand: the more popular the brand, the more valuable and trustworthy the product

To me, what should be considered while perceiving the value is:

  • The function: how well the products can solve your problems
  • The price: what is the optimal price you should pay to get it (normally you will get this price by buying from China, directly through Ali-express, Taobao, Tmall)

Why should you follow this new way of thinking?

Here is the price model of a typical drop-shipping business from my insight within this industry:

  • 20%: cost of good sold - the real price merchants must pay to get the product from China
  • 45%-60%: Ads paid for Facebook, Google (Now you can understand why these ads companies are so prosperous since half of the money you pay for every daily item run directly to them)
  • 5%-10%: Administration cost (normally big drop-shipping teams will hire a customer support team to resolve the dispute and a content-marketing team to create catchy advertisements which make you more willing to pay 5x higher)
  • 10%–30%: drop-shipping team net profit

Looking at the price model above, you can understand why buying directly from China will save you 80% of the cost compared to buying based on the advertising you see online.

Here are some tips to help you spend money more wisely

Photo by Rupixen on Unsplash

1. Know what you buy and actively find where to buy it

Instead of buying based on the ads, the marketing contents, the catchy headlines, the good mock-up images, the popular KOLs posts you see online, you should buy based on the real function of the product.

Remember, every product you see running ads, their prices have already included the ads cost.

2. Find the optimal price on China market places

Normally I will go to Ali-express, Taobao, Tmall and other Chinese market places to find the best price. These websites support image searches for you to take a picture of the product you want and search easily.

3. Change the perception that low price products from China are fake and low-quality

The high-end and glamorous brands you see every day on advertisements are not always worth your money. This is especially right in case of drop-shipping since KOLs can be hired, reviews can be imported from other websites or created manually by the sellers. The high price you pay is not only for the products but also for the ads costs and profit of the sellers.

I hope that after this article, you can learn more about drop-shipping business and therefore, become wiser in spending your money.

Nana Nguyen

Written by

A full-time data analyst and life-time adventurer who loves reading, writing, drawing, traveling and sharing knowledge.

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade