eCommerce vs Affiliate Marketing

[JamesH]

I've always wanted to start my own ecommerce site and wanted to deal with it through drop shipping. To me it seems a lot like affiliate marketing, however you have a lot more control over the business, and it seems a bit more scalable. For example (and please correct me if I'm wrong) I could run an affiliate campaign that sells wine. I'm limited to that companies offer, there promotional materials, etc. However with ecommerce and drop shipping, you have a much larger selection of goods to chose from and to market, and therefore you can do a lot more with 1 web site, and 1 niche. Its a lot tougher to do, however I think it would be a lot more rewarding. And depending on who you go to for drop shipping, you never have to deal with the product, much like affiliate marketing.

Any thoughts? Lets get a discussion going on about this subject. Anybody run an eCommerce site? What are the pros and cons of doing eCommerce vs affiliate marketing?

 

[xecutech]

Well the only drawbacks from dropshipping are return policies, legal and state issues (if this is wine), profit margins (as most dropshippers are just resellers themselves) and then what if the drop shipper goes out of business on you?

If I were going to do ecommerce, I would buy the product from reputable wholesalers and have some stock on hand and add products as I grow.

This is just my opinion. I am currently helping with an online cigar business and we have had a hell of a time obtaining merchant accounts, distrbutors and state laws. The site is just now going live and I'll let ya know how it goes... we may even have an affiliate program or drop shipping program in the future, but for now we are just promoting ourselves.

 

[JamesH]

Interesting, and wine was just an example. But you did bring up several good points. Depending on who you go with, I've heard that some drop shippers will deal with the returns. Legal and state issues sounds like a big pain in the ass. And profit margins could be a problem. It would make it that much harder to compete if you have higher prices.

I would also go with getting my own stock, however I feel that it could be a bit risky. What if my business fails, I'll be left with all of this merchandise that I can't get rid of. But thats the risk you take when you start a business, its just that the risks are higher once you start dealing with physical products.

Also, I've heard about the problems people have when it comes to obtaining merchant accounts. Could you go into more detail about the problems that arose?

 

[johu]

Be prepared to do a lot of work when selecting a drop shipping provider, as there are so many shady players in that part of the industry. If a drop shipper screws something up and a user files a chargeback, you'd be out that money and have to take up the issue with your drop shipper. However, with affiliate marketing, as soon as you hand it off, it's not your problem anymore. Pretty much the big thing to worry about, even if you find a reputable drop shipper, is fraud.

Whatever credit card processor you choose, make sure that they either have decent fraud protection, or a fraud protection solution can interface with their merchant gateway. When I used to sell hosting myself, my company began manually processing all orders due to the fraud rate - Both CC and PayPal order IPs were checked vs the contact and billing addresses for location match, and a few other checks were in play.

Google checkout may actually be a good solution for a credit card processor due to its fraud checks, but I guess processor discussions would be talk for another day if you do decide to go the drop shipping route.

 

[johu]

Also, I've heard about the problems people have when it comes to obtaining merchant accounts. Could you go into more detail about the problems that arose?

As for actually obtaining a merchant account, it shouldn't be too hard. They pretty much run a credit check on you, and may withhold a certain percent of all funds processed for a certain period of time (I've heard of up to 2 weeks) to deal with returns. Alternatively, there are other payment processors (not merchant accounts) such as Google Checkout that will act similar to a merchant account, and don't require much of anything to start. Google Checkout will also be nice, as they'll be offering free processing fees (I believe for 10x your spend on AdWords) for free next year.

If you choose an actual merchant account, make sure you choose one that specializes in ecommerce or MOTO [mail order / telephone order, more commonly referred to as "Card Not Present"]. A different level of fraud comes with card not present orders, so you need a provider who understands that. I used to use CDG Commerce - Your Most Trusted Merchant Account Provider - Accept Credit Card Payments Today! for processing, and was pretty satisfied with the service they offered. CDG swept all transactions to my bank account within 2 business days, and held nothing as a reserve for chargebacks. CDG also introduced a fraud screening solution, but I didn't get the chance to try it, as I sold my company shortly after they launched it. They also offer a few different gateway options (at least a few years ago, they did), so that you can pick whichever best integrates into your solution.

Hope this comes in handy.

 

[xecutech]

Hey JohnH, if you buy stock and go out of business, you can always sell off you unsold items on ebay. I wouldn't stock more than 1 item of each product until you see that it's going to sell. I would think, unless the distributor offers stock imges, you will need at least 1 product to get pictures for the site.

We had gone through 6 merhant account companies before we finally got one to work with us. ALOT of the merchant providers are just resellers themselves working for bigger companies! Do your research and read the small print on the applications, as alot of them will charge you about $300 to cancel if they get you approved.

With alot of them being resellers, they are unsure of particular laws and rules for certain products, such as cigars and wine, so it's alot of headaches and empty promises by all of them. We would completly explain to the dealer that we couldn't get approved before, but they promise they are better and know the tricks and loopholes, then to just tell us they can't do it 2 days later, if they even call you back!

 

[JamesH]

Thanks for your input xecutech. Now here is another question, what are the pros and cons against using eBay or your own personal website with shopping cart software?

 

[bitsdawg]

If you are fairly new to this, then I would suggest starting with the Bay of E.

pros -- they already have traffic.
pros -- lots o's research in seller central that is FREE about hot items
pros -- just use paypal to get started if you want. Ebayers are used to paypal.
pros -- it is fairly simple.
pros -- you can keep the contact information of your buyers, and drop them a contact asking them how the purchase worked out, and oh...buy the way..here is my website.

cons -- ebay fees can really hurt if you do not plan for them
cons -- stick to ebay rules..no obvious website spamming on sales page (though you can spam elsewhere).

Honestly, I did dropshipping for awhile, got sick of it, and just do the affiliate thing now. But I think it is a good way to get started. But DO WATCH returns.

I had a fat guy buy an expensive collapsible canoe, and it did not work for him. The distributor did NOT think that was a good reason for a return. i.e. the specs were on their sales material AND it was not broken. I almost got stuck with the turdy thing.

Most sales worked out, but one bad one can eat a lot of profits

 

[xecutech]

I agree, if your just getting started you'll do better with ebay starting out, but you will still have to setup your own website eventually. You could use ebay while your building your site and getting funds to get started.
i would go to oscommerce's forums and you will see it's free, open source, has a ton of plugin modules and a forum with helpful people.