Nothing tests your belief in a system than its most egregious application.
I am a firm believer in laisssez-faire capitalism for two reasons: first, no other socio-economic system has been so successful in raising people out of poverty and increasing material wealth than it; second, and more important, is that libertarian capitalism is the only framework that that does not require an authoritarian morality adjudicator deciding what is just, good or desirable: it lets everyone make their own choices.
Dropshipping makes me question my faith in it, and my instinctive dislike of most kinds of regulation. The term refers to the practice of setting up an e-commerce store (typically via a platform such as Shopify) that manufactures nothing and holds no inventory. Instead, what it does is advertise products produced by wholesalers (mostly based in China) and sold on AliExpress. When a consumer places an order on the dropshipping site, the dropshipper immediately places an order on AliExpress, providing the consumer's address. The dropshipper makes a profit by charging a higher price than AliExpress. You can watch tutorials on youtube here and here (I recommend watching the videos at 1.5x or 2x speed, otherwise they are pretty dull). You know those annoying facebook ads for hoodies, bracelets, fidget spinners &c you occasionally see? Odds are clicking them will direct you to dropshippers. The picture below illustrates the whole affair:
Dropshippers argue that this is not that different to what most retailers do. For example, all supermarkets sell branded and private label products that they do not manufacture themselves, charging a mark-up vs the price at which they procure them from their suppliers. The difference, however, is that most supermarkets source their products from wholesalers who do not sell directly to consumers (DTC). The wholesalers' decision not to sell directly to consumer makes sense - it's more profitable for them to produce huge batches to sell to the Tescos and Walmarts of the world, even foregoing the mark-up these retailers charge to the end consumers, than to set up costly supply chain networks to sell DTC. Though DTC is becoming cheaper and cheaper, for the time being there are often big efficiencies in the traditional model, which ultimately benefit consumers themselves.
Not so with dropshippers. Consumers could just go to AliExpress and buy products themselves, often at huge discounts to the prices dropshippers charge (in one case, a dropshipper was charging $12.95 for rings that cost $2.85 on AliExpress). So dropshippers are not adding any value whatsoever; all they are doing is ripping off their consumers by peddling junk and riffraff and bombarding them with crude ads on social media platforms. And economists the world over are wondering why productivity is stalling.
Still, if consumers are too stupid to resist the urge buying the worthless nonsense that's marketed to them, and too lazy to bother comparing prices (something that takes <5 minutes in the age of google), who am I to complain?
But it gets worse when you learn about the marketing tactics dropshippers employ. Rory Ganon, the guy in the first video linked above, advocates the following practices:
I am a firm believer in laisssez-faire capitalism for two reasons: first, no other socio-economic system has been so successful in raising people out of poverty and increasing material wealth than it; second, and more important, is that libertarian capitalism is the only framework that that does not require an authoritarian morality adjudicator deciding what is just, good or desirable: it lets everyone make their own choices.
Dropshipping makes me question my faith in it, and my instinctive dislike of most kinds of regulation. The term refers to the practice of setting up an e-commerce store (typically via a platform such as Shopify) that manufactures nothing and holds no inventory. Instead, what it does is advertise products produced by wholesalers (mostly based in China) and sold on AliExpress. When a consumer places an order on the dropshipping site, the dropshipper immediately places an order on AliExpress, providing the consumer's address. The dropshipper makes a profit by charging a higher price than AliExpress. You can watch tutorials on youtube here and here (I recommend watching the videos at 1.5x or 2x speed, otherwise they are pretty dull). You know those annoying facebook ads for hoodies, bracelets, fidget spinners &c you occasionally see? Odds are clicking them will direct you to dropshippers. The picture below illustrates the whole affair:
Dropshippers argue that this is not that different to what most retailers do. For example, all supermarkets sell branded and private label products that they do not manufacture themselves, charging a mark-up vs the price at which they procure them from their suppliers. The difference, however, is that most supermarkets source their products from wholesalers who do not sell directly to consumers (DTC). The wholesalers' decision not to sell directly to consumer makes sense - it's more profitable for them to produce huge batches to sell to the Tescos and Walmarts of the world, even foregoing the mark-up these retailers charge to the end consumers, than to set up costly supply chain networks to sell DTC. Though DTC is becoming cheaper and cheaper, for the time being there are often big efficiencies in the traditional model, which ultimately benefit consumers themselves.
Not so with dropshippers. Consumers could just go to AliExpress and buy products themselves, often at huge discounts to the prices dropshippers charge (in one case, a dropshipper was charging $12.95 for rings that cost $2.85 on AliExpress). So dropshippers are not adding any value whatsoever; all they are doing is ripping off their consumers by peddling junk and riffraff and bombarding them with crude ads on social media platforms. And economists the world over are wondering why productivity is stalling.
Still, if consumers are too stupid to resist the urge buying the worthless nonsense that's marketed to them, and too lazy to bother comparing prices (something that takes <5 minutes in the age of google), who am I to complain?
But it gets worse when you learn about the marketing tactics dropshippers employ. Rory Ganon, the guy in the first video linked above, advocates the following practices:
- Claiming that products are "free", and consumers only have to pay for shipping. In his tutorial, he sells a bracelet that retails on AliExpress for $1.99; he charges $0 for the bracelet itself, but adds a $9.99 price tag to shipping. AliExpress's actual shipping cost? Free.
- Adding a "limited offer" countdown in the product's page to suggest that the $0 price offer will expire in one day. This is a bold faced lie, of course.
- Installing an app on your Shopify shop that bombards the people browsing it with pop ups whenever other people have bought something on your site - the idea is that this gives the impression your site has a lot of traffic, and is therefore credible. However, the app can be configured to produce pop ups for fictitious sales.
What's astonishingly, cartoonishly sleazy is that dropshippers like Rory Gannon are not only not ashamed of their conduct, but are actively showcasing it (characteristing it "hustling") in their tutorials - it reminds me of the scene in The Big Short where Steve Carell's character asks his associates "I don't get it, why are they [mortgage brokers] confessing [to selling mortgages to people who won't be able to repay them]?" to which they answer "they aren't confessing; they are bragging".
I do not know how big the dropshipping market is, nor do I know what % of dropshippers employ such tactics as described above. But given the size of e-commerce, now in the hundreds of billions of dollars per year, the popularity of apps enabling the kinds of practices described above, and the sheer number of dropshipping sites, I imagine the answer to both questions is "big". And though I would never advocate banning dropshipping (as I implied above, the rule of regulation should not be to protect consumers from their own stupidity), surely regulators should intervene to prevent downright dishonest marketing. And perhaps the mainstream media should spend less time worrying about the power of legitimate companies like Amazon (which are hugely beneficial to consumers), and start investigating the self-proclaimed hustlers who are fleecing the clearly none-too-bright public.
No comments:
Post a Comment