- 1 Definition
- 2 Popular fields for reselling
- 3 Differentiation from other types of distribution in e-commerce
- 4 Advantages and disadvantages
- 5 Similar articles
Resellers are a type of e-commerce business that is not involved in the production or manufacturing of the products and services that they offer their clients. Basically, they serve a 'middle-man' role between the manufacturer (or wholesaler) and the clients. The reseller may choose to rebrand (or at least repackage) the products or opt to not hold any inventory – shipping directly from the manufacturer to the customers.
Popular fields for reselling
While the reseller business model can work for a variety of economic sectors and industries, it has proven particularly popular in the following fields:
Reselling has proven to be an ideal business model for internet-based services and digital products. Web hosting is a capital intensive venture that requires the purchasing and maintenance of expansive server firms and significant investment in critical issues such as cybersecurity. Despite there being very few organizations that can set up and maintain the infrastructure required for web hosting, the market is flooded with retailers. Most of them are resellers who focus on marketing and client acquisition and resell hosting space, bandwidth, and other web hosting services from the parent company. Many web hosting providers see this as an additional sales channel, which is why they are now actively promoting reselling:
Screenshot of hostgator.com
As a digital service requiring significant amounts of capital expenditure to set up, domain selling has also proven to be popular with resellers. Resellers partner with domain registering services and the transaction between the customers, the reseller, and the parent company usually occurs in real-time, with the resellers setting their own profit margins.
In the mobile sector, resellers mainly purchase mobile telecommunications infrastructure capacity from parent companies and resell these to their customers. Setting up a mobile telecommunications service requires an extensive network of cell-phone towers as well as cabled and wireless connectivity. Resellers purchase capacity from existing networks and resell this to their clients. Reselling also works on the mobile device markets, with modems, phones, and other accessories. Most manufacturers allow resellers to include their own branding with the resold products.
The fashion industry, with particular emphasis on the non-couture affordable segment, is full of e-commerce resellers. Most do not even maintain their own inventory, choosing to have their resold products shipped directly from the manufacturer to the consumer. Some may take the effort to do some rebranding, resulting in identical clothing being presented in the market under different brand names.
Basically, every single importer is simply a reseller operating at a larger scale. The main difference with other resellers is that importers tend to have other businesses (wholesalers and retailers) as their clients.
Differentiation from other types of distribution in e-commerce
While sharing similarities with other forms of distributions, there are key differences that make reselling a unique e-commerce business model.
Dropshipping as a modification of resellers
You can think of dropshipping as an 'extreme' form of reselling. With dropshipping, the reseller offers a product that they do not currently have. After a buyer makes a purchase, the reseller has the manufacturer ship the product directly to the customers – the reseller does not interact with the products they sell.
With franchising, the business owner pays an initial fee as well as regular royalty payments to use the trademarks, business strategy, and sell the products of a more established brand. Most chain restaurants use this model.
An affiliate looks for customers to purchase a product and earns a commission on every sale they are involved with. They differ from resellers in that they don't get to set the price (hence their profit margins) or present the products as their own, they just get to market the original brand and earn commissions on sales.
Advantages and disadvantages
One of the main advantages of being a reseller is the low initial investment. You will not be involved in the production/manufacturing process. In fact, with dropshipping, you don't even need to hold onto inventory. You can operate as a 100% online-based commercial entity.
There are also very few business models that give you the ability to scale your business like reselling. This is a major advantage. As production is handled by other entities, a reseller is able to fulfill sudden large orders and grow their business without any significant disruptions.
However, most people tend to (mistakenly) underestimate the cost of advertising. Reselling is all about attracting, engaging, and retaining customers. Advertising becomes important, especially when competing with other resellers offering the same products at generally the same prices. If you cannot differentiate yourself from competitors through your product offering or prices, you have to rely heavily on marketing.
Another disadvantage is how time-intensive reselling is. Each sale requires you to order from the manufacturer/supplier and ship to clients. You have to maintain a good relationship between yourself, your customers, and suppliers/manufacturers. Any complaints from clients have to be managed on two ends: the clients' end and the supply end.
You also have no control over the quality of the products you are offering clients. However, you get all the blame for defective or substandard products shipped to clients. If you are not exclusively practicing dropshipping, then your overhead costs will be significantly higher since you need storage space for your inventory – at least while on transit from the manufacturer to the customers.