An e-commerce revenue model where the seller has control over pricing but doesn't keep products in stock and instead transfers customer orders and shipment details to a third-party supplier, who then ships the goods directly to the customer, is called :
Contents8
- ADropshipping Model
- BAffiliate Revenue Model
- CTransaction Fee Revenue Model
- DAgency Revenue Model
Show answer
Answer: (A) Dropshipping Model
The correct answer is Dropshipping Model.
Key Points
- Dropshipping Model is an e-commerce fulfilment method where the seller keeps no inventory. The seller markets the product, and once an order comes in, buys the item from a third-party supplier (usually a wholesaler or manufacturer). That supplier ships it straight to the customer.
- The key feature: the seller controls the pricing. He fixes the retail price, and his profit is the gap between the price charged to the customer and the wholesale price paid to the supplier.
- Affiliate Revenue Model is different. Here a person or business promotes another company's product for a commission, and usually has no control over pricing or the transaction itself.
- Transaction Fee Revenue Model: a platform charges a fee for enabling or completing a transaction, as with eBay or Stripe. Its operational structure is not the same as dropshipping.
- Agency Revenue Model: a business works as a service provider (like an advertising agency) and takes a fee or commission for doing tasks for a client.
Additional Information
- Low capital requirement: dropshipping needs very little upfront money, since the entrepreneur does not buy stock in bulk.
- Location independence: the business can be run from anywhere with an internet connection, because logistics and fulfilment are handled outside.
- Supply chain management: the seller depends heavily on the supplier for product quality and shipping speed. Supplier mistakes damage the seller's brand reputation.
- Global reach: many dropshippers use platforms like Shopify along with suppliers from AliExpress or Oberlo to serve a global market at minimal overhead cost.
Dropshipping allows entrepreneurs to start e-commerce businesses without inventory investment, making it a popular low-capital business model in India's growing digital economy.
The Indian e-commerce sector has seen massive growth in dropshipping models, especially during and after COVID-19, as more people started online businesses from home.
UPSC is testing whether students understand different e-commerce revenue models that are reshaping India's retail and employment landscape.
Dropshipping Business Model
Indian Economy dropshipping seller has control over pricing doesn't keep products in stock third-party supplier
Dropshipping Model: Definition, Mechanism & Business Characteristics
Dropshipping is an e-commerce model where sellers control pricing but hold zero inventory
Seller transfers orders to third-party suppliers who ship directly to customers
Profit comes from the price gap between retail price and wholesale cost
Requires low capital investment as no bulk stock purchase needed
Core Mechanism
Dropshipping is an e-commerce fulfillment method where the seller acts as a middleman without holding inventory. The seller markets products, sets retail prices, and handles customer acquisition, but relies entirely on suppliers for product storage and shipping.
Dropshipping Process
%%{init: {"flowchart": {"wrappingWidth": 460}}}%%
flowchart TD
s1["`**Customer places order**
Customer orders from seller's online store at retail price`"]
s2["`**Seller forwards order**
Seller sends order details and shipment info to third-party supplier`"]
s3["`**Seller pays wholesale price**
Seller purchases item from supplier at wholesale rate`"]
s4["`**Supplier ships directly**
Supplier packages and ships product directly to customer`"]
s5["`**Seller keeps profit margin**
Difference between retail and wholesale price is seller's profit`"]
s1 --> s2
s2 --> s3
s3 --> s4
s4 --> s5Key Characteristics
Price control: Seller sets retail prices and determines profit margins
Zero inventory: No physical stock storage or warehouse requirements
Low startup costs: Minimal upfront investment compared to traditional retail
Location independence: Business can operate from anywhere with internet access
Supplier dependency: Quality and shipping speed depend on third-party suppliers
Trap: Confusing dropshipping with affiliate marketing - affiliates earn commission, dropshippers control pricing
Trap: Thinking seller owns inventory - in dropshipping, seller never physically handles products
Trap: Mixing up with agency model - agencies provide services for fees, dropshippers sell products for profit margins
E-commerce Revenue Models
Indian Economy Affiliate Revenue Model Transaction Fee Revenue Model Agency Revenue Model
E-commerce Revenue Models: Types, Mechanisms & Key Differences
Affiliate Model: Earn commission by promoting others' products without price control
Transaction Fee Model: Platforms charge fees for enabling/completing transactions
Each model differs in inventory control, pricing power, and revenue source
Agency Model: Service providers earn fees/commissions for client tasks
Revenue Model Comparison
Model | Inventory Control | Pricing Control | Revenue Source | Example |
|---|---|---|---|---|
Dropshipping | None (supplier holds) | Full control | Price margin | Online retailer |
Affiliate | None | No control | Commission % | Blog product reviews |
Transaction Fee | Platform only | Limited/None | Per transaction fee | eBay, Stripe |
Agency | Not applicable | Service pricing only | Service fees | Digital marketing agency |
Model Distinctions
Affiliate Revenue Model: Promotes other companies' products for commission percentage, no transaction control
Transaction Fee Model: Platform facilitates transactions and charges fixed or percentage fees per transaction
Agency Revenue Model: Provides specialized services (marketing, consulting) for retainer or project fees
Subscription Model: Recurring revenue through monthly/annual subscriptions (Netflix, SaaS platforms)
Indian E-commerce Context
Major Indian platforms use multiple revenue models:
Flipkart/Amazon: Combination of marketplace fees + advertising revenue + subscription (Plus membership)
Paytm: Transaction fees + commission + advertising revenue
Zomato/Swiggy: Delivery fees + commission from restaurants + subscription services
Trap: All models involve 'third parties' - focus on who controls pricing and inventory
Trap: Confusing commission-based models - affiliates have no pricing control, dropshippers do
Trap: Transaction fee models enable transactions, they don't handle product fulfillment like dropshipping