Pros
Profit margin:
Profit margins in terms of percentage are much higher for digital products than physical products. The point here is that the average price of digital products is only 1.25$, which means that you’ve to sell a ton of products to actually earn a good amount of profits. On the contrary, physical products can be sold at a much higher price than digital products, and even though the profit margins would be less, but the magnitude of that profit will be much higher as compared to digital products.
High perceived value:
Physical products have much higher perceived value as compared to digital products because they’re real and tangible. You can tell your customers about the features of your products and how they will solve their problems to explain the value of your products and why they are worth the premium prices you’re charging. It becomes challenging to demonstrate value in the case of digital products.
Easy to use:
Most of the physical products are easy to use and handle. Simple tutorials can help any layman to use your products. On the other hand, there are many prerequisites for buying digital products. It sometimes becomes hard for digital product sellers to guide their customers on effectively using their products.
Difficult to copy:
Imitating a physical product is way more complex than copying a digital product. You need to procure different raw materials, require expertise and establish a whole supply chain to develop these products. Many people share digital products such as courses or lightroom presets with their friends and family, which means that many people are using your product while only one of them has actually paid for it. Physical product sellers don’t have to face such kinds of issues.
Personal touch:
Personal touch and feel for the product is an unmatchable experience for your customers. Most people on ETSY are looking for artistic and unique products that will add to their status or prestige. So, this emotional benefit associated with physical products gave them an advantage over digital products. That’s why digital product sellers struggle to provide this personal touch in different ways, while it’s very easy to develop a personal connection in the case of physical products.
Cons:
Shipping problems:
One of the biggest issues with physical products is shipping problems. Delivering a product at the customer’s doorstep sometimes becomes really difficult as there are a lot of parties involved. Many ETSY sellers outsource this to third-party logistics companies and encounter a lot of complaints regarding the shipping of their products. Moreover, it’s almost impossible to offer worldwide deliveries in the case of physical products which narrows down your target audience. There are different laws and policies in different countries, and keeping up with all of it becomes hectic for new sellers.
Inventory handling issues:
Inventory management is crucial if you want to establish a scalable business. To avoid lost sales opportunities and stockout inventory, ETSY sellers must keep a record of all their inventory. It becomes really tricky during holiday and shopping seasons when there is a demand spike and even during shock seasons when there is a drastic decrease in demand.
Infrastructure cost:
Physical products sellers require huge infrastructure costs to start their business compared to digital products. From sourcing to manufacturing, packaging and eventually delivering your products, cost is incurred at every step of the supply chain. This investment requirement sometimes becomes a barrier to entry too, but huge capital investment doesn’t guarantee that your business is going to be successful. It’s a risk that you’ve to take that may pay off.
Time-consuming:
Creating physical products is a time-consuming task, and you need to give your full-time attention to it. You can sell it over and over as you need to create new products every time a customer places an order in your shop. Moreover, you’ll also need staff to handle the logistics of your e-commerce business of physical products if you want to scale it, which itself is a time drain.
Economies of scale:
It isn’t easy to achieve economies of scale in a physical product store. You can sell the same digital product over and over to different customers, but it isn’t the case for physical products. Adding new products to your store requires a completely new supply chain to handle which becomes tedious for most sellers.
Quality management:
Ensuring the same quality in all your products is a task that ETSY sellers struggle with the most. You are manufacturing your products in batches, and it’s difficult to keep a check across all production batches. Inconsistent quality leads to customer dissatisfaction and lost credibility. Maintaining the quality of products is very easy for digital product owners as they are solely responsible for it.
Return policy:
In case of physical products, most sellers don’t accept returns because they’ve already incurred a lot of costs. Despite this no return policy, many customers will reach out to your for returning products, and you sometimes have to cater to their requests to avoid bad reviews. This becomes really costly for ETSY sellers.
Even though physical products dominate the e-commerce market, there is room for digital products because of the cons associated with physical products. It’s also true that physical products aren’t going anywhere, and you can make a handsome profit through it, but digital products are also a choice. At the end of the day, it depends on choosing which business model appeals to you the most.
