If you've ever purchased a physical good on the internet, you know that shipping is a big deal. And all online shop owners know that providing competitive shipping is a key part of their success. It is indeed one of Amazon's greatest strengths and they are famous for offering free shipping to their Amazon Prime members.
Let's talk about Amazon Prime
Free shipping you say? Well, not quite exactly. First of all, Prime membership costs $99 per year. And second, even though not officially documented by Amazon, Prime doesn't apply to their cheapest products. On average, Prime products start at around $10.
Your margin is my opportunity.
Jeff Bezos is famous for operating businesses with near-zero margins. Yet Amazon most likely doesn't lose money on Prime: $99 can pay for at least 20 shipments, and the margin they make on $10+ products can compensate for a lot more.
Long story short: Amazon Prime may seem over-agressive but it is in fact an incredibly smart move that is completely understandable from a business perspective.
China is eating the world
I recently needed to purchase some electronic gear, so as usual I turned to Amazon. Unfortunately, the price there was unacepptably high ($30+ for something which shouldn't be more than a few bucks), so after a quick Google search I ended up on AliExpress, AliBaba's consumer version. I found what I was looking for at a much fairer price (around $3), and was extremely surprised to find that they offered free international shipping on such a cheap item. Something smelled fishy, but it was so cheap that I took a chance.
I received my package around 10 days later, in perfect condition.
That's when I started wondering how this was at all possible. Of course they probably have large volumes, but even assuming the product cost them nothing I thought that $3 for fast international shipping was rather impressive, so I decided to dig things further.
It turns out that AliExpress offers free international shipping to France for pretty much every single item they sell. Yes, that includes incredibly cheap items that cost less than a dollar. That was so intriguing that it deserved an experiment.
Stress-testing AliExpress' free shipping
The cheapest product I could find that had free international shipping was this amazing wooden button. It sells for 3 cents, including free international shipping. So I bought one! And ten days later…
…the package was delivered in my mailbox by my local postman (La Poste). From China. For 3 cents. Oh, and it even had some tracking!
Trying to make sense out of this
Let's not even talk about the cost of a wooden button. How can you ship something by air mail to the other side of the planet for 3 cents? Here are some figures to put this in perspective:
- shipping a similar sized package locally with La Poste would cost €2.16, nearly eighty times more.
- shipping without a tracking number can lower the price to €1.12. Still 40x more than 3 cents.
I'd go even further: assuming it takes the mailman as little as 10 seconds to deliver the package, and given he is paid the minimal legal wage here, that would already cost… 3 cents already!1
I can't make sense out of this. I have different hypothesis but none of them seems convincing enough:
- AliExpress is losing money on such sales. But why bother, then?
- There's a bug in AliExpress. Unlikely, because I've now purchased over 10 sub-$3 products there from different vendors, and all of them had free air mail shipping from China .
- AliExpress vendors hacked their way around China Air Post and the Universal Postal Union.
- While the US were busy building iron man, China discovered teleportation.
Anyway, if you have any idea about how AliExpress is pulling this trick, please reach out, I'd be very happy to be enlightened!
The minimal wage in France in 2015 is €9.61/hour. ↩