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Tilting at Windmills

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February 12, 2006
By: Kevin Drum

SHIPPING AND HANDLING....How much will you pay for shipping when you order something online? It turns out it depends on where you order it from:

"Academic research shows pretty convincingly that people have separate accounts in mind, one for the item itself and one for shipping," said John Morgan, an economist who teaches at the University of California, Berkeley.

....On eBay, Mr. Morgan found that bidders happily accepted outrageously high shipping charges if they thought they were getting a good deal on the item price of a used CD. Amazon, however, faces the opposite problem: its customers accord more weight to the shipping charge, even if modest, than to the discount on the item itself. Why should this be? Perhaps it is the online customer's chafing at being asked to pay for the privilege of waiting for a delivery.

One of the results of this is that Amazon spends a ton of money trying to reduce delivery times but finds it difficult to charge customers enough to make up for it. Because of this, its core business selling its own books and CDs might very well still be unprofitable even though it racked up about $5 billion in revenues last year. Apparently bricks and mortar aren't quite obsolete yet.

Kevin Drum 3:03 PM Permalink | Trackbacks | Comments (28)

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Here's something else to think about though. On ebay you are buying something that is semi unique, and you have already engaged in a complex process of "aquiring it" and the actual shipping of it is almost secondary to that hunt. On amazon, however, you are by definition buying something absolutey identical to every other such item--one CD from one band out of thousands that Amazon purports to have ready to hand. You could easily buy it in a store with no haggling for the same price. And amazon doesn't discount things that much if at all. So all that is left is the convenience. Amazon has become stunningly inefficient at getting me shipments of books--sometimes making me wait months for something that they claim to have "in stock." Its not the cost of the shipment that is at issue since you can actually pay for higher cost shipping (second day or whatever) but if they don't ship the book or cd out to you for a month what difference does it make? Amazon's woes are, to my mind, more the result of failing to realize that the people shopping at amazon do it for convenience and speed. If you can't get the speed you are going to go elsewhere. That simply isn't true for ebay where you are shopping for cost and for something that may be, to you, quite rare.


Posted by: aimai on February 12, 2006 at 3:18 PM | PERMALINK

Aimai: Yeah, that was my reaction too. I've got three big bookstores within five miles of my house, so Amazon just isn't very attractive to me if its books end up costing more and taking several days to arrive.

When I buy something from eBay, however, it's usually something I can't easily get locally. So price isn't as big a deal.

Posted by: Kevin Drum on February 12, 2006 at 3:39 PM | PERMALINK

I run the other way from anyone who tries to impose "handling" on E-Bay. It's not like they have organizational costs. I'll pay for the shipping container and the postage, itemized, thank you.

Posted by: Mudge on February 12, 2006 at 3:49 PM | PERMALINK

I always choose the "I'll wait forever, but I want the shipping free" option at Amazon. They burned me once in overnight shipping, and I'll never choose that option again. I ordered a CD that was "in stock" and needed it (yes, I actually needed it for a project) asap. This was a Wednesday evening. Well, we all know Amazon admits it may take a day or two to process the shipping of even overnight items. They even say so in the fine print. Fine, I understood that when I ordered.. Well, they finally sent me an email on Friday afternoon telling me that they were processing the order. Cool. Then it was weekend, so nothing happened. Monday was some kind of holiday, so nothing happened that day, either. On Tuesday afternoon, I got a notice that they were getting around to handling my order. Wednesday the Fedex people were notified that the shipment needed to be picked up, and I got a notice from Fedex. Fedex picked up the shipment on Thursday, and it arrived at my house on Friday. So Amazon's next day shipping took approximately 9 days. Their free shipping option sometimes is quicker than that, so there's no way I would choose "overnight" shipping from them again.

Last year Amazon began a promotion whereby if you paid a membership fee, they would give you reduced overnight shipping rates on all your orders. LOL, I didn't need anymore 9 day overnight shipments, so I chose not to buy into that option.

Posted by: Jim in Arizona on February 12, 2006 at 3:50 PM | PERMALINK

another thing about amazon is you often have a choice: take "supersaver" shipping for free if the price is high enough, or choose a more expensive method. most items are going to come either ups or usps, and guess what? the delivery times are going to be about the same for the cheapest method. the way amazon gets you to choose a pay-for method is they just don't ship it at all for a while, then when they do ship it, as you can tell be tracking it, sure enough it comes in 3 days, just like it would have if they had shipped it right away. their cost to pack and ship it is the same for 3-5 day ground or wait a week and then 3-5 day ground, but next time around you'll be thinking "I WANT IT NOW!", and you will (they hope) pony up the extra bucks.

Posted by: supersaurus on February 12, 2006 at 3:51 PM | PERMALINK

Jim: A similar thing happened to me. I paid for fast shipping on an item supposedly in stock, but it turned out not to be in stock and it didn't get shipped to me for another week. They still charged me the higher shipping rate, though.

Posted by: Kevin Drum on February 12, 2006 at 3:52 PM | PERMALINK

I don't use Amazon all that much, but I find that if you're ordering more than $25 worth of stuff and don't insist on having the package within 48 hours of your final click, shipping isn't that big an issue with them, since it's free (unless you've bought something from one of their affiliate vendors, for which the eBay exception noted above probably would apply).

Now if you're buying from somebody like Buy.com, you should definitely watch out for the shipping charges. I bought from them an HP 8450 Photosmart printer, list $249 I believe, for $131. Shipping was $21, but even with that it was still a good deal. There's no question some online vendors shift the cost from the goods to the shipping so they can advertise lower prices, so the emptor should most definitely caveat when buying online.

Posted by: Sal Hepatica on February 12, 2006 at 3:54 PM | PERMALINK

Where's the anti-Bush angle on this one?

Posted by: fred on February 12, 2006 at 4:07 PM | PERMALINK

Amazon gives heavily to Republicans, Ebay gives to Democrats.

Posted by: Dan Cock on February 12, 2006 at 4:15 PM | PERMALINK

I use Barnes and Noble for most media purchases these days. I can return to the store for credit, and my membership card pretty much makes up the difference between Amazon and B&N.

Most vendors have free shipping coupons if you google for them.

Posted by: Cal on February 12, 2006 at 4:33 PM | PERMALINK

I don't understand why companies don't give you discounts when they screw up shipping like the above stories.

Imagine if they had an option where you paid $2 extra on overnight, and they refunded you the entire shipping cost if it didn't arrive within 2 days. Then no one would feel so cheated.

You could do the same thing on airplanes. $50 delay insurance. Every hour the flight is delayed you get $100 of your ticket price back (with the numbers worked out by actuaries).

Posted by: Noah Snyder on February 12, 2006 at 4:53 PM | PERMALINK

When living in Orange County, where there were lots of malls and strip-malls, I depended heavily (90%?) on brick-and-mortar retail. Now having moved to a more rural county, the percentages are reversed.

For book purchases I mostly use alternatives to Amazon. Try biblio.com/booksellers.php for a list of online bookstores near you to minimize shipping costs and delays. Or try powells.com - the City of Books!

Posted by: jim58 on February 12, 2006 at 4:57 PM | PERMALINK

Apparently bricks and mortar aren't quite obsolete yet.

And they never will be, as long as time is of the essence. Like last Christmas: I did most of my shopping on Amazon, but the deliveries never got shipped. I cancelled the order and purchased the same items at Borders with just a few days to spare.

Posted by: Grumpy on February 12, 2006 at 5:29 PM | PERMALINK

The advantage of Amazon over a brick-and-mortar store is that you can find almost any book on any topic at Amazon, while a brick-and-mortar store almost inevitably has a more limited selection.

Posted by: J. J. Ramsey on February 12, 2006 at 6:23 PM | PERMALINK

Talking of shipping charges -- has anyone tried to order flowers online lately? I did this week, but never again. It's much cheaper just to find a local store and order over the phone. FTD will stick you with shipping charges for up to half the cost of what you ordered, though their deliveries are all local.

Posted by: Zathras on February 12, 2006 at 6:41 PM | PERMALINK

On at least one occasion, I have been the only bidder on an eBay item and paid $0.01 for it ... plus $7.00 shipping.

Posted by: Thlayli on February 12, 2006 at 6:56 PM | PERMALINK

As far as handling costs on ebay, I ship a ton of furniture and feel that a handling cost is quite acceptable. Many pieces take up to half or or even longer to package properly. I have a store and a warehouse that is used to provide the large amount of space needed for packaging large items.

It drives me insane when people complain about shipping costs. It's not like you didn't know before you bought it. Of course if the item is a paperback and someone is charging you $10 to ship it, that is outrageous. Mailer $.50 to $1.50 and actual postage $1.50. But when it comes to larger items that need packaging materials and an enormous amount of effort and time to prepare, handling fees, I feel, are quite acceptable.

Posted by: Jim on February 12, 2006 at 7:53 PM | PERMALINK

Interesting comments on a topic I have often thought about. I occasionally order from Amazon and generally always go for the free shipping although I usually will just run up to BAM or B&N. I like to fondle a book a bit before I buy it!

I have never bought on E-bay although I have bid on a couple of items and at times I will buy something else, usually legitimate software, online and I absolutely hate paying shipping charges!

Posted by: fred on February 12, 2006 at 10:22 PM | PERMALINK

A great deal of what I see on Ebay seems to have grossly inflated S+H charges. $100+ to ship a CPU via UPS Ground? Give me a break. Yet there seems to be no shortage of buyers willing to pay these ridiculous rates, and to leave gushing praise for the sellers who charge them. Go figure.

Posted by: D on February 12, 2006 at 10:57 PM | PERMALINK

As the owner of a brick and mortar/mom and pop record shop, I can special order a CD for a customer in less time (1-2 days) and generally for less money than they'd spend on a CD from Amazon when shipping is included.

The sad part is most folks still assume they're going to get a better deal from Amazon...

Posted by: DukeJ on February 12, 2006 at 11:08 PM | PERMALINK

Interesting comments on a topic I have often thought about.

Well good for you. But you can't post the same lame joke over and over, and then also expect to be allowed to come back and enter into normal banter.

By the way, Amazon would be much better and cheaper and faster if Bush weren't president.

Posted by: craigie on February 13, 2006 at 12:01 AM | PERMALINK

eBay's fee structure includes a "final value" charge, which is on the price exclusive of shipping costs. This creates an incentive for sellers to charge more for shipping. If you're hoping to get $20.00 inclusive of shipping for an item that costs $1.00 to ship, why not charge $10.00 for shipping and pay final value fees on $10.00 rather than on $19.00? You save $.47 in final value fees that way.

A lot of bidders, including me, make bids in full consideration of cost of shipping. You can't fool me into paying more than I would otherwise by raising the shipping charge.

Posted by: Joel Rubinstein on February 13, 2006 at 12:36 AM | PERMALINK

OK, time for the fair and balanced part. There's a B&N 30 miles from me, and I've already bought the two history books they offer that I think are worth reading. Frankly, I've spent as much of my life in bookstores as most of you have spent in college, and most of that time, in terms of buying books, was wasted.

When I buy from Amazon I choose free shipping and the stuff comes fast, overnight fast. Everyone is O/S on something, but it beats the "brick and mortar" alternative of never having the stuff in stock.

As an eBay seller, I lose money on almost every item I ship. Almost all of them need to have a special box built to keep the size small, and you cannot believe what a problem it is if something gets broken in shipping. I have learned that most companies selling computers by mail are losing $20-30 on shipping, at least the companies that sold to me. And, of course, there is the actual time spent going to town to ship the item.

Bottom line- thirty years ago I knew every bookstore in Seattle better than the owners did. We've never had it so good, when it comes to buying books, as we do today. If you go to the bookstore to buy espresso, your mileage may vary.

Posted by: serial catowner on February 13, 2006 at 8:15 AM | PERMALINK

Amazon is an absolute bargain compared to Ticketmaster. "Service charges" on event tickets easily can run 10% of the ticket price or more even when you use the online option and there's no physical delivery at all! And unlike Amazon, there's often no reasonable alternative to using Ticketmaster.

Posted by: Peter on February 13, 2006 at 10:53 AM | PERMALINK

I have never understood the business model of asking cutomers to pay for something and then delay the delivery. I thought American consumers would not tolerate it, but I think delvery services are so good at tracking their shipments people do not mind a minimal delay.

When Amazon first started, many bookstores were lamenting browsers looking at books in the stores and then purchasing them online. I am quite the opposite, browsing online and purchasing at the store, unless it is out of print.

Ebay is an excellent place to find used out of print books, if you do not mind waiting up to eight weeks for delivery.

On the Jetson's cartoon of the future, you order something and then a door in the wall opens up and you have your delivery. That type of service will be greatly anticipated.

Posted by: Hostile on February 13, 2006 at 11:11 AM | PERMALINK

For myself shipping charges gall me. I keep thinking they are actually making a profit from them rather than just charging me the cost to ship. Any profit should be in the price of the item purchased NOT the shipping.

Posted by: SteveL on February 14, 2006 at 12:32 AM | PERMALINK

I have heard that on EBay that some of the inflated 'shipping' costs have to do when someone is buying tickets to a sporting event in a state where scalping is illegal. The ticket goes for face value & then people bid on the shipping.

Posted by: Paul in KY on February 14, 2006 at 2:55 PM | PERMALINK



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