How Can Companies Survive Offering Free Postage?

My husband and I have been debating this subject for a while now. The reason I ask is because I have been purchasing glass wine glasses from Spotlight. I purchased 6 and they were $3.49 each with Free postage. Each one was sent in a separate box ( receiving 6 parcels over 2 days ) each glasses weight was 2.3 kg. Assuming they pay regular Australia Post it would have cost them $14.50 to post. I’m wondering how the do this without going broke?

Comments

  • +14 votes

    Merchants get special rates from Australia Post and sometimes they absorb the costs of these items in order to create loyalty, however that’s arguable amongst OzBargain.

    • +1 vote

      'loyalty' is the old way
      'Inflated Q4 earnings to impress the shareholders' is the way of the present

  • +1 vote

    They can also bump up the cost of more popular items to offset any losses on other items.

  • +1 vote

    Do you need to see how the sausage is made?

  • +9 votes

    They would have paid sub $8 for each delivery and the management at spot light have NFI what they are doing with regards to ecommerce.

    •  

      what's NFI?

      • +23 votes

        NFI.

        • -3 votes

          NFI is what jodie1980 and purplelady have.

          There's a multitude of reasons. How can these chinese companies give away product for free or for a few cents.

          Sometimes these local companies have no 'cents'.

          Spotlight is the same company who were selling a famous brand laser printer for $10. Explain that.

          This is not a well managed company but let's be frank, its not our job to question their practices much, its our mission to find where those bargains are.

        • +2 votes

          @tonyjzx:

          Sometimes these local companies have no 'cents'.

          Maybe. Odds are these glasses were end of line, they dropped the price just to be rid of them. If they pick up a few new customers or some publicity then they served their purpose.

          That explains the 'sent from 3 different shops' comment, the entire chain probably only had 20 in stock. Losing money on those is trivial in the grander scale, and beside, how much profit was there from selling them at full price?

          Ditto for the $10 printers.

          The Chinese cheap tat is often the same, promotion for the stores. These things only cost a couple of cents to make anyway, and the postage is subsidised (often free) for small & weight items.

          People really don't get how cheap it can be to make something. The raw materials are essentially nothing, and with automation the labour cost goes away. Amusingly packaging is often the most expensive part. We now have 'dark factories'; since everything is automated these is no need for people, and if you don't have people why bother turning on the lights?

  • +2 votes

    ( receiving 6 parcels over 2 days )

    Wow. Rookies.

  • +1 vote

    You're not the average customer though. They factor all this into the cost of business. Your order would of been somewhat of an anomaly to their average customers order. E.g. The average order price per customer is $70 and is within a reasonable weight for postage. Law of averages maybe?

    •  

      I ordered $86 worth of products from spotlight. Including a sheet set. This also came in a separate package. More glasses. Some of these actually had 3 glasses in the box. But 3 of these were in separate boxes. If it had all come together the would have saved heaps in postage.

      • +1 vote

        Corporations don't pay retail rates for post and the more volume they post the less price-per-unit becomes so it's economies of scale. Some courier companies also offer a set fixed rate to deliver 100,000 packages etc.

      •  

        Your order was the exception, not the norm as @frondono said. If they lose a little bit of money on one order out of 100 to keep the customer happy it's no big deal.

        There would have been very few of those glasses in stock (which is why they came from different stores) so it's not like thousands of people ordered them.

        As @Hybroid says they pay less than you would, sometimes much less depending on the volume & arrangement. It's like where large companies have franking machines, the company does a bit of AusPost's work for them and in return they save a few cents on stamp costs.

        Some companies have their own delivery services, eg Toyota. They have trucks that do a daily run to all their dealers and deliver any parts ordered, so there's no shipping charge as such.

    • -3 votes

      would of

      Stopped reading there.

    •  

      That's a good point, and it's one of the reasons OzB can exist. On average Spotlight must make more money using this strategy, even if it means they make a loss on a small fraction of customers like the OP.

      It's also a reason to be very afraid about data gathering. Once they are able to reliably identify everyone and their spending habits, they can deny or restrict service to the unprofitable customers like OP, and only offer deals to their more lucrative clients

      •  

        can deny or restrict service to the unprofitable customers like OP

        I know it's not the point you were trying to make, but this statement is incorrect. OP responded to the same comment you did stating they made an $86 order.

        •  

          $86 is jump change. Big spenders will drop $300 on $50 worth of fabric with little thought, but okay, let me change that to unprofitable customers like me. I ordered a few things from spotlight this week

          I got
          -An enameled cast iron fry pan, reduced to $30 (was $60)
          -An electric pizza cooker $30 (was $50)
          -some foam bed spread $30
          -a few nick nacks to make up the total to just over $100

          Then I used a $40 off voucher, bringing the total to $60. Any money made from that sale would be very hard earned

        • +2 votes

          but this statement is incorrect. OP responded to the same comment you did stating they made an $86 order.

          Not really.

          People who are say Spotlight are idiots are wrong, they know what they're doing.

          OP brought $20 worth of glasses (bargain!) and so with the money they 'saved' they brought another $65 worth of stuff (why not, it's free shipping!).

          Classic 'loss leader' tactics.

          Assuming the glasses were close to cost and a typical 50% margin for the rest, the 'profit' on this order would be about $25 ($85 paid, take off $15 for GST etc, less the $20 glasses, so half of $50). Say shipping was $20, they still clear $5.

          $5 is $5, I'll take it.

          Junk cleared (you don't want unsalable crap on the books), slight profit, happy customers and a positive thread on OzBargain ("Hey, Spotlight are morons who sell stuff too cheap and ship it for free!") is a win in most marketers books.

          So long as there aren't too many customers like @outlander, they'll keep doing it.

        •  

          @D C: where do OP bring them?

        •  

          @Third_Gear:

          where do OP bring them?

          Qué?

  • +5 votes

    That's some very heavy wine glasses

  •  

    We had 3 parcels come the first day each parcel was from a different spotlight store. Each containing 1 glass.

  • +1 vote

    Better sell my spotlight shares, before it's too late…

  •  

    In business, You win some, you lose some….. Your example here, is a case of the later.

  •  

    Even though you paid $3.49 for each glass, the cost to Spotlight would have been a lot less than that.

  •  

    Not sure, but I think similar to others have said, it all comes down to the numbers. It might be cheaper for them to pay extra in packaging and Post and pay less in getting someone to figure out which items gos with which buyer. Which items can be put together (for example if you bought a bowling ball and a glass set you may not be too happy if they're posted together) and even things like truck sizes I hear changes, so you may get a massive box for a small item because it helps balance out the volume or something which I hear Amazon does a lot?

  •  

    Each glass weighs 2.3kg ?? What are they, 30mm high glasses made of lead crystal?

  •  

    Another possibility is that they are new to internet shopping, and are still figuring out the kinks. Given enough time they will optimize shipping to be as low cost as possible. For now though, they are focused on reliability and presentation

  •  

    They inflate prices, you are actually paying for shipping

  •  

    Businesses negotiate contracts with AP & other couriers. The actual rates will depend on volume they anticipate sending.

  •  

    I have theory that nobody in spotlight pay attention that they actually lost money on small orders.

  • +1 vote

    No such thing s "FREE POSTAGE"
    Its ALWAYS baked into the price
    Except for stuff you buy on eBay coming from China.
    Im sure the Chinese govt subsidises postage there

    •  

      But who is paying for the postal work this end, when you can buy something on ebay for $1 including postage, and it comes as a parcel?

      •  

        It's a combination of a lot of things.

        • Trade agreements - we'll deliver your post locally for free if you do the same. Worked well when the volume was low. Essentially your taxes pay for it.
        • Subsided post - the Chinese can send light parcels for free or a token amount, Chinese government pays.
        • Standby post - cheap rates, but we'll send it if only if there's room on the plane.
        • Logistics - networks exist that bulk ship items and have them posted locally.
        • Volume - the more you send the cheaper it is.
        • Getting smart - ship them to a country that has cheap post. (I once sent a box of stuff to Sweden (Switzerland?) for them to mail back to Oz.)
  •  

    they probably came from an international company being a lot cheaper than Australian made,also more than likely they would be able to claim the postage on their tax maybe as a promotion item, the other thing is they maybe a bad seller item or an end of item and they want to get rid of them of their shelves to make room for other items

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