How does this work?

June 6, 2009 11:54 AM

USB car charger on ebay going for $0.98 with free shipping from Hong Kong, how can they make any profit?

I came across a number of auctions like this one. $0.98 for a car charger sent for free from Hong Kong. After ebay fees, shipping, and the actual product, can they make any money? Is this a scam?

posted by Brennus to computers & internet (14 comments total)

Sometimes when they say it comes from Hong Kong, they really ship it from the US. That's a common comment in eBay feedback. I'm sure that's quasi-illegal, but who's going to snitch. . .

If they send over a few thousand chargers in a shipping container, and store them somewhere in LA, they can pay US shipping to get it to you, and avoid state tax.
posted by No New Diamonds Please at 12:05 PM on June 6

But clearly there's more to it than that. DealExtreme actually does ship from Hong Kong, offers free shipping, and sells many similarly priced items. Furthermore, they aren't a scam, i.e., people seem to get their products and strange charges don't show up on their credit cards. Obviously, there's some way to make this work for them and for this ebay seller, but how?
posted by zachlipton at 12:34 PM on June 6

Not really sure how they run their business in the grand scheme of things, but I've got (small) business importing iPod look a likes.

We sometimes dump merchandise simply to free up working capital, so that's one possibility. Depending upon selling price and their purchase price, they would either be breaking even or minimising a loss. Of course we wouldn't know unless their auction record longer term was considered.

Another possibility would be they are either breaking even or perhaps even taking a slight loss in order to gain access to a customer. I'd bet anyone receiving one of their chargers would also get a catalogue, either in the package or via email later.

Customer acquisition costs are usually one of the highest costs a business can incur. They probably know that out of every X hundred of these things sold, they'll get Y follow up purchases. Look at their entire business plan and you'd find the costs for these chargers & shipping factored into the (probably very, very large) margins they realise for other products.

Customer acquisition might be the most plausible reason for selling these things so cheap, perhaps even at a slight loss on a per unit basis.
posted by Mutant at 1:12 PM on June 6 [1 favorite has favorites]

Because getting rid of inventory that cant sell costs money. For instance 10,000 usb devices properly disposed of might cost 3 dollars an item. Thats 30,000 dollars loss. So selling it for 1 dollar an item makes sense. Youve made 10,000 dollars. Regardless of what the device cost to make, its better to sell it and make some money than to just lose money.

Not to mention the bidding hasnt ended. That thing might sell for 5 dollars. Many businesses list things at 1 penny so they dont pay extra fees and so the market decides the worth of the product.
posted by damn dirty ape at 1:15 PM on June 6

Ah meant to add, I get wall chargers for iPods free from my Hong Kong supplier. I don't sell them on but use them to entice purchasers. Now when I negotiated this deal I was really looking for a better price on a per unit basis, but my supplier offered up a free charger with every iPod.

Once again, not sure about gross / net margins, but I doubt these chargers are costing the seller much more than $0.10, maybe less.

I don't have full transparency, but just to give you an idea of how cheap cheap is when dealing with Chinese manufacturers, I can source (in sufficient quantity) a very high quality 2GB iPod Shuffle knock off (sans Apple logo), with earbuds, USB docking cable, plastic case, CD with sw "extras" and mains charger for about £2.00 all in (1K units ). You can back into the charger cost from here.
posted by Mutant at 1:18 PM on June 6 [3 favorites has favorites]

Mutant: thanks for the great explanations. What I still don't understand is how the free shipping is at all sane. It would seem to cost more like USD$9 to ship a single small item to the US from Hong Kong. Even if we give them a generous discount for shipping in bulk, it's still a huge loss, way more than makes sense to me for customer acquisition or disposal of excess inventory.

Insofar as I can tell, these folks aren't shipping large quantities over and subsequently splitting up the boxes in the US for individual orders: they all bear individual customs declarations and the like.
posted by zachlipton at 1:33 PM on June 6

Theres a few of reasons for this sale:

1. They are eliminating the competition. Some other dude might be selling his similar product for $2 or something, and all this company is doing is taking away his business. They do this long enough, they can take him out of the equation and raise their prices. Did they make any profit here...no. But it will pay off in the long-run when they don't have the competition and can charge a higher price. I call this "doing the wal-mart".

2. They REALLY want your address/email. Having that alone might make it worth the loss if they sell/distribute it. Hell, for a few pennies of loss, the company knows your name, address, email, and the fact that you buy tech stuff.

3. Some companies sell things for below cost simply because they have complementary products (or products you buy at the same time) that end up giving them a profit. PS3 was touted as being sold at less than cost (in the beginning)...and they needed to sell games to make up for it.

Good luck.
posted by hal_c_on at 5:47 PM on June 6

I bought a phone charger for that much on eBay for my Nokia phone. It came from HK.

Very cheaply made but it works. I expect it to break any day now or blow my car up or something.
posted by floam at 5:56 PM on June 6

Oh, I just looked back at it and it was actually $1.95 via buy-it-now, not less than a dollar as I thought. I never got any catalogs or heard back from the seller, as one other commenter mentioned was a possibility.
posted by floam at 5:58 PM on June 6

it's still a huge loss, way more than makes sense to me for customer acquisition or disposal of excess inventory.

Not really. This is how my old employer would get rid of refurbs and excess inventory. We'd put up 100 ebay listings and most of them would get bids up to a few dollars. Once more than 20% got less than a dollar we stopped putting that item on ebay for a while because the market cleared up. Having this money come in was real cash and appreciated, especially considering the quotes we got to properly dispose of electronics in the US.
posted by damn dirty ape at 8:55 PM on June 6

I'm not sure how they do it, but I'm sure it's not a scam and I'm pretty sure they're turning a profit on it.

As zachlipton mentioned, DealExtreme sells tons of cheap usb goods for very cheap (I bought a couple of iPhone wires from them) and it comes with free shipping.

I'm actually curious about this too. I just don't buy the above commenters saying they're selling at a loss because it seems like sites make a business out of this kind of stuff.
posted by carpyful at 10:51 PM on June 6

A little while ago I was trying to buy a cheap mp3 player on eBay and found a company that was offering loads of identical iPod knock-offs all starting from around £0.05 including shipping.

After trying to buy one then watching a few of their auctions, I realised that any auction that didn't reach more than a certain price just before the close would get cancelled. There wasn't a reserve price, the owners were simply de-listing any auction that looked like it wasn't going to turn a profit. The majority of their listings were removed, but every now and then a small bidding war would appear on one of their listings and take the price up to a few pounds, and they'd allow the auction to complete. It seems like a weird idea but they were doing it consistently for a couple of months so I assume it was working out for them.

Could something similar be going on here? Are they creating more eBay listings than they actually have products, and only allowing the most profitable auctions to complete?
posted by metaBugs at 6:13 AM on June 7

I bought a cable or somesuch, which arrived from Hong Kong in a padded envelope with a customs declaration and stamps worth slightly more than what I had paid for the whole thing. Don't know more than that, but it was certainly odd.
posted by alexei at 8:23 AM on June 7

It's a cheap price to pay for 1000's of positive feedbacks.
posted by smackfu at 1:03 PM on June 7