The final thesis topics for the 2024 Fall E-Commerce course were quite intriguing (see it archived here). As market design requires detail and I found these logistic anecdotes—of characterizing different categories of product flows quite interesting and important.
One of the most important operational considerations in e-commerce is how products flow. We can distinguish several logistics models based on the time it takes from when a customer pays for a product to the moment it arrives at their doorstep.
More than 3 days: Traditional E-Commerce
Examples of this category include Taobao, Tmall, JD.com, Pingduoduo (Temu), and TikTok Shop. Essentially these are online retail platforms. Orders typically ship via mainstream logistics companies, and the average shipping cost per item is 2.6 CNY.
Delivered Tomorrow: Neighborhood Group Purchases
A typical example is milk delivery. Here, orders from each neighborhood are aggregated and placed with the supplier. The following day, the supplier delivers the goods to a distribution center in the neighborhood—often a courier station or a supermarket—before they are brought to customers’ doorsteps or made available for self-pickup.
By largely cutting out traditional intermediaries, the neighborhood group effectively serves as the only major middleman, reducing complexity and costs. The fee averages about 0.7 CNY per order.
Within the Day
These orders usually involve distances of 20–40 km within a city. A single delivery person—driving a car or motorcycle—handles each delivery, which suits perishable items like cakes or fresh flowers. The average shipping cost is around 6 CNY.
2-Hour Deliveries
This category primarily involves urgent items such as food or medicine. The shipping cost per order is typically 3–5 CNY.
btw, the delivery people in China are trapped in algorithms that supress their wages at minimum. see here for a previous post about it.
Comparing the Advantages
- Traditional E-Commerce largely relies on KOLs to boost sales in an oversupplied market. As brands compete for influencer partnerships, KOL incomes are likely to keep rising.
- Faster Delivery Services (same-day or 2-hour) depend on lowering delivery costs or improving delivery efficiency—often putting pressure on couriers to accept lower wages.
- Neighborhood Group Buying is almost certain to keep growing, thanks to its efficient business model which eliminates intermediaries. However, it puts enormous pressure on distribution centers. For instance, after the orders close at 11:00 p.m., the next day’s shipping starts at 5:00 a.m.—this leaves only six hours to process thousands of products thus making no rooom for mistakes. The business model seems benign but actually requires the most investments in infrastructure and technology.