Cash on Delivery

24-04-2012 |  nrupaldiffion |    Trends

Is cash of delivery a enabler, a catalyst for more online transaction or it is a short term initiative with long term burdens for ecommerce portals?

The perceived advantages of cash on delivery(COD) model:

  • It helps you to buy things online when you don't have an online banking system.
    • It may sound naive to suggest that a person who does not have online bank accounts (Debit Cards) or credits cards will go shopping in the web world. But practically this happens, there are lots of folks who have everything in the kitty given by their bank but hardly ever log in to their online accounts. They don't even remember their online bank password most of the time and in spite of so many talks they write and keep their passwords.
    • Rural or semi urban people have started using internet for information access and still don't have online banking systems.
  • It helps you overcome the first time jitters of using your debit card or credit to shop at a new websites.
    • I remember when I bought my camera through online bidding using my credit card some 7 year ago. I could not get that out of my mind till I had received it at my address. With some friends teasing You know what, he has played a lottery of 8K. Lets see if he wins. Ironically a couple of months later, I was the online shopping advisor of my friend circle. You should not be surprised that word of mouth marketing affects online shopping the most, much better than any traditional shopping mediums.
  • Strange it may sound, COD almost works like credit card. It gives you an credit for few days or gives you an option to use cash while you don't happen to have money in your online account.
  • It gives a good option and builds trust for buyers, who feel that they can return the product if they have buyers remorse.
    • If you ask me personally then I am not a compulsive buyer. I don't go window shopping and I usually don't get buyer's remorse after a couple of days of my orders. However return rate for COD is a major concern for Ecommerce players. (Source - Indiatimes says 40% returns of its products.)
  • For website (sellers) it increases their sales by a huge percentage. Then this can be leveraged for many more things, like further negotiations with vendors, logistics partners, investors etc.

The perceived disadvantages of COD model :

  • Cost involved in facilitating is high. Either it needs to be borne by the user or shared by the ecommerce website. According to some estimates it lies around Rs 50 1% of the value of the goods delivered.
  • High rates of returns. As mentioned in the above section, high returns are a cost that needs to be borne by the ecommerce website and it surely eats into the bottom line.
  • Some people (founders, analysts or Bloggers) are ideologically opposed to this idea. They believe COD might be a enabler but it is a burden to the end ecommerce portals or higher cost to the end users. They believe this is a similar story of banks and credit cards company offerings rewards points in the beginning to get customers and their attention. They ended up paying reward points to all users, forever Smile. On top of it they feel COD takes the glamour out of ecommerce, since online transaction didn't happen in the first place. Smile
  • Large credit is offered by ecommerce website to users in a way. Imagine 1 crore worth of product and payment lying with the logistics partner for week, after week. It rather keeps on increasing. Will smaller and new ecommerce website can afford this ?

Some bits and pieces for you. Russia has never been on radar for ecommerce portals for India, they are not prime movers in this sphere and neither their alumni (employees from Russian Start ups) are present in our nation in good numbers. However Russia is one of biggest markets of ecommerce in Europe (Source) and they have been driving their ecommerce with COD (Source). So there is no denying that COD is here to stay, rather innovative selling to reduce the cost or decrease the rate of returns will be key to success for ecommerce websites pursuing COD. A good way would be to give incentives to consumers with better rate of COD acceptance. Special coupons and offers for customers who order COD and accept that as well. Many of us know that data mining and analysis by Amazon has lead to very good product referral and personal customized suggestions for users. It has been replicated by others as well. Similarly COD data mining and analysis will also give you key insights for each ecommerce's customers and the consequent actions to be taken.

As per reducing the cost of COD, I believe passing on the cost to consumer would be a good way since you are being fair by giving them both option with their advantages and disadvantages. If they choose COD, then they will bear the cost. Increased competition amongst different ecommerce players has reduced COD cost to zero as well(Yebhi is an example). However new players should stick with better economics and stay clear of competition in this arena. A new ecommerce website striving hard not to give a bad experience to its customer in long term will again over its competitors with better brand recall and brand loyalty.

I leave with some key questions.

Does COD or online payment, alter your shopping experience with a portal?

Will mobile payments bring an alternative to COD? (News - Insights -1News - Insights -2)