Cash on delivery, popularly known as COD, is mostly understood in its literal terms. However, the concern areas remain to be – educating people on the same and people must have the willingness and the capability to pay. The risk areas imply the high degree of reject wherein you cannot possibly give up on a customer coming your way. COD does nothing but gives a second opportunity to the customer to re-check on his purchase decision. It is to be understood that it is not an individual problem but more of a socio-economic class metric problem (SEC).
Muralikrishnan B, Country Manager, eBay India, commented, “COD - it is a myth - the courier boy comes, unless you pay money he will not give you the item. But people believe that you can open the item and then pay. It is time that this myth should be debunked.”
The COD effect
COD, present as one the mode of payments for a brand/on a site, undoubtedly implies a re-enforcement of trust and gives a feeling of comfort to the customer(s). However, the two major problems that COD creates are that of rejection rate and cash handling, the latter on being a process in itself. Sreedhar Prasad, Director, Advisory Services at KPMG opined, “It’s true that COD has brought in a lot of customers, but what is lacking is the knowledge of the concept that COD presents.” Mayur Patel, India Country Manager, PayPal, added and shared that COD still does not solve the issue of transaction cost involved.
Bringing forth the challenge for the e-retailer in COD’s context, Muralikrishnan opined, “What is required is the analytical ability to work with large sets of data you accumulate - to forecast how consumer demand will change. It involves an art of forecasting and fulfilling buyer expectations within a reasonable period of time.” He further explained his point by adding that when a B2C merchant (e-retailer) does business, he will be conscious of how much inventory he takes ownership of and how much he stocks. “Question of getting your supply chain and stocking right - it is an evolved art, involving tremendous understanding of where the demand is coming from, how are demand patterns changing, etc.”
“COD is not sustainable because there is a significant cost in collecting cash from consumers and getting it back. Customers will not bear this, hence e-retailers are bearing this burden for now. But, this cost combined with high discounts makes each sale online a loss making transaction. This is the reason why COD is not sustainable. Further, a high COD order rate indicates low trust levels with the site,” stated K Vaitheeswaran, Founder & CEO, Indiaplaza.com.
He further shared an interesting view point and said, “The challenge for the consumer is that COD removes convenience which is an important parameter for shopping online. When a customer pays online, he/she is through with the transaction. But in case of COD, the transaction is incomplete. The customer now has to wait at home for the delivery person to come, keep cash and change in hand and complete the transaction. This is cumbersome. On the other hand, online payments make the transaction very convenient.” Yet another challenge for the consumer remains to be that he/she must be available at the time of delivery of the product. This situation becomes more serious if the item in context is a high value one.
Commenting on the rejection rate for COD, Vaitheeswaran avered, “The industry rejection rates are around 45-50 per cent. In other words, every second order on COD is returned back.” Pointing out the number of transactions happening online vs COD, Vaitheeswaran shared, “Over 95 per cent of transactions on our site are through online payments. Less than 3 per cent is through COD. We prefer to keep it this way. We want to make sure that COD is not growing for us.”
Muralikrishnan, referring to e-commerce as a process of longtail selection, shared his take on the same lines as that of Vaitheeswaran and said, “More than 90-95 per cent transactions happen on Ebay online (via paisa pay) - credit cards, debit cards, online bank transfers and mobile payments. Less than 5 per cent transactions happen on COD whereas on most of the other e-commerce sites, 60-70 per cent happen via COD.”
Dealing with order rejections:
- Reasons could be - Packaging was wrong, buying decision changed
- Strategy to avoid servicing that set of customer (consider the pincode, etc)
- Focus on being ‘business intelligence driven’ – controlled and well oiled
- Take the inherent risks in consideration
Few check points
Apart from focussing on understanding the customer, Muralikrishnan explained that whatever the business model may be, it must be ensured that within foreseeable future, you have a path to profitability. “One must focus on selection and experience. Do not focus on sale and discounts – that is the easiest thing to do.” He also shared that the market has verticalised too fast into niches and that it should first be the horizontals which should gain pace.
Referring to the changes that can be worked upon, Patel added, “Change the method from ‘cash’ to ‘payment’ on delivery. There should be an option to pay by debit/credit card at the time of delivering the items. At Paypal, if you decline a payment, the acceptance of the decline will be in digital form which will be the best user experience. It will help reduce the transaction cost too.”
He further shared that the Indian consumer is comfortable using cash, however, globally, consumer is also going away from cash. “Today, Paypal in India offers only credit card payment option. Globally, we use a pretty interesting mix – 60 per cent - credit cards and debit cards, and 40 per cent - using bank accounts or balances.”
It can be said that COD – the model that has got the sector up and running, is not as efficient a model as it is thought to be for selling merchandise online.