[Editorial Notes: This article published under series called “Bring Your Own Insights”, where we bring selected guests (invite-only) to share their insights with Pluggd.in audience on a regular basis.
We have always believed that our readers bring a lot of insights, so why not enable a direct channel for them to share their insights/experience with the audience? These guests will come from different industries and will share their insights on a very frequent basis. Here is presenting an insightful article written by Deepak Sriniath, who is cofounder of Viedea Capital Advisors.]
I often hear people saying that e-commerce entrepreneurs in India have it easy when it comes to ideas for their startups- they simply have to look at what has worked in the US and copy that model. Group Buying sites inspired by Groupon are the favorite examples used to illustrate this. Sure, E-commerce startup’s in India are by and large inspired by successful US models – Group buying for services and products, private sales for fashion, flash sales for electronics and accessories, category specific sites such as baby products or shoes…you name the e-commerce startup in India and there is a corresponding US model.
However, it would be massively unfair to Indian E-commerce entrepreneurs not to give them credit for the clever and sometimes subtle adaptations to suit Indian markets and consumers. Perhaps the most significant and game changing of all these innovations is the ”Cash on Delivery’ (COD) payment option. In fact, I will stick my neck out and say that the e-tailing business in India owes its explosive growth to COD.
For a long time any discussion or article on E-commerce in India centered around the twin problems of low internet penetration and low debit/credit card base. Add to this the perceived ‘trust issues’ of Indian consumers for transacting online and it was believed that e-commerce in India would take years and years to scale. As recently as 18 months ago, while the online travel model was relatively well established, it was difficult to imagine how e-tailing or online purchase of physical goods would take off anytime soon.
And then the e-tailing revolution happened, and how! Flipkart and Infibeam led the charge, starting off with categories such as books, music CD’s, etc which were easier to sell online. As reports of their phenomenal growth came in, the trickle turned into a flood and at least a hundred e-tailing startup’s sprung up across the country across all possible categories. VC money started pouring into these startup’s and valuations based on annualized Gross Merchandize Value (GMV) multiples became the norm. Hygiene factors such as Internet and card base reaching critical mass had helped but the real reason why sales took off was perhaps a small innovation in the payment model called Cash on Delivery.
It allowed internet consumers to ‘order’ without paying upfront and allowed them the luxury of seeing the product (or at least the packaging box 
) before they paid for it. Logistics companies such as Bluedart and Aramex supported this model and trained their employees to collect payments. COD entails an extra charge of Rs.75 to 100, but consumers don’t seem to mind. Suddenly the limitation imposed by card base or trust issues for online purchase were redundant. Moreover, India has a large parallel ‘cash economy’ which has its own dynamics and cash payments are the preferred mode for all non salaried professionals. It’s a win-win situation for e-commerce firms and consumers and the only flip side to the e-commerce firm is an increase in working capital requirement.
So what % of e-tailing happens through COD? E-tailers I’ve interacted with say that 50% to 80% of their sales come from COD and rejection rates upon delivery are lower than 10%. I’m not sure whether COD was the brainchild of a single e-commerce firm or whether it evolved naturally as a solution to the payment problem based on a facility logistics partners anyway provided. Nevertheless, this collaborative innovation in business model and it’s impact on e-commerce in India should be the subject of a business school case study.
What’s your opinion?
—
» Do check out our detailed coverage of ecommerce in India.
COD plays an important role in E commerce but it’s not the only driving factor.
Indian consumer largely buys online because of the discounts offered.
Glad you brought this up. CoD is definitely a game changer. I remember when we started Dial-a-Book in Sept 2009 there were hardly any e-commerce companies that had CoD option and today almost all the major e-commerce companies are supporting CoD for good.
I remember my first COD purchase from some website back when the internet was Rs. 40/hr (April 2001). I bought a cassette of a movie called Mujhe Kucch Kehna Hai for Rs. 40/-. There was no extra charge for home delivery (must have been some scheme) and I got the product for Rs. 40 home delivered in Bangalore. That was the first time I purchased something online, and the experience was good.
I was actually going to cite the example of dial-a-book. So here’s more to what Mayank has said. I remember feeling elated at having ordered by first book online from fabmart?mall?.com in 2000. I have never opted for COD. But having tweeted and ordered for a few books from dial a book on COD, (the guy calls before coming and tells you how much cash to keep ready) I actually feel that its a great option.
Deepak, it will be insightful to also compare disputed online transactions vis-a-vis COD not honored. I think the trust based issues will continue and in COD. They will simply will shift from commerce to e-tail brands.
I would think COD is better option for lower value retail products. It will be nice to know if this is true from multi-category e-tailers.
Interesting article. My understanding is that COD orders have a rejection rate closer to 25%-30% for pure-play e-commerce players (excluding travel).
There needs to be a mechanism to reduce COD rejections. How do you prevent a competitor from placing large COD orders, verifying them on mobile and email, and then refusing to accept it in small town Kerala/UP/Jharkhand?
escrow system is very good, : that is the website collets the money on behalf of the seller, and transfers to them only when the product has reached in the hands of the buyer. This is done by ebay.
But How to apply it in COD model?
What are the options available to offer COD by an e-tailer? VPP has been around for a long time now. Any others?
Agree , industry return rate of cod is 30%. Home shop 18 says 30 % and timtara says 20%.
Dear Deepak,
I feel you are correct when you speak about how COD has changed the e-commerce scenario. The real impact of COD will be felt as e-commerce seeps deeper into tier 2 and 3 cities. This simple facility has provided opportunity to people across the country (credit-card sceptics / non have’s) to buy online, where merchandise is generally less expensive. Also, since many of the small towns do not have organised retail (i.e. enough variety vis a vis rising expectations), the real fillip for e-commerce should come from there in the longer run. Thank you for sharing your ideas with us.
COD is definitely a game changer. But online retailing in India will have a difficult time making a foot hold until they start offering competitive prices. Other than books and music CDs, and may apparels, electronic good are horribly overpriced. Look at mobile and digital camera prices at Flipkart and infibeam – they are often the same as street prices, or worse – higher than street prices.
COD or no COD, no one is willing to pay more if they can get the same thing from the local market cheaper.
COD will be the key driving factor until the online shoppers’ confidence increases. We will see migration of COD customers to online payments when there is consistent delivery by etailers. Customers preference will also be different across different etailers.
eSmartShop
Deepak I have a proven business plan on COD concept.Need investment .If u can help ,pls contact.
I thought of a concept to
-Reduce cod return rate
-Reduce overhead
-Reducing payment gateway charges
-Reducing delivery time
Though it offers positives recently we were duped(guess thats the right word) as well….My wife got a pair of sunglasses delivered on her name…. it came in the day when my mom was at home & considered we ordered she took the delivery by paying thinking order must be legitimate & when we reached home we realised we never ordered it. When my wife called she was told that she must have clicked on acceptance link & blah blah… the amount was not to big so we accepted it… but thr are co’s who are misusing it as well
Who will bell the cat ?
Yes, move to the next level, instead of COD.
01) ‘Payment on delivery’ via credit/debit cards through mobile POS terminals, something like ‘square’.
02) OR IMPS, offered by NPCI
03) OR NEFT option. NEFT option for eCommerce sites is it’s infancy
Pingback: Statistics to wow non-techies about digital future | Swaroop C H - India, Technology, Life Skills
Pingback: Cash on Delivery(COD): An Unnecessary Evil — Conversations on Conversations