Cash on Delivery - The Kill Pill?

sinha

Every 'funded' startup has resorted to CoD - i.e. cash on delivery model stating the obvious need to reach out to those who aren't comfortable paying online.
A typical CoD costs a minimum of Rs. 30/ and the worst part is the reverse logistics associated with it (when the product is returned back).

Apart from managing such transactions (sometimes, the guy who collected cash will vanish away) to ensuring the accounting process, CoD isn't adding much to the whole ecosystem.
In fact, I am not even confident of saying that CoD is an enabler to e-commerce. If ecommerce is just about ordering from the web, then lets call it e-ordering service (and not commerce).

Great for 'funded' startups - but definitely not for the ones who aren't funded. Given the lack of margin in online selling, CoD is more of a liability than an enabler. If ecommerce sites do not move out of CoD, then consumers will never ever move to 'buying' online - which defeats the whole purpose of an online store.

What do you guys think?

NrupalDas

As someone pointed out in a discussion in this forum - Rural or semi urban e-commerce buyers are a key market that needs to be targeted in the year 2012.

Although I fundamentally agree with the idea of COD bleeding the companies but ignoring the consumers who do not have the resource or will to buy online is also an issue for a new e-commerce store.

If vouchers and discount coupons can be afforded by un-funded stores (which off course is another discussion since they also bleed the company) then COD is also an option that needs some thought.

The initial goal of an unfunded start up is to reach out to as many people as possible with less spending on customer acquisition, if COD with Rs 30 is one of the option of customer acquisition then it is not bad after all. Considering that Rs 30 adwords spending would match up with one conversion and the same ratio holds true for COD buyers, COD can be considered in some cases.

On the other hand if you charge 10% extra that you spend on your COD logistics it takes care of reverse logistics and acts as an insurance premium for reverse logistics.

While I agree with @Sinha fundamentally that the motive of e-commerce is not getting fulfilled but considering India is still in its infancy in terms of numbers of online shoppers COD is an enabler from my point of view. However conversion of the same repeat buyer from COD to online buying should be a continuous process on the part of the e-commerce store.

I guess the key to un-funded new stores should be to keep an eye that they are not losing money in transaction and have a plan to increase their profitability after a certain time, when they have the requsite transaction in their store.

AakashShah

@sinha exactly my point.

If you see eBay never had COD Option till last year still it is leading e commerce company doing healthy business. They too have joined the bandwagon due to corresponding competition.

Lets check the situation with following example ( for a startup) :

Imagine you have products ranging from 1k to 25k or above and you are a startup not holding the inventory. Once the order is placed you back order the product from your resource.

You send the item through your COD logistic partner.

Remember with increasing value your insurance costs increases.

Now the consumer Does not accept the product.

Not only will you be bleeding with the charges but also with the product in your inventory. So basically it is a double loss.

Madani

@ sinha

COD is not not just about people not feeling comfortable paying online. I didn't have a debit card with online usage facilities untill about 3 months ago. The only option i had was to order COD. And more over, i have a younger brother who orders things online. He doesn't even have a card (credit/debit). So, CoD is the best option for him aswell.

But for start-ups which are not funded it surely is a problem. It drains out cash more than fetching profits.

sinha

@Madani - am with you on that, but that's precisely the challenge. Is ecommerce trying to find out an alternate way around payment mechanism?
Wont CoD make customers lazy and unaccountable (its already happening - ask ecomm startups in apparel category)

NrupalDas

@Madani - yes for startups, its an issue, which they have to take a call. Since I do not have number which @Sinha must be having and therefore can say with more clarity that ecomm startups are suffering.

But from a theoretical point of view, if traditional companies like - Future Group (futurebazaar.com) enter ecomm space with their fin back up and eat into the space, then ecomm companies start COD which eat into their market share.

Here paying in cash and buying is a strong hold for traditional commerce companies, which is perhaps being targeted by ecomm. But yes, if customers have become lazy and unaccountable - then its an issue for ecomm startup.

The way I see - the best way through is mobile payment through telecom companies. If you can pay online payments through your talk time, which in turn can be re-charged using cash then ecomm can attack the traditional strong hold of hard cash shoppers. (Although RBI regulations and Telecom companies implementation is a very very long shot.)

However in world telecom conferences telecom companies always show keen interest to start their payment gateway processes.

nsivaa

You can add 20 or 30 as COD charges and also check with the customer about the product which he ordered and the product details he will be getting and inform him about the exact amount which he needs to give.

Check the preferred time of delivery and mention it in the parcel.

saipothuri

i got few doubts

1) suppose if i order a product through some e commerce site by COD option , i have to pay some 30/- extra for COD option.

2) Suppose after ordering the product, the next day i came to know that the product i ordered will not fulfill my requirement so what i can do. i can stop taking the product and its like i rejected the product so the product has to go back to warehouse or eCommerce office so people call it reverse logistics.

3) so to get the product its costing 30/- , if rejected it will also cost extra 30/- to get that product back to inventory right ?

   so on a regular basis, how many people accept COD nation wise, how many reject it, how many not available when product reaches home.

   My point is simple, ecommerce is all about doing commerce electronically, that means online cash transfers , online business. if COD option has to be implemented. then it can be implemented in towns or in municipalities where big logistics players like bluedart or aramex wont provide service.. but for city and metro people doing the e transactions online help them to better understand the cash flow, accountability, and out of all budgeting for the next month or period

Thanks

Sai

Vikram

[ Edited : please avoid getting personal on this forum. ]

I think CoD or Cash on Delivery has been a huge enabler of e-commerce transactions, in terms of the confidence that people have in buying online.

Remember that India is a market with the vast majority of people not having credit cards, and not really comfortable or well versed with say online banking and so on.

I think Cash on Delivery works just fine! Even I am most comfortable buying online through the CoD mode than any other; it just seems so much more reassuring to do so!

I have even bought heavy duty items, including premium, high end mobile phones and laptops this way and none of the sellers had any qualms. At the same time, if payment is to be guaranteed in a better and easier fashion, from the point of view of the sellers, I suggest offline direct bank deposits for all those who are uncomfortable with using the Internet directly, to make payments.

raxitsheth

All e-commerce in india, funded/unfunded are trying to make/change habit and more sell, in whatever way.
COD is easy for many use case, and so all are doing (by putting additional charge ?)

Birla

I think COD is a tool to make eCommerce popular but not that it will always be the preferred mode of payment. The customers need it now because of lack of trust and backward comparability with offline shopping habits. It does take cost to build a COD network but anyway eCommerce is more about building a solid back end. I think the generation of customers who took birth in SMS/Goggle/FB age are more likely to use electronic mediums of payments. Verified by Visa also adds a good comfort level for customers.

Talking about my ZopNow experience, We have not seen much returns at least in our domain. Overall it adds some overheads in terms of cash management but no issues from customer's perspective.

saipothuri

@ Birla : i agree that it does take cost to build a COD network on own or either depend on other COD services..

but from my side its like if a eCommerce company can provide COD option to those areas which are like towns and municipalities, where people are not aware of banking.

   Each and every bank invest lots of money online to make sure that transactions can be done fast, hassle free, its like bank at your home, your laptop. but to those people who live in towns and municipalities. these people use internet but they are afraid of internet banking.. for those COD option might be the best option..

But for Cities and Metros people are well knowledgeable , people well plan for finances and budgeting , well logistics network and every thing .

   For a eCommerce company there should be a technology where one can use online payment who reside in cities and metros and one can use COD option who reside in towns.. i know its intricate but its not impossible right :)

   Even Loosing Single Customer also counts for business

Thanks

Sai

ash4cam

While deciding about CASH option for my startup, the same question i asked myself and the answer was clear, that i will not be able to sustain the return costs.

So the simple theory and logic applied " I want to serve the needs of people who don't have cards or net-banking or want to use cash because their money is unaccounted for......and not for a person who wants to try out whether cod works or not""""

the obvious choice was CBD option, pay first and deliver later. This way i might be getting just 20-30 orders per 100 of COD option....but at least those 20-=30 orders are confirmed orders....

For people, who want to get the product in their hand first and then pay because of trust factors.....Very humbly i would say " Sir, i think online buying is not for you, Kindly visit the nearest dealer's shop and buy from there""""" EOD!!!!

Birla

@saipothuri

Actually the payment options available to companies, COD or online credit card based are actually very unreliable. The failure rates of online payments are very high and obviously frustrating for any eCommerce player. We are yet to build eCommerce backbone in the country. I am sure lot of players will jump in.

What mode customer uses is obviously in customer's hands. I am sure companies will move to more technical ways of taking payments when the focus shifts from topline to bottomlines. The industry is still in a nascent stage. Once we have 5-10 publicly traded companies fighting for mind share, the real fun will start and that stage is atleast 5 years away.

saipothuri

@ Birla : hope its not too far, its going to be near

@ash : your experience really matters and it counts

Thanks

Sai

Bhagwati

@sinha. i agree with you that COD will be an loss in case buyer don't accept the delivery but first thing is to get people into online buying. e-commerce or e-ordering , the difference comes only at the time of payment and here in India we still don't have full faith in transaction using debit/credit card and also refund in case of any failed transaction.

it took me 15 days (and 10-12 mails/call) to get my money back for a failed transaction from a leading e-com site.

Any do you really thing they are tight in margins. i don't think so. some time prices are more than store.

Any idea on %age of user who dont take delivery will give a direction to this discussion....

rutvikkumar

one reverse method can be implemented,
we[e-com players] can offer the special discount for transicting online,
and for locl deals i think cod will be more economical,as the charges of payment gateway is same for all and in ur teretory you can easily establish proper cod channel.
Regards
rutvikkumar
rutvikkumar77@gmail.com

Milan

CASH ON DELIVERY
People keep saying that COD is good for small towns. But i can't find any courier company who ship item to small town on COD basis. Courier companies will give you list around 40 cities where they give cod facility. All are major cities. So whole idea of small town user can opt for COD is not happening for me at the moment.

COD Charges!!!!!
Moreover my courier guy charged me minimum Rs200 for single parcel of COD. Is it too high rate because i see on thread that it's take extra Rs30 only!!!!

TIE UP WITH Courier Company for COD and Normal Couriers
I need some advise on opening an account for shipping parcel of COD as well as normal one. What rates would be the best rates? I came to know that DTDC, ARAMEX, BLUE DART are good options. What minimum business they ask for? Does they count the total amount or number of parcels? I am sending it from Ahmedabad to all over India.

COD is not happening for very high priced items as well as very low priced items
According to me if the item is low priced you can not get margins out of it. So in few cases your COD charges might exceed your profit margin. On the other hand if the item is very high rate there are chances of someone stealing your money. It could be the delivery boy or courier guys.

COD is the very good service for customers view point but still few couriers DO NOT ALLOW TO check the item first. They ask for the payment first and then run away! So how come it's Cash On Delivery then? Please share your experience on this as well.

Many points. Please respond with your advise, suggestions, feedbacks, Thanks in advance.

Vick

I think a key variable to consider is that COD encourages trial among both tier I and tier II/III city customers. However for the tier I city customers, repeat purchases are made via credit/debit/netbanking (more often than not) since folks don't want the hassle of being available to pay the guy at home/office and the trust factor is developed. Tier II & III customers still tend to continue with COD even with repeat purchased.

Smaller firms without funding do need to watch the cashflows and control COD but there are definitely ways of countering that.

AnujB

Hi,
I dont understand when people say that there is no other paying option than COD, with more then 18 million credit and 27 million debit cards in the country , lets say the total no of individual users are 20 million( Dont have statistics of Net banking) . I dont think that Indian market has grown bigger than 20 million consumers purchasing products. Moreover CoD is an easy option to change mind as I get much more time to say if I want the product or not. It is like targeting the wrong audience ,because there is a population of 1 billion plus we think that we are still not targetting the rest 980 million. Instead of that if e commerce strictly focused on the 20 million or so users (+ net banking) they can still be running into good nos. After all IRCTC is doing the largest no of transactions without offering the CoD option, so it does mean people have the access to make online payments.

Jai

Folks, great discussion and insights here.

I would like to know your thoughts on the following:

1. Doesn't

"credit/debit-card --> prepaid-reloadable-cash-cards --> COD"

sound like a more logical progression than

"credit/debit-card --> COD"?

ref: http://www.ccavenue.com/content/easy_cash_card.jsp

2. Prepaid reloadable cards bridge the seller-trust*, online-safety and trouble-of-getting-a-debit/credit-card, isn't it?

Edit:

*seller-trust: if the COD does not allow the customer to open the item before taking the cash than its as good as trusting & paying online. Even in a pessimistic opinion paying online with cash card is as good as CBD.

3. Why did prepaid reloadable cash cards could not achieve that penetration/reach/adoption and popularity? Both with the consumers as well as sellers.

Edit:

4. Is refund a big issue? (in cases of transaction failure, item rejection, etc.)

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