Cash on delivery — Boon or bane?

In an effort to find out some of the flaws that are deflating the e-commerce industry, Dataquest gets in touch with the stalwarts to know their views on the subject of whether the cash on delivery system is an advantage or disadvantage. Read on as we follow the trail...

 

"From a merchant's point of view, the cash on delivery (COD) process allows customers too much time to change their mind, which they do! Hence return rates for CoD is as high as 45% for most e-commerce companies who focus on this. Also, couriers enjoy the cash float and take a long time to return the cash. For Indiaplaza, we have kept CoD orders to below 5% of our business. We offer it because everyone is offering it although I am certain no online retailer really likes it.

Cash on delivery is a very inconvenient option for consumers also. Consumers go online to shop looking for selection, pricing, and convenience. Cash on delivery negates convenience because after placing an order, the consumers have to wait for the courier to come, be available at home or office to close the transaction, make sure proper change is handy, all of which are irritants. The advantages I would say is that it allows a new community of consumers who do not have credit or debit cards to also shop online."
-K Vaitheeswaran, CEO and Founder, Indiaplaza.com

 

"Indians are culturally very cautious in terms of their spending, and this is reflected in their online buying behavior too. Till 2 years ago, most Indians were wary of transacting online, and Indian consumers weren't comfortable paying or deciding on merchandise which they could not physically inspect.

When it was a matter of divulging their classified and private banking information, they were even more hesitant. The COD payment option has helped overcome the inertia amongst customers who are not comfortable with online purchasing and has thus boosted the number of people making a transition to transacting online.

99labels offers multiple payment options including Cash on Delivery (COD), credit card payment and online banking, and the COD option serves as a necessary bridge in connecting people comfortably to the concept of online shopping.

From the customer point of view, COD is often the preferred option, specially with women as they are more comfortable handling and shopping with cash. Also, given that a sizeable number of women in our customer base are homemakers, they often have no debit/credit cards at their disposal. In such cases, COD helps businesses grow despite the customer's lack of access to cards. To a great extent, and perceptibly in terms of business generated, COD helps make up for the limitations of transacting through cards/Net Banking.

We have also seen cases where people begin to pay online, as opposed to opting for COD, once they are assured of our credibility. This makes better business sense for models like ours, given that we are a liquidation channel for businesses whom we source from. COD results in delays with our payments to them, and essentially, the payment cycles of e-commerce sites benefit from online modes of payment. In these ways, COD has proven to be a mixed bag of advantages and disadvantages for e-commerce sites.
Another disadvantage with COD has been that while it helps ease the process and familiarize potential and present customers with the relatively new world of e-commerce, and also makes the process of online shopping more appealing to customers, e-commerce companies are ending up with delayed cash inflows from COD and cash-burn as a result of COD deliveries not being accepted. As a payment mode, COD is not really enabling e-commerce, which essentially entails transacting online, as payment is only received once the physical delivery occurs, much like any retail transaction. Also, given that there is no cash commitment by the customer at the time of purchase, the order is easy to return through cancellation/rejection. While this doesn't cost the customer anything, the company ends up losing a lot of money on transportation and cost of the product. This eats into the profits of the company which could have been utilized for the business and hence affects the growth of the business."
-Ishita Swarup, CEO & CO - founder of 99labels.com

"COD is a great delivery model especially for cash loving country like India where customers using plastic money are somewhat reluctant to use it to pay for their online transactions. The major advantage of this innovative payment model is it gives the customer confidence to buy. They are sure about their purchase which is really important in this competitive scenario. It is a beneficial tool for customers who are not that computer-friendly and also for those who don't have plastic cards or are not willing to use their cards for online transactions. The COD works really well in India as it has always been accepted for purchases from chemists or restaurants in case of home deliveries, so why not for online shopping!
The major drawback of the COD model is that customers get the liberty to reject stuff purchased online. Sometimes people intentionally do online purchases and reject stuff on delivery and that is where this model becomes a hassle for the online retailers."
-Peyush Bansal, Founder & CEO, Valyoo Technologies

"For new customers skeptical about purchasing online or sharing their card details online, cash on delivery is a great stepping stone to start buying online. Customers who are purchasing from the site for the first time feel that there is lower risk for them as they only pay after they receive delivery of their product and they will not get cheated. If the e- commerce retailer provides great on time service and delivery, cash on delivery customers are likely to make their next purchase online using their card details or even go in for a higher value purchase. From a retailer's point of view, there is lesser involvement of the customer and this leads to more cancellations. If there is a slightest delay in delivery, customers are quick to cancel the order. This puts the pressure on the e-commerce retailer to perform better and offer more value to the customer."
-Shipra Jain, Chief Merchandising Officer, Bluestone.com