We have been running Menzkart.com (an exclusive shopping website for men) without offering Cash-On-Delivery as a payment mode. The number of customers who pay online to shop for innerwear via Menzkart has been a revelation for us and very encouraging for the team. 
However, there’s a dropout rate of around 30-40% of total transactions because of unavailability of COD on the site. We feel COD option would gradually fade out as the e-commerce industry in India matures and people start making more and more payments online. That’s one of the reasons why we decided to not introduce COD as a payment option. Would love to know your assessment of how things would shape up in the long term!
COD or no COD?
Comments
Alok Rodinhood Kejriwal
Check out what I wrote:
5 lessons that Domino’s can teach e-commerce companies about COD!
Yeah, so this is my first contribution to The Strategist of the Business Standard (10.9.2012)!
The complete article appears after the image :
Cash on delivery has been identified as one of the culprits responsible for the troubles of e-commerce establishments.
But the experience of Domino’s Pizza shows why this line of argument is all wrong!
I have been reading the horror stories about how the cash on delivery model of payment touted by the e-commerce companies in India is the root of all their troubles and may ultimately lead to their ruin. It is almost funny how one of the most innovative ideas of our time is getting blamed for the things it is not really responsible for.
I would say cash on delivery is actually one of the best things that has happened in e-commerce, or for that any form of commerce. Here is why:
I just flipped through the 2011 balance sheet of the publicly listed company that operates Dominos India and was amazed to note some jaw dropping statistics.
– This company shipped about 3.7 crore pizzas in the year, equaling to 1 lakh pizzas sold per day.
– The pizzas sold for a total of Rs 600 crore, translating into an average price of Rs 162 per pizza.
– The business operated via 380 stores in 90 cities; that is, approximately four stores per city.
– Each store sold approximately 1 lakh pizzas a year or about 300 pizzas a day. That’s about 25 pizzas an hour.
– The company recorded a net profit of Rs 90 crore. This equals to Rs 25 per pizza or a 15 per cent margin on the sale price.
I think this is awesome, considering that this business is entirely managed as a cash-on-delivery business. Also, if you review the size and scale of the operations they have, it resembles any gigantic e-commerce business.
So how can anyone blame cash on delivery as the culprit that ruined a business?
Actually, the pizza business in India teaches five important lessons to those who intend to execute the cash on delivery business model.
1. Cash is guaranteed when collected from home:
No one can run away from home. There is a Marwari saying that “If you run away with my money, I will come to your house to collect it.”
Imagine people giving you their home addresses to deliver and collect money. Can you get any more upfront? I doubt if anyone would like to rescind on a pre-placed order and kick up a fight in front of their neighbours over a small amount.
Lesson: getting called home is an assurance of getting paid. Leverage it.
2. Personal sales provide the best reference check:
In the weary world of business, people are unreliable. Companies are even worse. Who can fight a big legal battle with corporations whose karma has clogged up the Mithi river (a river in Mumbai that infamously gets clogged and
causes floods)?
Now cash on delivery is a foolproof method of establishing creditworthiness.
Once your name and home address is in the system, the seller quickly establishes if you have ever defaulted on your payment. If you have played truant, then you will not be supplied the pizza or the shoe you ordered. That’s too bad because it’s not easy to change your name or the place you live in at the drop of a hat.
Lesson: use cash on delivery as a means to establish creditworthiness. And when the market is ready, cross-sell that creditworthiness across business verticals so that it becomes a win-win.
3. Use cash on delivery to check ‘Intent’:
Consider the pizza sales again:
If 3.7 crore pizzas were sold just by one company, it’s very generous to say that at least 2 crore unique households in India bought a pizza (2 million crore x 2 pizzas = 4 crore pizzas per year).
Now, those who buy pizza in India are typically e-shoppers.
The numbers state that e-shoppers represent about 1 crore in India. And this is the same affluent, upwardly mobile community that can afford pizzas and printers delivered at their doorstep.
So while none of these households return a pizza that has been ordered, why do a staggering 45 per cent (according to a recent media report) of the same set of households refuse to take delivery of online goods purchased, when the courier reaches them?
If you do not return one out of two pizzas you buy, why would you return one out of two books you have e-ordered?
Lesson: New businesses using the cash on delivery model may want to collect small token amounts in advance to check ‘the intent’ of these happy-to-reject customers to ensure they pay up.
4. The 30-minute curfew works for pizzas, not for books:
If I am hungry and want to eat, it makes sense to promise me a pizza in 30 minutes or a free pizza if the deadline is not met.
But I ask, what is the urgency to ship a book with the same demonic speed while executing a book delivery? Will it matter if the book reaches me in a few days and not minutes? And hey, if I am so ‘hungry’ to read my newly ordered book, then ask me to pay double the regular charges for ‘instant delivery!
Lesson: New businesses relying on cash on delivery need to step back and ask themselves if they can spend less money on speedy delivery.
5. Cross-sell and cross-sell like crazy:
I am sure at one time or the other, we have indulged ourselves with those sinful garlic bread sticks and dipped them in that irresistible co-conspirator, the ‘cheesy dip’ that comes along. Coke and pizza get along famously and hence ordering a bottle of coke is logical when you order a pizza.
Another example. Haven’t we all seen those mini shampoo and moisturiser sachets embedded in women’s magazines? Or that perfume strip we carefully peel off and inhale as if it was pure ozone?
The point is that with every package delivered to someone’s house, there is a great opportunity to cross-sell domestic products which the same set of consumers could be encouraged and let me add, delighted to sample.
In the case of e-commerce companies, this is not a goldmine kind of opportunity; it’s a veritable diamond mine. Cross-selling and delivering samples do not cost anything extra in deliveries (the same courier boy achieves both jobs); rather it can easily change the fortunes of the fledgling e-commerce companies who say they lose money when they execute cash on delivery!
Given the myriad kinds of goods e-commerce companies ship out (books, electronics and home appliances), even a failed direct marketing student can build a simple ‘ASL’ or age–sex–location business model offering outside brands to ride on the e-commerce deliveries headed to consumers.
For example, if a microwave is headed for Mrs Sharma in Noida, the package can surely contain packs of free popcorn and ready-to-drink soups sponsored by other brands that would happily pay to reach their target audience directly.
Let me add, Mrs Sharma will bless you.
This is why desserts and appetisers bundled with pizza deliveries work so well.
Lesson: allow partner brands to piggyback on the cash on delivery transaction. Extract money from them for home delivering to their target audiences. Even cross-sell that extra as a surprise for the buyers.
Cash on delivery must be examined as a business opportunity rather than a titanic blunder. There are very few businesses in the world that actually invite brands and companies within the sacred portals of their homes. Leveraging what is not easy but can be highly profitable.
So if you want to master the cash on delivery model for your business, then maybe you should start by getting onto a pizza diet.
******
Link to the article on The Strategist
*********
Omkar Nisal
Please remember pizzas are made and delivered locally from physical store in the neighbourhood not from a central stocking place in one corner of country or state! They have HUGE amounts put in real estate and manpower for local operations. Two are entirely different ball games, although they do appear similar superficially to the consumer!
Anthony Fernandes
Hi,
I like Alok’s input. but this is a very difficult question to answer. Unlike Domino’s, eCommerce websites cannot provide delivery within 30 minutes. This gives the buyer a lot of time to change his mind.
Problems with COD. high rate of return, Reasons.
Keeping this in mind. COD is not going to disappear, as
Therefore only you can answer this question by experimenting with the COD concept.
See what increase in sales you get, see what return rate of products. Cost of COD, In the end on 1 month, calculate the extra sales compared with extra cost and P&L.
In around 3 months you should be able to answer this for your segment of products. results are no the same for all markets for all products.
One suggestion, don’t dispatch any product until you have called and confirmed a COD order by phone.
All the best.
Rajat Mehta
I don’t agree!!!!
Dominos can/ have price(d) there pizzas accordingly so that even after COD it turn out to be profitable.
BUT
Do you think Online Retailers can change their pricing? If MRP of a book/perfume/boxer is Rs100, they have to sell it a 100 (if not 95). So all retailer have a maximum price point and they have to adjust all their expenses(incl. COD) and profits in such a way that the price doesn’t goes beyond the MRP. On other hand, Dominos can change the price according to their product cost+COD cost+delivery cost+profit.
Anand George
My last three purchases have all been COD, all above Rs. 5000. Have been purchasing online since the past 10 years when there was no concept of COD. However now a days I prefer COD for the following reasons.
1. With smaller specialized e-commerce sites you’re sure they won’t pawn you off your money.
2. With bigger sites there’s no worry about losing your money. But it does ensure that they don’t offer excuses to not ship you what you purchased, instead ask you to purchase something of an equivalent amount etc. Have not had a personal experience but seen many on twitter.
COD brings a level of comfort to most users. Assuming transaction costs for COD is about the same as online payment you should give it a try. Also include a discount coupon for online purchase with every COD order. Since the buyer now has a higher level of confidence after the first purchase he/ she will probably pay online the next time.
Sanchita Dutta
have not offered COD on our website http://www.indiacod.com (though the site name itself says COD 😉 ) . Admit we must be losing out on some sales, but thats the call we took. we are doing just fine. sales are ok, if not earth shattering and we are slowly but surely growing.
Enough views here on pros and cons of each side. they more or less cover most of points. what it eventually boils down to is what kind of margin and average selling price of the items that you r dealing are.
With a contract in place, non-cod at lowest weight category with an average courier company is about 40 rupees, in COD it goes strt to minimum 75-80. for an av selling price of 1000, it is almost 8%, factor in returns, damages, and it almost is sure that you can never breakeven… but then its at a cost of growth… so one needs to take a call
Coming back to the site after a long time since have been busy with expanding business on selling platforms. we are now on ebay, snapdeal, flipkart n amazon!
regds
T Riddle
How about creating a CIBIL for those requesting COD or home delivery? The entire industry could benefit from this.
asha chaudhry
sumit,
alok shared your post over social media – pls check out these fb comments –
Return policy is fine. but COD can be tricky.
Abhik Prasad
have you asked your customers if they would prefer COD…or if they would be more likely to buy if COD was available as an option ?
Govind G Prajapati
Recently I bought some books from books for you.in … surprised he ship from indian post deleivered in time and on top of that it was cash 0n delivery. More digging, I found package was more then a 1.5 killo, still cash handling + courier charges were only 43 inr. And total package value was 1200 inr.
I would recommend cod with indian post
Kunal Bajaj
The cost goes plus 10 to 20 if you go for COD. I would recommend that go for COD. According to me most common fears are A] Fake Orders B] Person Not available at home/place.
For Fake Orders : – There are good verification systems which are integrated with the store introduced and you can add one more verification system that is call. Usually in fake order people don’t provide their real numbers so they cannot verify the orders. This will cut half of the fake orders. Other way is to give them a call and confirm the order. This will be a bit of additional work but at the same in the highly competitive market gaining a customer is a win win and rejecting a customer is gaining a new customer for competitor. One of my friend saw 50% increase in conversion because of COD. Till date ( 4 months) not faced any issues/ rejection with COD.
Person not available at home : – All the courier companies providing COD call before delivering.
The best would be to do a beta test for some days and check if it is beneficial for you.
Keep us updated on your experience with it 🙂
Kiran Murthi
We at getitBazaar provide services to online sellers including a full transaction processing service which includes full order processing, stock pick up, delivery, cash collection and settlement after checking satisfaction with purchase for a charge of Rs 100 or 2.5% whichever is higher. We charge a surcharge if the product is heavy or bulky. Easy processing. Email me if interested.
Chetan Rane
Go for COD. It surely increases your sales. You may face some problems in deliveries but this can be sort out. We at Lawangi.com observed that customers are happy to opt COD as payment option , its easy and saves their time too. In some orders you may get customer who refuses to accept their order and it happens.
In few cases customers called us at the time of delivery and said that they don’t cash and please accept cheque.(its again COD “Cheque on Delivery”). We said yes to them and now they are our returning customers.
And you know Cash transactions are always good in business 😉
Preetish Gupta
Hi Sumit,
My theory is that these dropouts are first time visitors/buyers (hope you can cross check it with the data available at your end). First time buyers or people who are buying from a new seller prefers COD as it ensures that they pay only after they receive the product (following what we all have been taught us ‘never trust a stranger’). Once they get confident, they will switch to online payment (with few exceptions).
I think you should start COD as soon as you can. You also have an option of charging some premium in case the order amount is low. Once the COD buyers’ no. drop you can stop the service.
Even if the dropouts are not the new buyers, 30-40% dropout is a huge number which you should not ignore.
Hope this helps.
—-
PG
Anuj Sangoi
some help on how these cods work from the logistics company point of view (courier companies) first accept the fact the
cod prices which the courier company charges are never going to come down. Secondly at present no one
courier company is able to service all location across india. Another major concern is when goods are valued
more than Rs. 1000 as interstate paperwork is involved. usually a company having ecommerce website has started its operations because it can deliver and achieve more by having online presence and giving cod deliveries but the interstate paperwork is unavailable as most deliveries are to individuals. The courier companies on the other hand have a huge risk of cash handling thru their various channel partners own staff etc. Therefore model like flipkart sounds excellent but owning a staff than outsourcing is a huge cost in itself in our country
So the ecommerce companies should think in lines of operating from various cities in order to localise their deliveries but that would depend on the seriousness of their expansion plans which is with added operational cost. Reconciliation of statements has to be prompt and so is the settlement. COD is always an option on online site leverage till you can manage it. Returns manangement and cost of operations of logistics is the way you position your online site. Any business depends on seriousness of operations. cod no cod online payment doesn’t matter.
Sarsij Nayanam
First thought I get after reading your story is – How do you know it so certainly that people are dropping out because of no COD option? I believe you have some data point to validate your assumption.
And if you have the data points to prove that people are dropping out just because you guys don’t offer COD option, are you in a position to do a cost-benefit analysis to the option of introduce the COD option? I am sure you will have lovely time calculating the cost of offering the COD option, and also the benefits of doing so.
Final point, don’t be stuck by what market analysts have been repeatedly saying – COD is bad for e-commerce. If it is so bad, why are people still doing it? Ask this question to yourself, possibly you will get convinced.
Raman Ahuja
well the concept (COD) is the same in both the line of businesses – Pizza or Typical e-Commerce…and if I think from a consumer prospective…I know what exactly to expect from a Pizza joint…but the feeling is not the same when I order any product online (unless I have used or purchased that order before)…. So in order to decrease the drop out rate…I would think delivery person should carry alternate option/product with them…or customers should have an option to select an alternate product…. but the possible down side could be higher delivery cost…
Sanchita Dutta
When we were selling only on ebay in addition to our own site http://www.indiacod.com, we found it to be extremely buyer biased. that is till we started selling on other platforms namely amazon and flipkart.
a word on life for sellers on flipkart. they offer free COD in most items and 10 days return policy even on mfr warranty items. which we feel is most unfair. let me share a few of the item return incidents in past 30 days.
1. one buyer bought four pcs 64gb extreme pro 95mbps cards (sandisk) for 45k. item delivered to buyer. he used one, did not LIKE the speed of the card, invoked 10 days return policy and demanded return and refund. flipkart delivered back the items. Guess what, all four cards in open condition and three of them without even covers. No one understands that these items have become UNSALEABLE and worth nothing to us. Many sellers whom we know n are from bangalore main mkt have left FK and many more planning. the intense competition means net margin is nevr more than 6-8%. which means a sale of 8 Lacs reqd just to cover losses of one tx. and there are many such incidents.
2. So we increased prices of all items compared to other sites, but they still sell just due to FK’s popularity and brand value. but one needs to understand they too are now just another mktplace and if this continues, soon they will find themselves without many quality sellers.
3. The net returns ( Non-delivery plus delivered and returned) is almost 10% of total sales. many times higher than any other platform that we sell on. we are convinced it is mainly due to COD terms of the site
4. We have for now continued doing business on FK despite not breaking even even after 4 months. but wonder how long it will go.
4. we havent gained traction on other platforms so waiting to know how they would turn up. but its tough going for now.
5. we feel the most profitable business currently is coming from ebay and our own site http://www.indiacod.com despite offering cheapest prices for the same items across all platforms. its ironic but true. now ebay feels like heaven compared to others.
Sanchita Dutta
Finally Introducing COD on our site http://www.indiacod.com
Nine months after launching the site officially and strongly resisting COD right from beginning, we are happy to announce COD on our Site for purchases above 1500/-.
Why we did this?
To be fair, I and my partner are still in disagreement on the issue with me still being against COD. Wont lecture about Pros and Cons since most on this site are well versed/experienced.
The only logic that seems to go for it is that we are already selling our products on COD basis on all other platforms such as snapdeal, ebay, flipkart amazon and now shopclues, then why keep it off on our own site? Also potential damage that can be caused due to failed and non serious transactions would be manageable at least in the beginning with cross selling across various platforms and subsequent inventory rationalization making up the savings. So lets see 🙂
Would invite all rodinhooders to kindly find some time to visit our site http://www.indiacod.com and share experience, particularly suggestions to further improve the site in terms of ease of use of site and doing a transaction. You can share it here or mail on our FB page, https://www.facebook.com/indiacod1
regds
asha chaudhry
hey sumit,
so COD or no COD?! any updates in the meanwhile?
yeh toh andar ki baat nahin hai naa? so pls share with us!!!
🙂