To CoD or Not to CoD?

As far as a majority of the Indian consumers are concerned, this is a no-brainer. Barring only some nuisance value disadvantages, cash on delivery (COD) is seen as a blessing by purchasers, much as it was intended to be seen by e-tailers at the time of setting up shop. But is COD an essential vice or a necessary business risk – or both – as far as the Sellers are concerned?

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Benefits to Consumers 

COD allows the consumers to have a shopping experience akin to conventional purchasing at a brick and mortar establishment, with the added convenience of sitting at home and doing it. It offers many advantages to the Indian consumer, such as:

– Despite the estimated 1.252 billion strong population of India, only 18.8 million credit cards existed in the country in November 2013, and approximately 331 million debit cards in March 2013 (as reported by Business Standard here), indicating that almost three- fourths of the nation’s people did not own a credit or debit card, making COD a boon for them!

– Even people who own credit/debit cards, used them to withdraw cash at ATMs or for swiping at establishments, but not for online buying as security is a risk most people are not willing to take, evident in the fact that India is second only to the UAE as regards debit card fraud.

– Indians have yet to let go of the age old tried and tested tradition of seeing, touching and feeling the product that they wish to buy before actually parting with money for it. It gives them a sense of freedom and security, which COD allows indulgence in.

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Image Source: Indian Express

Disadvantages to Consumers

– They must necessarily be at home and wait for the product to be delivered, instead of the ease of paying online and having the product dropped at a neighbour’s and collected as and when the buyer reaches home.

– The consumer must have exact change, or be willing to let go of some money to the closest rounded off amount, or go through the hassle of waiting for the delivery person to get the change from nearby, which may or may not be possible.

Clearly, since the advantages of COD outweigh the disadvantages to the consumers, online retailers selling their products online and aiming at a long term growth in the Indian market, grabbed onto COD as a means of not only gaining the trust of the Indian consumer, but also of not reducing the volume of purchases by restricting the buyers to e-payment.

But What About the Online Retailers?

However, having offered the option of COD, most e-tailers cannot really think of retracting the COD avenue, despite the fact that it affects their numbers and does not make the best business sense in the long run. The many disadvantages suffered by the ecommerce companies offering COD are:

– The courier charges for delivery of the product through COD is borne by the company increasing the cost per delivery an extra 3%, according to Ashish Jhalani, founder of eTailing India, which further eats into the small margins of the companies. Additional cost is also suffered by the companies for the verification calls to be done for COD orders, in addition to charges for two-way transportation in the event that the product is returned, as stated by Saurabh Malik, business head at Indiatimes Shopping.

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– Not only this, impulsive purchases made online through COD are more likely to be returned once the actual product is delivered and money is to be shelled out. The return rates are much higher for products that are delivered on a COD basis as compared to deliveries made pursuant to e-payment, being almost 40% according to this report by Business Today. Myntra has a comparative return of 4% vis-à-vis COD deliveries, as against 1% for e-payment deliveries.

– Another downside is that the returned products have to be examined and re-stocked, and put back in the inventory after having been taken out from the inventory only some time ago (in the event that they haven’t already been destroyed).

– COD would involve manual cash collection, addition and then incorporation into the company’s accounts, which with online payments would be a two tier process of payment and incorporation into accounts, making COD susceptible to errors of calculation and omission.

– Even with the best systems being in place, with loose cash, security of the money and possibility of pilferage will always be a concern for the e-tailers.

– E-commerce companies offering COD face problems with their working capital, as delay in receipt of cash payments from courier companies implies delay in cash collection and realisation, which in turn means a highly uncertain cash flow. Resultantly, these companies would require an additional working capital.

Having plunged themselves into the marketing and sales stunt of introducing COD, the ecommerce companies may be regretting the environment they have created, and are looking to limit the losses suffered by them by curtailing the number and type of products, or the Sellers, on which COD may be applied. But will this be enough in the long run? Considering that customer acquisition is the most money-hungry area, is using COD still better than selling products at a loss?

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  • Taroon

    I am an online seller and wish the customers would take this seriously and order only if they really want to buy so that COD return ratio comes down

  • Sandeep

    COD will, in time, be replaced by other modes of payment. More people will move into electronic payment modes. Usage of net banking/credit/debit cards may become higher than COD only after 8-10 years. Alternative cash payment modes, such as KYASH (see kyash dot com) might come handy till such a time.