IS THE CASH ON DELIVERY MODEL BRINGING IN CASH FOR E-TAILING COMPANIES?

We are living in a time , where we can have a selection of our favourite shopping items right at our doorstep and we can buy only what we like. Gone are the days, when only people who possessed a credit/debit card or netbanking facilities could shop online. The cash on delivery model incorporated by e-commerce companies, where the buyer needs to pay the money only after the order is delivered, has brought smiles to the faces of many consumers. But has it done the same for the e-commerce companies?

More than 60 per cent of all e-tailing transactions in India are based on COD. While this model has led to the boom in e-commerce in India, it may not be sustainable in the long run. The e-commerce industry was based on a model of negative working capital, wherein the vendor uses the capital provided by the buyer to purchase the goods desired by him. But with the advent of the COD model, the risk exposure for e-commerce companies has become extremely high. Still, the companies can’t think of scrapping this model, as it has helped them overcome some of the stigma associated with online buying.

Several e-tailers are not very popular, unlike Flipkart or Snapdeal, who advertise extensively. For the new companies who are trying to capture the market, cash-on-delivery proves to be a boon. It has provided them with an opportunity to build confidence amongst the consumers, who generally fear that their order may not be delivered, if paid for in advance.

But the delivery system does have its own limitations. Firstly, chances of reverse logistics are very high .If the customer has a change of mind about the product by the time it is delivered or does not like the “touch and feel” of it, he is free to send it back. As revealed by industry sources, about 30-50 per cent orders where the customer has opted to pay cash on delivery (COD) are returned. Another important problem is money collection and sending it back to the seller. For Indian courier companies, who are as it is not used to the package delivery system, the sudden boom in sales for the e-tailing companies has caught them unaware. On top of it, an additional layer of communication with the customer has only added to the complexity of the process.

Even though the COD option is availed by many, there are still a substantial amount of consumers who would want to complete their transaction at one time by paying online itself. By availing COD, the customer has to wait at home for the delivery person to come, keep cash and change in hand and complete the transaction. Also he/she has to be available at the time of delivery of the product. On the other hand, online payments make the transaction very convenient.

Though some companies are taking extra care in mitigating these problems caused by COD. Fashion and You ,quoted in Economic Times recently ,that they were making their logistics partner call the customer before delivering the product to avoid multiple trips due to non payment. If a customer defaults on the order often, he or she is blacklisted by the company.

Such measures can be taken by all the companies to exercise the COD effectively. The companies could also grant the COD option only upto a certain billing amount. The other option which could be exercised is to have the COD option only for a certain range of products like apparels, shoes and electronics and items like books need not use this option. Customers should be educated to use online payment more. They should be lured with discounts if they choose online payment over COD. But these techniques would only work if all the companies decide to introduce them , else the one not imposing any restrictions would have an advantage

The mindsets of the customers have to change and Industry itself has to drive the initiative. Only one who is making money out of COD are the logistics providers. Before COD becomes a loss making activity for the whole industry, measures have to be taken to make it profitable.