Monday, August 27, 2012

Indian E-Commerce & COD

Almost all articles on E-Commerce in India talk about COD (Cash on Delivery) and how it has impacted sales or margins, depending on whether the story is on the increasing number of online buyers in India or losses per order respectively.

So is it good or bad? Will COD be the boon or bane for Indian E-Commerce?

Well lets face it. Cash is the primary means of transaction in India - online or offline. Except in some metros like Mumbai or Bangalore where you can see the salaried class using their credit cards for payments big or small, for most people in these cities as well as others, the preferred form of payment is still Cash irrespective of the size of the payment.

Now, there are a few reasons for this -
1) The cash economy of this country. Most small and medium business in India do a lot of their transactions in cash to avoid taxes and they would rather use cash for their daily personal transactions also, be it a a bill payment at a restaurant or a retail purchase. A credit card would mean transactions can be tracked and they would not want to do that.
2) No incentive for credit card usage, whereas in a lot of instances when you pay cash upfront you get an across the counter discount.
3) The negative image of credit cards in this country due to media stories on credit card frauds etc.... You don't read as many stories of people getting robbed of their cash as those stories are not as sale-able.

Another reason could be that Credit is a bad word among the large Indian middle class and they would rather not have a credit card, lest they fall into the revolving credit loop and commit a sin of having to live in credit. However we have multiple times more Debit Cards (than credit cards) in this country but the use of debit cards is also limited and average transaction per debit card is lower in India than credit cards.

Some people have also said that COD is relevant in the Indian E-Commerce context as we like to see the product before we purchase. That argument is debatable, primarily because a person who purchases online does it for the convenience or choice or lower price and for this consumer, payment by COD or online using a Credit or Debit card should not make much of a difference - specially so in the case where they are purchasing a branded product from a well known retailer. Also most Indian retailers and etailers have warmed up to the idea of allowing returns of a product if the customer is not happy with the purchase.

So are we saying that COD is here to stay and even though it effects the bottom line of the etailer they should continue with it?

Not really. Look at IRCTC. They continuously make headlines with their ever increasing ticket sales. Personally I think their site is very sad in terms of ease of use, page load times etc etc however they fulfill a burning need and have no real competition. But the point to note here is that they do not have a COD option but their sales are even increasing. So its not that people will not find an option to pay if you
1) Fulfill a need
2) Make it Competitive
3) Make it easy

Its just that most of our E-Commerce players still need to get their act together in terms of their product catalog, choice, price, ease of use of their websites, delivery and Customer service. There are too many players with little or no product or service differentiation and they are suffering more because of these reasons. And COD - offered just because everyone else is - is only worsening their woes.They first need to correct the basic issues & then work towards offering those payment options that make sense for the consumer..

To focus on the problems associated with COD - considering that people are warming up to buying online and there is still a large chunk of this audience that pays using their credit or debit card online, what is required is
1) An industry/government initiative to push the adoption of Credit & Debit Cards and  explain the advantages of using the same both online and offline and also incentivize the same.
2) A concentrated effort by the E-Commerce players to offer COD as a last option & only where it's required and incentivize other payment options.

Here are some simple pointers that some E-Commerce players are already considering, and others could look at, to reduce their COD losses, while still using it as a means to attract new customers and increase rural penetration:

1) Assuming that etailers are offering COD to lure the rural customer who may not have access to Credit or Debit cards - they could begin by offering the option only in select cities and / or on select products or order size.
2) Offer incentives to payment by Credit or Debit Card such as faster delivery or credit vouchers for the next purchase or higher points in the loyalty program etc
3) For unique and / or new product launched offer only the option for Credit or Debit Card payments and not COD.
4) Tie up with Banks and Companies such as Visa or Master to offer more incentive for using their credit or debit Cards. This could be cash back or higher loyalty points or even a flat discount or better loyalty points on the card.
5) Tie up with other merchants online and offline to offer incentives to consumers who pay using their Credit or Debit cards ranging from cross sell to discounts.
.... and am sure there are many other already being implemented or thought of.

It would be good to however reiterate here that the larger problem with E-Commerce in India right now is not really COD. It's our sellers not really understanding our buyers & not offering unmatched buying experience to increase customer confidence, loyalty and encourage repeat buying. Those who understand that will be around for a long time to come while others will cease to exist.

Agree with the above? Disagree? Have a personal experience you would like to share? Please feel free to comment...