Updated: Jan 11
The Indian eCommerce market is slated to reach nearly 300 to 350 million shoppers over the next five years.
And the Indian shopper likes to pay in cash. Online retail marketers are familiar with the term cash on delivery (COD) or pay on delivery. Put simply, COD is a payment option available on the Shoptimize Platform where buyers do not pay online while placing the orders. They pay when the goods are delivered to their doorstep. The buyer has the option to pay the courier person directly by cash or card when the product is delivered. The Indian e-retail market cannot do without COD. According to Ernst & Young (E&Y), COD accounts for 50 to 80% of online transactions in India. This breakthrough addition in Indian retail was introduced in 2010 at a time when only 0.5% of Indian shoppers were using credit cards.
Imagine if a first time shopper comes over to your start-up online store for kurtas after clicking on your Instagram ad. The shopper adds two kurtas to the cart and is set to buy. This first-time shopper on your site does not see the COD payment option and abandons the cart. In a recent report, pay on delivery option not available for all the products is a reason for cart abandonment by 38.16% of shoppers. Unlike your loyal customers, new users do not have as much trust and confidence in your brand. New users might prefer COD to test the waters and check if the orders reach their doorstep before they commit their hard-earned money to your brand. Your store is an established entity and has a great reputation with your loyal customers but a simple omission of cash on delivery payment method has lost you the sales.
Offering a COD payment option may enhance consumer confidence in upcoming or emerging eCommerce startups that have not yet earned strong brand recognition. If you partner with an eCommerce platform, you will have access to ideas on how to convert first-time shoppers to repeat customers.
What makes cash on delivery such a must-have feature for eCommerce businesses?
The answer in a nutshell is that Indian shoppers want the pay on delivery feature.
Even though the number of credit card users in India in 2019 touched 5 million, there are only about 3 credit cards for every 100 people in the country when compared to 32 cards in the USA. Indians tend to pay cash for most items.
Payment options like net banking, debit and credit card, and online wallets, make up just 30% of all the online purchases made. Furthermore, 72% of shoppers from major cities and 90% from smaller towns use cash on delivery instead of any pay in advance methods.
For some shoppers, the fear of financial data theft and the uncertainty of whether the items will actually get to them builds anxiety. By offering the option to pay when the goods arrive, you as a seller are not only building trust but also improving user experience on your website.
A shopper who is reassured that you will deliver and will accept cash at the doorstep, is likely to be a repeat customer.
COD is a great tool for online businesses to build confidence in the users about the brand before they turn into loyal customers. So COD is highly recommended for all brand eCommerce sites to boost sales.
As a seller you need to be innovative when dealing with this method of payment and here’s why. If a product is returned without being paid for you or the brand has to pay for the cost of delivery. RTO orders that are returned to the seller.
Here’s how it works:
You receive a list of all non-delivered orders by the carrier at the end of the day
Customer support calls the shoppers to take delivery preferences.
Using the responses from customer support, the carrier prepares run orders.
The carrier attempts delivery again.
Often the cycle of failed delivery repeats itself. This process could take more than three to four days. The brand is left with irritated customers, reduced efficiencies in terms of operations, and product returns. Additionally COD is more expensive as an extra shipping charge is applied for every COD order.
Industry estimates that RTO is the source of 30% of all frauds that happen against eCommerce businesses.
eCommerce platforms like Shoptimize has data analytic engines that can track variables to help clients stay safe from fraud. With this data, you have access to projected delivery outcomes and predictive RTO probability of individual orders. So if for example, your dashboard notifies you about a red flag with regard to an order with a high chance of RTO, you can double-check the address, re-confirm the order via call, or then cancel the order from your end before shipping it. By knowing this information beforehand, you can prevent potential unwanted loss from a possible RTO.
To mitigate the risks of COD, some retailers have started calling COD customers after the order is placed to make sure they really want the product. Others charge a transaction fee with a pay-on-delivery option and even use their own local delivery agents in big cities to reduce costs. Shoptimize, for one, conducted an experiment for a food manufacturing client.
This client faced a problem of excess cash on delivery cancellations as shoppers were typing in wrong contact details. When the shopper would opt to use COD, only the phone number was required to be keyed in. The client’s customer service team would call the shopper to confirm that they actually want the order. But with a wrong phone number, there’s no way to contact the client.
This was not just a waste of the brand’s operational resource time, but the shopper was left wondering why the brand never delivered the order. When an irate shopper who did not realize the error of the wrong number, left a negative comment on social media, it was time to act. The COD option was disabled. The disable function reduced RTO but revenue also reduced by 10% to 20%. This experiment clearly brought to light how important COD is in the Indian scenario.
To ensure that the food manufacturer’s costs were monitored and to also make sure the end user who needs COD is not inconvenienced in any way, Shoptimize suggested a tool - COD with One Time Password (OTP) functionality. This feature to verify mobile number was so effective that it reversed the sales to normal and ensured that when the shopper selected COD, he or she needed to input an OTP that was sent to the number keyed in.
By leveraging OTP, the company was now getting genuine orders and weeding out any fake orders.
In addition to these ideas, to protect the merchants' interests while providing the benefits of COD to the buyers, here are a few settings on the Shoptimize platform that can come in handy -
1) Setting upper and lower limits on order value to allow COD You can allow COD for certain band of order value where you do not end up losing money, nor end up risking high value goods for COD.
2) Setting additional COD charges One way to push users to use online payment modes and covering up your losses is to have additional charges for COD orders. Adding a small COD fee like Rs. 15/- or Rs. 20/- vs. no fee for other payment modes can divert the clients to other payment modes.Please note, this method is not suitable and may lead to higher abandoned carts in case you are not charging this fee on the other platforms where this or similar products are sold.
3) Restricting COD to certain locations (pin codes) You can allow COD option for certain locations / cities only by putting in pincode restrictions. While you give your serviceable pin codes list, you can mention whether COD is to be enabled for that pincode or not.This especially comes in handy when you want to blacklist certain pin codes due to increased denied deliveries from those areas. Shipping partners can help you with a ready list of such pin codes where COD should not be provided.
4) Pre-Paid only offers Give incentives for choosing the pre-paid mode by means of an offer. For example, a free sample, monetory discount, 2% discount, etc. could help people pick COD more. This discount can be easily offset by: - Handling charges paid to the shipping partner for cash collection. - Saving the double shipping fee paid for the returned products. - Interest gained on the instant money transferred in the account.
How does COD actually work for eCommerce?
Setting up your online store for cash on delivery is simple on an eCommerce platform. You can either install an app or can set up a manual payment method via your company account dashboard.
When your online store integrates shipping via an eCommerce platform, you can show up as a cash-on-delivery website and also offer other payment methods. The process is easy and based on the package you register for, on a platform like Shoptimize, you get total control over shipping and deliveries of your products. You get recommendations for the best courier partners in India for each shipment using a data-backed engine. So for example, if you are an online store for Indian snacks, and need to ship a parcel of namkeens, from your dashboard you can check the most suitable delivery partners on the basis of pickup and delivery service-level agreements, COD payout timelines and other parameters. Using the integrated shipping functions, you can track all orders. When you partner with a data-driven platform, you stand to gain across multiple levels. Your pickups and deliveries can be organized across the country with partners who are efficient and reliable with multiple payment methods, including the ever important cash on delivery.
Using the integrated shipping functions, you can track all orders. When you partner with a data-driven platform, you stand to gain across multiple levels. Your pickups and deliveries can be organized across the country with partners who are efficient and reliable with multiple payment methods, including the ever important cash on delivery.