With the development of human civilization shape and scope of retail has undergone a change from barter based to web based trading. Electronic retail environment is totally different from traditional shopping. Electronic business is done across telecommunication networks where buyers, seller and other involved interact electronically and rarely know each other personally. Anyone having computer, laptop or smart phone with internet connection can go for online shopping. It provides an equal opportunity to big and small businesses to directly reach customers anywhere around world. But attracting customers in absence of physical products, human touch and time lag between placing and receiving an order is a matter of concern for electronic sellers. Conservative nature of Indian consumers to avoid paying in advance adds to difficulties in adding new buyers. Moreover, low penetration of online payments system in India is one of the biggest obstacles in the success path of online retailing.

In 2010, Flipkart decided to start COD service as a solution to expand the size and scope of electronic business. This model contributed to 30% of its overall sales after the launch.¹ COD set the stage for fantastic growth of e-commerce in India. It added new geographies and demographics particularly from small cities and towns to online business. Now days almost every electronic retailer provide COD option along with different payment options like debit card, credit card, EMI, mobile wallet, internets banking etc. But by and large Indian shoppers prefer to utilize COD. COD is convenient way to order goods online. It is beneficial for electronic retailers to encourage customers to buy online by reducing skepticism. Customers also feel they cannot be scammed by malicious sellers when using COD and there is no fear of losing financial information. It is a win-win option for customers. But for electronic sellers COD is a financial burden which they cannot avoid in Indian scenario. This paper highlights various issues and challenges related to COD.

Cash on Delivery:

COD can be described as a payment mode which allows customers to pay for goods at the time of its delivery. This type of transaction takes place through logistic partners. The buyer remits payment to a courier partner, which relays the payment back to the seller. If buyer doesn’t make payment then goods are returned to sellers. COD is also termed as Cash against Delivery (CAD).

WORKING OF COD:

1. Customer places the order and provides his/ her postal address.

2. The electronic seller prepares the order and arranges the logistic.

3. The logistic company deliveries the product to the customers and receives the money.

4. After cutting its fees, logistic company hand over the balance to electronic seller

REVIEW OF LITERATURE:

India is cash driven economy. Impact of cash rooted behavior leads 50 per cent COD transactions in India which is contrary to western countries where COD is only 20 percent.² Reasons for being a cash-based society is low penetration of credit/debit cards along with low trust in use of plastic money. COD is most widely used option cited by 83% of online respondents .²

The cost of alluring shoppers for online purchase through COD is borne by sellers. Indirect cost in COD is very high as compare to other available payment options. Therefore, COD imposes substantial financial losses for sellers in the form of delivery, cash handling and high return cost. High return rates have created significant loss for electronic retailers. Average return in ecommerce is 20% but when it comes to COD it is approximately 60%. Moreover COD returns from tier 2 cities are 30% more than metro.¹Researches show COD will remain the most preferable mode of payment even in near future though share of COD is expected to go down to 50% in 2016 against 60% in 2015.³

OBJECTIVES OF THE STUDY:

This research aims to enrich the understanding of issues and challenges faced by online seller due to COD. This research provides a well defined investigation to the following objectives:

1. To identify the issues which make cash on delivery unsustainable proposition for sellers

2. To study major challenges in changing customer spoilt habit of COD choice

RESEARCH METHODOLOGY:

Secondary data sources were used for this research. Detailed study and analysis of available articles, reports on the study topic were being carried.

ISSUES IN COD:

COD is extremely costly and unsustainable model for sellers. Following are various issues making it an evil for electronic retailers:

a. Cost of delay in deliveries:

In COD, difficulties in coordinating delivery time and payment hassles with customer add extra delivery cost to sellers. More and more phone calls when customer phone is not reachable, busy or not being picked by customer create a delay in completing transaction.

Customer not available at delivery address or cash not ready slows down the process. Payment hassle takes place when customer does not have exact amount to be paid and delivery person does not have change to pay the balance.

All above issues delay an average COD delivery by 12-36 hours as compare to normal deliveries. A delay in delivery reduces per delivery person- per day. Therefore, additional expenses in the form of hiring more manpower are added to deliver all orders in time.

b. Cash handling charges:

Few courier companies offer COD services with additional cash handling charges. Rate varies from company to company, category of product, daily volume and level of negotiation. Following are charges of various logistic firms:

ü Blue dart: Rs. 80 per 500 grams or 3% of the cost whichever is higher

ü Firstflight: Charges Rs 85 or 2% of order value

ü DTDC: Charges flat Rs 250 for all orders under 25000

ü FedEx: Around Rs 250 on waybill amount

ü GoJavas: Rs 40 or 1.76% of order value ⁴

Cash handling charges add unavoidable extra cost to the balance sheet of electronic seller.

c. Locks up Working Capital:

Time lag between order and payment lock significant working capital. Collecting the cash, collating the receipts and maintaining the records are complex and time consuming process. Reconciliation of accounts with logistic add administrative expense and delay COD payment. COD payment cycle varies from one to two weeks adding additional cost of raising funds to maintain liquidity.

d. High return and cancellation rate:

In COD, commitment of consumer to buy product is comparatively low. If a buyer changes his/her mind he/she can easily cancel the order any time by sighting reasons like delay in delivery, found better deal, doesn’t need product any more, etc. These are the reasons why the return rate which is expected to be 15 to 20% in ecommerce is expected to be around 40% for COD orders.⁵ High returns affect the profits of the online seller. Cost of two ways courier i.e. for delivery and return translate into high logistics costs.

Challenges in COD:

The growth of COD volumes in ecommerce is far from being a bed of roses. The ecommerce sector is being held back by COD due to following challenges faced by electronic sellers:

a. Low penetration of debit and credit cards:

Indian electronic payment system has not been fully developed. In India carded population is significantly lower than global standards. Till March, 2016, India has 24.51 million credit cards and 661.8 million debit cards. Number of transactions on credit and debit card grew by 27% and 48% respectively. Total amount transacted has also increased by 27% and 24% respectively for credit and debit cards but during the same period average amount transacted per transaction on credit and debit cards declined by 0.1% and 16.2% respectively.⁶ Therefore, electronic retailers have to give COD option to expand their business reach.

b. Conservative nature of consumers:

Deep rooted cash behavior and concern for security are major bottlenecks in accepting other modes of payment. Indian economy is cash driven economy where 95% of retail transactions carried out through cash.⁷ Customers are not ready to pay ahead for an order as cash and carry is Indian way of shopping.

Consumers are also skeptical about quality of products and scams by malicious sellers when they shop without touch and feel from unknown retailer. In such a case, COD seems to be the safest payment mode. Indian shoppers prioritize security above all other factors. 59% people do not trust giving credit card information online.² They avoid paying with plastic money or adopting other modes of payment like EMI, digital wallet or net banking due to security and privacy issues.

c. High failure rates of payment gateways:

Indian payment gateways have usually high failure rate by global standards. Failure rate varies from 0.5 -2% in net-banking and 7-12 % in credit and debit cards transfers.⁸Indian gateways are reluctant to take the responsibility for payment that has not been patched through, making online transfer more risky. Failure of even one transaction makes customer cautious to reattempt online payment and they switch to COD mode which seems to be the safest payment mode.

d. Cut throat competition:

E-commerce transactions in India are growing at a massive speed. Lucrative market to tap has led to proliferation of market with big and small electronic retailers. Competition is stiff and COD helps business to stay ahead by expanding geographies. COD is prerequisite for startups in building initial trust, attracting consumers and surviving competition. In a transparent environment, where switching cost is almost zero, no electronic retailer can take a risk of losing customer base by not bearing a cost of COD.

CONCLUSION:

COD is not a profitable option for ecommerce companies but still it is a “necessary evil” that is playing a significant role in making Indian customer comfortable for making online purchase. Popularity of COD is growing among Indian shoppers. Presently, it rules the mode of payment and will continue to be a prominent payment mode in coming years.

But, ecommerce players should encourage consumers to move towards other payment modes by building trust and giving incentives. Electronic retailers should try to use current scenario of demonetization to encourage consumers to use electronic payment. Need of an hour is to create awareness and magnetism shoppers with freebies, cash back or discount for online payments. To conclude clearing the roadblock named COD is very important for the financial success of Indian ecommerce industry.

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Received on 10.03.2017 Modified on 26.03.2017

Asian J. Management; 2017; 8(2):201-203.

DOI: 10.5958/2321-5763.2017.00031.2