Imagine that you are flying from Mumbai to Delhi.
And just when the pilot makes that silly announcement, "On our right is Ahmedabad and on the left is Surat"... you suddenly unbuckle yourself, stand up in the aisle, start stomping your feet and shout at the cabin crew to fly you back, 'coz you changed your mind!!!
Let me ask you:
- When you order a meal at McDonald's, you tell the guy at the counter what you want. Then when he goes to pick up your burger and fries, do you just change your mind and vanish from the counter?
- When Domino's delivers at home, do you yawn and tell the delivery boy, "Sorry yaar, I changed my mind?"
- When you go to a restaurant and place your order ... and when it finally lands up on the table, do you reject half the dishes and say, "You know, I want something else instead?"
I guess you got my point. No normal, sane, human being would change her decision (which has been made after certain contemplation) - "just like that" !
Now, consider this quote I read yesterday in this Economic Times report on the state of the e-Commerce business in India:
"Indiaplaza.com, which sells books and electronic goods, was the first to introduce the Cash on Delivery (COD) payment method more than a decade ago. It realised in about a year that COD was "painful". Rejection rates are at about 45%, partly because there is no upfront cash commitment, according to Vaitheeswaran."
A rejection rate of 45%??? Let's round it off to 50%
Translating this to the real world, it would mean:
50% of passengers 'de-boarding' the flight they are in, mid air!
50% of Domino's deliveries being returned?!
Does that make any sense to you?
Obviously it does not.
Now, consider this familiar photograph:
I quote this shocking and amusing anecdote on the 'Big Bazaar Sale' from this source:
"As documented in It Happened In India (in the chapter Made in India), some customers tried to bribe the security guards to let them inside Mumbai’s Lower Parel store. In the Kandivali store, customers fell head over heals to claim their share of the Buy One Get One Free offer on Basmati Rice. Apparently the situation deteriorated to such an extent that one of the staff members was injured and had to be rushed to the hospital. The media covered the Sabse Sasta Din almost to the fervor of a one day cricket match. Television channels beamed live images of the crowds, turning the event into a topic of national importance.
In 2007, to avoid a repeat of the crowd management issues, people from the operations department visited popular temples across the country. There they studied the behaviour of the large number of devotees to gain insights into how they are managed. Procedures were then put in place across Big Bazaar stores accordingly."
So, coming to the point:
- Let's compare the BIG BAZAAR SALE and the e-Commerce business in India!
Both offer most of the stuff we want to buy at massive (50%) discounts.
Going vs Coming
People go to the Big Bazaar stores and wait outside for hours for them to open. I have seen the same at Crossword's Sales; so this happens for Books as much as for Basmati rice!
e-Commerce Courier boys come to consumers' homes and get turned away!!
Pain vs Pleasure
Consumers 'bribe' security staff to get into the Big Bazaar Sale (and also suffer the trauma of shopping inside etc, etc.) - so they definitely want to buy their stuff and go home as quickly as possible. They suffer pain.
Consumers sit inside their home and their e-Commerce goods come to them. This is potential pleasure.
Yet 50% of these e-Commerce shoppers forsake pleasure and return the goods they bought??
Cash vs Credit
People go to Big Bazaar with really fat wallets and working credit cards! They want to buy and they want to pay!!
As far as the e-Commerce situation goes, I am quoting from the Economic Times article again:
"In India, on the other hand, cash on delivery is the payment method for up to 8 in 10 transactions" (for online e-commerce).
"Online lifestyle retailers such as Myntra.com and Fashion and You say that at least 60% of their transactions rely on cash on delivery."
So, why does the same kind of customer Go with Cash to Big Bazaar and not pay online???
Check this quote:
"Cash on delivery is the most most inconvenient payment option. It allows customers too much time to change their mind." (K Vaitheeswaran, the founder of Indiaplaza.com)
Then why do all e-Commerce sites have Cash on Delivery options??
Real business vs a fake one?
Kishore Biyani gets it. He sells stuff. He is a businessman. He does 'Dhandha'. He is what I call in my North India, UP style, 'A bechoo aadmi' (a man who sells).
He does all these Big Bazaars and its Sales and repeats them because he has found a Real Business to cultivate and grow.
Now consider this 'shocking' quote from one of the e-Commerce business guys in the same ET article:
"As long as you have an investor who doesn't mind writing you a million dollar cheque every now and then, you will be fine", said Dhiraj Kacker, co-founder and chief executive at Canvera.com (a Bangalore-based online digital photography e-Commerce site, in which, venture capital firm, Draper Fisher Jurvetson has invested).
Fascinating!! So e-Commerce businesses are nothing but beach patios for VCs to have a party??
The real story:
My personal belief is that:
- Most e-Commerce businesses 'bribe' consumers to buy something by offering massive discounts, free deliveries and cash on deliveries.
They are playing Santa Claus for consumers, hoping that Christmas will last forever!
Well, Christmas does not last for more than a day.
- Consumers buying e-Commerce stuff are experimenting with a new 'toy'. They like being pampered and spoilt like this. Their real intent is unknown.
- If consumers would be asked to pay upfront for all their online buys, e-Commerce transactions in India would collapse by at least 80%.
Pooooof - Pufffff - there goes the dream e-Commerce bubble.
Keeping the Indian situation in mind, check out what really happens in the other markets (from the ET article):
"In developed Western markets, nearly 80% of online transactions are paid for by credit or debit cards, net banking and alternative online payment channels such as PayPal, according to a report by Nielsen. Only about 15% of deals were settled by cash on delivery."
Honestly, this is the stupidest, falsest Internet bubble I have ever seen!
Now, if Indian e-Commerce sites are serious to resurrect themselves and make Christmas last at least over the weekend, this is what they could do:
- Charge upfront and online for the delivery and courier charges. That would make sure that some original intent to purchase is genuine.
- Move to charging 25% to 50% of the total goods up front. This will make sure that the fakes are out.
- Share a list of common offenders between themselves, so that only one e-Com Company gets e-Conned!
To think of it, Indian e-Commerce is like a gang of Santas - running from house to house to deliver gifts. Only that, when they ring the bell, half of the people who open the door ask Santa to buzz off!!!!
Super, Duper, Super, Duper ^^^ 100 times thanks to Asha for editing the original post which I believe was an 'Editor's nightmare'!
It's true that COD transactions may not be profitable for eCommerce businesses but even the customer may have reasons for cancelling the order. Two of the reasons that immediately come to my mind are:
1. Late delivery (Suppose you ordered that exquisite watch to gift your girlfriend/boyfriend on her/his birthday and the delivery got delayed....you had to buy something else offline to make up for it....would you be interested in paying for that stuff now...NO!)
2. Wrong product ( I have heard instances from my friends where they ordered a pink bag online but what they got was a blue one...)
With no monetary binding, cancelling the order is a but obvious option for the customer.
Oh well, I can sum it up in 2 words "Instant Gratification"
If I can get what I want right now, i'd buy it right now. If what I ordered online takes a lot of lead time and I have not made a payment commitment, chances are I will buy it offline before it reaches me.
Solve lead time through local sourcing / agents and the 45 % rejection rate number should change.
One of the reasons why COD makes up a big % of sales at e-commerce sites is because of the high failure rate of netbanking / CC transactions. Instead of trying to solve the problem of unreliable transaction gateways, they end up giving prominence to the availability of COD. Unfortunately with the vast amount of VC money these guys have at their disposal, the mantra at all these places seems to be "Who's father, What goes" :)
The only reason of COD in e-commerce is the blind money of VCs or else there are many ways to control it, such as 1. charging a little amount eg. Rs 50/- online and rest on COD ... 2. A special incentives to pay via online ( it exists but only for few bank tie-ups) 3. Extra delivery charges for COD etc.... But as long as the money is not from promoters pocket, consumers will make maximum benefit of it :)
Hey, you know most of the facts in the articles are misguiding.
After discussing it with few people I found out that-
Absolutely true for IndiaPlaza...they even sell counterfeit. Others like indiatimes are also in same league...
@Alok you are right about bribing...unfortunately considering mindset of Indian consumer and pricing competition, companies rely to easier option (mostly copy from competitor). Very few really optimize operations or improve in service.
Like LetsBuy...They did start with massive discounts but they proved their mettle with really good service too. They will definitely survive. Others like TimTara and indiatimes, they are in category where "VC writes fat check..." They are enjoying that position..later one has huge set of eyeballs due to presence in multiple media channels.
People like Myntra, they have created and excellent site. Apparel and shoes are sensitive...return ration can be really very high...They survive bcos of 2 things. 1. Good site which gives detailed view about product. 2. They return in terms of myntra cash :) so its win-win for them...
Its surely a bubble..and its bound to burst with one of them closing down. ET article has fitted a big nail into this coffin.
COD is very harsh on seller as there is no commitment from the buyer. And where ever there is no commitment from the buyer returns or order cancellations do happen e.g. In free entry conferences the conversion between registration and attendence is less than 50%.
Secondly people would surely return dishes ordered in restaurants if they are allowed to do the same with no questions asked as in case of COD.
COD is postpaid and paying online is Prepaid model. Prepaid models are always better with less risk even in traditional business sense. To overcome the challenge of e-commerce websites we have launched a loyalty system which can be used by e-com retailers to build loyalty among their customer (Loyalty is missing to good extent from e-com space). Check mintm.com and give your feedback. We are looking to tie-up with any business which has "transactions" (online or offline).
Oh boy...I had exactly the same sentiment when I read that article...why have COD and if you are "compelled" to offer...charge some % upfront!
On another view...I guess the reason almost all e-comm stores are offering COD is because of less penetration of credit cards and/or less acceptance of using online banking for whatever reason.
I feel consolidation is the way to go...too many stores have cropped up in the last 12-15 months...
It means majority of e-commerce comapnies are fooling investors as they are offering what they know has 50% probability of getting realized.Indian consumers comes with a mind set ' chal order to karte hain, kya jaa raha hai, nahin mann hua to koi bahana bana denge aur nahin lenge, panga to lekar dekhte hai'
Immature mindset, which will continue to remain until they have nothing to loose.
COD is not for the faint hearted. Yes returns are in the range of 50% and sometimes even greater.
These are higher for phone purchases than online purchases where at least the buyer has made an effort to create an account.
eCom returns are lower than print and tv shopping returns.
Pure eCom returns would be in the range of 10% - 20% which are manageable.
I have spoken to several eCommerce companies in recent months on this topic.
I think this article and the conclusions drawn are exaggerated.
- Consumers are starting to understand about eCommerce and its value - there are, as in other industries, a few spammers, but more often than not, consumers don't buy goods and return them just for kicks. Misrepresentation of products and exaggeration of capabilities/quality is often the reason for the returns. Sites that sell high-quality goods have a far lower incidence of returns - numbers quoted to me were sub 10%, which is still high but far from 50%.
- The eCommerce companies often do a COD verification to minimize the risks - a company I started, ZipDial has specific tools to help automate the process in case any of you eCommerce guys are interested, check out ZipDial's website
- The industry at large has had to invest in educating customers - and some of this has required the "bribes". However we're already starting to see fewer goodies - eg. free shipping on Flipkart now requires a minimum of 300 rupees. Soon you will see a range of cookies to incentivize people to pay in advance and as payments methods evolve, perhaps the customer can pay 10% in advance as a non-refundable security deposit and the rest on delivery.
- Speed of shipping is definitely important - that's true in the real world too. If you go to a restaurant and order a dosa at 9am and they serve it at 5pm, you probably have gone elsewhere for breakfast (and lunch!) and will reject the dosa. eCommerce companies tell me that the return rate goes up by 10% for each day of delay - which is really why big guys are investing in their own logistics (cause they don't trust the existing guys to get it right)
- Customer SERVICE is King - those who realize it will get things right.
All in all, I don't think one should judge this early-stage industry with mature industries - yes there are issues, but over time they will settle down and there are signs this has already started happening.
It is neither easy nor cheap - but its premature to say it isn't viable.
Having said that - I will say one thing, there are significant entrepreneurial opportunities for anyone wanting to address these problems, and if you want to work on something exciting, drop me a note :)
Before I add a third commercial and get kicked off this message board by Alok, let me sign-off!