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5 lessons that Domino’s can teach Food – Tech Companies!

So, this was my first contribution to The Strategist of the Business Standard.

The complete article appears after the image :

Cash on delivery has been identified as one of the culprits responsible for the troubles of e-commerce establishments. Food Tech seems to be the new Gabbar Singh in town!

But the experience of Domino’s Pizza shows why this line of argument is all wrong!

I have been reading the horror stories about how the cash on delivery model of payment touted by the e-commerce companies in India is the root of all their troubles and may ultimately lead to their ruin. It is almost funny how one of the most innovative ideas of our time is getting blamed for the things it is not really responsible for.

I would say cash on delivery is actually one of the best things that has happened in e-commerce, or for that any form of commerce. Here is why:

I just flipped through the 2011 balance sheet of the publicly listed company that operates Dominos India and was amazed to note some jaw dropping statistics.

– This company shipped about 3.7 crore pizzas in the year, equaling to 1 lakh pizzas sold per day.

– The pizzas sold for a total of Rs 600 crore, translating into an average price of Rs 162 per pizza.

– The business operated via 380 stores in 90 cities; that is, approximately four stores per city.

– Each store sold approximately 1 lakh pizzas a year or about 300 pizzas a day. That’s about 25 pizzas an hour.

– The company recorded a net profit of Rs 90 crore. This equals to Rs 25 per pizza or a 15 per cent margin on the sale price.

I think this is awesome, considering that this business is entirely managed as a cash-on-delivery business. Also, if you review the size and scale of the operations they have, it resembles any gigantic e-commerce business.

So how can anyone blame cash on delivery as the culprit that ruined a business?

Actually, the pizza business in India teaches five important lessons to those who intend to execute the cash on delivery business model.

1. Cash is guaranteed when collected from home:

No one can run away from home. There is a Marwari saying that “If you run away with my money, I will come to your house to collect it.”

Imagine people giving you their home addresses to deliver and collect money. Can you get any more upfront? I doubt if anyone would like to rescind on a pre-placed order and kick up a fight in front of their neighbours over a small amount.

Lesson: getting called home is an assurance of getting paid. Leverage it.

2.  Personal sales provide the best reference check:

In the weary world of business, people are unreliable. Companies are even worse. Who can fight a big legal battle with corporations whose karma has clogged up the Mithi river (a river in Mumbai that infamously gets clogged and
causes floods)?

Now cash on delivery is a foolproof method of establishing creditworthiness.

Once your name and home address is in the system, the seller quickly establishes if you have ever defaulted on your payment. If you have played truant, then you will not be supplied the pizza or the shoe you ordered. That’s too bad because it’s not easy to change your name or the place you live in at the drop of a hat.

Lesson: use cash on delivery as a means to establish creditworthiness. And when the market is ready, cross-sell that creditworthiness across business verticals so that it becomes a win-win.

3. Use cash on delivery to check ‘Intent’:

Consider the pizza sales again:

If 3.7 crore pizzas were sold just by one company, it’s very generous to say that at least 2 crore unique households in India bought a pizza (2 million crore x 2 pizzas = 4 crore pizzas per year).

Now, those who buy pizza in India are typically e-shoppers.

The numbers state that e-shoppers represent about 1 crore in India. And this is the same affluent, upwardly mobile community that can afford pizzas and printers delivered at their doorstep.

So while none of these households return a pizza that has been ordered, why do a staggering 45 per cent (according to a recent media report) of the same set of households refuse to take delivery of online goods purchased, when the courier reaches them?

If you do not return one out of two pizzas you buy, why would you return one out of two books you have e-ordered?

Lesson: New businesses using the cash on delivery model may want to collect small token amounts in advance to check ‘the intent’ of these happy-to-reject customers to ensure they pay up.

4. The 30-minute curfew works for pizzas, not for books:

If I am hungry and want to eat, it makes sense to promise me a pizza in 30 minutes or a free pizza if the deadline is not met.

But I ask, what is the urgency to ship a book with the same demonic speed while executing a book delivery? Will it matter if the book reaches me in a few days and not minutes? And hey, if I am so ‘hungry’ to read my newly ordered book, then ask me to pay double the regular charges for ‘instant delivery’!

Lesson: New businesses relying on cash on delivery need to step back and ask themselves if they can spend less money on speedy delivery.

5. Cross-sell and cross-sell like crazy:

I am sure at one time or the other, we have indulged ourselves with those sinful garlic bread sticks and dipped them in that irresistible co-conspirator, the ‘cheesy dip’ that comes along. Coke and pizza get along famously and hence ordering a bottle of coke is logical when you order a pizza.

Another example. Haven’t we all seen those mini shampoo and moisturizer sachets embedded in women’s magazines? Or that perfume strip we carefully peel off and inhale as if it was pure ozone?

The point is that with every package delivered to someone’s house, there is a great opportunity to cross-sell domestic products which the same set of consumers could be encouraged and let me add, delighted to sample.

In the case of e-commerce companies, this is not a goldmine kind of opportunity; it’s a veritable diamond mine. Cross-selling and delivering samples do not cost anything extra in deliveries (the same courier boy achieves both jobs); rather it can easily change the fortunes of the fledgling e-commerce companies who say they lose money when they execute cash on delivery!

Given the myriad kinds of goods e-commerce companies ship out (books, electronics and home appliances), even a failed direct marketing student can build a simple ‘ASL’ or age–sex–location business model offering outside brands to ride on the e-commerce deliveries headed to consumers.

For example, if a microwave is headed for Mrs Sharma in Noida, the package can surely contain packs of free popcorn and ready-to-drink soups sponsored by other brands that would happily pay to reach their target audience directly.

Let me add, Mrs Sharma will bless you.

This is why desserts and appetizers bundled with pizza deliveries work so well.

Lesson: allow partner brands to piggyback on the cash on delivery transaction. Extract money from them for home delivering to their target audiences. Even cross-sell that extra as a surprise for the buyers.

Cash on delivery must be examined as a business opportunity rather than a titanic blunder. There are very few businesses in the world that actually invite brands and companies within the sacred portals of their homes. Leveraging what is not easy but can be highly profitable.

So if you want to master the cash on delivery model for your business, then maybe you should start by getting onto a pizza diet.

 

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Link to the article on The Strategist

 

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First Published on: Sep 10, 2012

 

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27 Comments

  1. Profile photo of asha chaudhry

    so now like socks stories, we could have pizza stories…?!

    many congrats!

  2. Profile photo of Anurag Rastogi

    A good differentiator could be to deliver faster on upfront payment and deliver slower on CoD

  3. Profile photo of Aditya Babbar

    Okay so I still maintain that you are the Devil which one’s grandmother warned you about.
    And I say this with utmost respect for kicking the COD-naysayers in the GUT.

    I need to sit down with you and get a relearn of how to think absolutely ULTA !

  4. Profile photo of Gurpreet Singh Tikku

    I am Sitting in Gurgaon abhi and can sense the Hush and the Rush going on in e-Commerece Portal office to replicate the model you have touched upon.

  5. Profile photo of Mitesh Muley

    So very true about cash on delivery model

  6. Profile photo of Amit Mishra

    Two things which I can relate to the story are

    • When Dominos initially started their online ordering service they didn’t offered COD for it but they did offered 20% on purchases made online. For first couple of times, because I was getting a good deal I didn’t mind paying online too.  I certainly preferred CoD afterwards as getting money back for a late delivery may be a problem.

    Offering something to the customer which he cannot miss can also get more purchases on the site. For example, EMI options on Flipkart.. That can be important for a lot of people.

    • I recently went to Delhi book fair and bought a book from a local publisher,a book which is hard to find at the local store. The thing I noticed after reaching home was that they have also put a complete book comprising of all the books they have to offer, I am certainly going to buy a couple of more books.

    If you are a company dealing into things which does not have much competition but comparatively good market, it makes sense to upsell additional things or share some suggestions with the customer to keep in mind for future.

  7. Profile photo of Girish Bhaskar NK

    Good thing about COD is it seems to be evolving. Having in house delivery is the biggest plus.

    Check out this new evolution of COD used by Yebhi of Try and Buy – http://www.yebhi.com/175088/PD/Adidas-Men-Shoes-ORIGINATE-G-48087.htm

    P.S. I’ve not used Yebhi before and dont know abt their service. Checked this feature out of curiosity and tht it was relevent to this post.

  8. Profile photo of Alok Rodinhood Kejriwal

    and i have replied:

    Ashish,

    1. With all due respect, what you may think is ‘frivolous’ purchasing in e-commerce may not apply for everyone.

    For example, I buy the book ‘The Autobiography of a Yogi’ each month from Flipkart to give away before my Rodinhood Open houses. I usually gift 35-50 books per session.

    Last time Flipkart failed to deliver last moment and that really hurt me. Today again they have ditched just before my Bangalore meeting.

    The same applies for so many items that people buy (I assume people buy things they need badly!!) irrespective of food or not. Tomorrow you will say that a PC ordered for an office or a laptop ordered for a Sales person is not ‘effing urgent’!!

    2. This ‘DOC’ or ‘COD’ makes little sense to me. Its cash against purchase. Age old barter.

    3. The end of your post ‘But comparing Dominos CoD model to Ecommerce CoD model isn’t the best thing to do. Unless..’ is not understood by me. I am used to writing and reading complete sentences.

     

    4. Finally some extra links on your post as a retort to my post (linking articles on CRM etc)  is confusing. I don’t understand the view when you say ‘As far as Alok’s other points are concerned, that’s the basic CRM that ecommerce needs to build’ !

    So, does that mean that in the end I was right!?

     

    Ashish – something’s missing in this post of yours. Its a knee jerk, weird ramble, that I have never seen you write before.

     

    Anyways, respect and thank you for giving my article the attention you did!

     

    Alok

  9. Profile photo of Anirudh B Balotiaa

    Frankly I have never understood how people order as COD and then turn back the order at the time of delivery. I can never do that, not even for fun. Anyways…

    Amazon has mastered the art of providing various shipping options and generating good amount of revenue. It is time for e-commerce companies to offer various shipping modes too.

    As Alok mentioned, whether a book comes in 2 days or 3 does it really matter. It does matter as Alok mentioned when he needed the book to be given and it didn’t come but this is an issue which can really be solved if one orders a bit in advance so as to not take chances. Since we are used to Flipkart’s speedy deliveries we tend to order at the end moment and expecting it will still come.

    But to my limited knowledge, it may not be right to compare why COD works for dominos and why it will work for e-commerce companies. Why would anyone order food and return it when it comes?

    Another fantastic way is blacklisting, which i didnt knew Dominos actually does?

    Same can be applied to e-commerce also…if one returns COD without any reason, blacklist it. How to remove blacklist…let them pay a deposit of some sort and on any return let them deduct something…I dont know …just thinking it loud. 

  10. Profile photo of Radhakrishnan Menon

    Sir if you observe the system adopted by Domino’s at the time of accepting and confirming the pizza order I suppose your view point will change.

    Accepting the fact as stated by your write that Domino sold 3.7 crore units of pizza via their 380 stores in 90 cities we have to understand one major point – a very huge percentage of this figure comes by telephonic booking or ordering. 

    A certain percentage of this figure also belongs to walk in guests. 

    Rest I would allocate to ordering via Domino’s website.

    Therefore once a order for a pizza is placed telephonically on their toll free number this is cross checked telephonically by the nearest Domino outlet (located by the pin code provided) once again.  

    Sometimes this cross verification is done more than one time.  

    Just by adopting this they have totally eliminated the issues of order returns & cancellations.

    So I disagree to your statement that those who buy pizza is a e-shopper.

    At the most you may brand him as a telephonic shopper.

    Now coming to the issue of 1 crore   e-shoppers in India and why does all other items ordered via net has a very high rate of return.

    Yes it is true that it’s the upward mobile community which is indulging in e-shopping.

    But within this group there is a diverse set of people doing e-shopping.  Many of them are not your regular e-shoppers. 

    That’s first observation. 

    Next comes the fact that many a times it happens that being working class people and with no at home the courier is returned. 

    Now it’s the word of the courier boy that’s to be trusted and taken. 

    And sometimes a person may have ordered the stuff but when the deliveries come they might not be having the money to pay for it. 

    Sometimes an item might be ordered and then a rethink takes place and it is returned back.

    And principal point to be noted and observed is that 90% of the e-commerce sites do not have a cross checking facility.

    Once you place the order via net then an order confirmation link is send to the provided email id and once that link is clicked the order is assumed to be confirmed. No cross checking is done.

    If all the order confirmation is done by emails then you are keeping the door open for all kinds of pranks.

    Just imagine how much time will I need to create a email id in your name from a free mail service provider and place a order for any item on any e-commerce site.

    10 minutes at the most.

    I also place an order worth something and item is shipped to you. Then what happens?

    Tying to save on cost and not putting in place a cross verification system is what is making the issue of returns very high as far as CODs is concerned.

    This is not there in debit or credit card purchases.

    When you are playing to nation wide market it would be advisable to put in place a cross verification systems for all kinds of orders placed..

    With cost of phone calls being so low telephonic cross verification is a must.

    This is where Domino’s has a very very very low rate of return.

    Most important point to note is the spread of time between ordering and delivery in case of Domino’s.

    Just 30 minutes.

    No scope to do a drastic rethinking to the point of order cancellation.

    That’s why they say “ hungry kya ?” with a smile.

    Further adding a few more lines. I use http://www.flipkart.com often to order books. But till date flipkart has never done a cross verification as mentioned above.

    But when I tried to place an order with http://www.arome.in I got a phone call and they talked with me in detail and explained how the shipment will be executed.

    What is placed herein is my personal experience as a consumer.

    Sir these are some few point which just ran through my mind when I read your fantastic write.

    I am sorry I was not able to put them in a order just because I had a fear I might forget something.

    Thanks a lot in advance for reading my observations.

    Regards

    RK Menon

  11. Profile photo of Vinay Chhoda

    What if ecommerce sites incentivise the customer on checkout to pay upfront rather than opting for COD? Let’s say just before checkout, the user sees a page which tells him that if he changes his payment method from COD to credit card or net banking, he instantly gets an additional 2-5 percent discount on the product.

    Wouldn’t this be a win win for both – customer feels like he just got an even better deal and the ecommerce site gets the money upfront…

    Disclaimer – I’m just a finance guy with tech kidaas running in my veins 🙂

  12. Profile photo of Amit Lakhotia

    Alok

    Thanks for the informative article. Didn’t knew that dominoes were present in 90 cities across country and were doing such a huge amount of business in the country. I have been ordering dominoes on phone for last 4-5 years and these guys have continued to wow me with their delivery timelines.

    Having said this, I wanted to point out some facts which I have seen in the e-commerce space

    1. The return rates of goods for sites like flipkart, urban touch etc is less than 15%. They ensure this by keeping a track of multiple factors- allowing the customer to track the shipment status online/on sms, calling the customer before the delivery, supporting payments on credit card too at delivery point, honouring the delivery timelines and most importantly, delivering the exact item which was promised

    2. The difference in variety between dominoes and any e-com store is huge. While dominoes would be having less than 25-30 SKUs, any typical e-com store would be having an assortment of more than 10000 SKUs. Hence, chances of order rejections are much higher. A lot of these items like apparel, shoes etc are touch and feel items and hence the chances of customer rejecting them due to mismatch(size, color etc) between the expected item vs the delivered item.

    3. While dominoes deliver in 90 cities, e-com sites deliver in far bigger number of locations (even in tier-II and tier-III cities).

    4. Dominoes have been building their ‘blacklisted’ database over a period of time and they would have a better history of their customers. Most of the e-com stores have started scaling only in last 1-2 years and probably would take another 1-2 years to attain similar kind of maturity as dominoes have

    4. The delivery timeline of dominoes is around 30 mins, while for most of online stores it is >24 hours. The higher time frame means there is higher probability of users cancelling the order due to change in thoughts (better discount somewhere else etc).

    Meanwhile, it would be interesting to know what is the return rate of dominoes today and how it has moved over the time since they started. If someone has that kind of data, please share

    Regards

    Amit

  13. Profile photo of Pulkit Kumar

    If 3.7 crore pizzas were sold just by one company, it’s very generous to say that at least 2 crore unique households in India bought a pizza (2 million x 2 pizzas = 4 crore pizzas per year).

     

    2 million x 2 pizzas = 40 lakh, NOT 4 CRORE.

  14. Profile photo of Alok Rodinhood Kejriwal

    hahaha – thanks for the maths correction.

    It should read 2 crores homes * 2 pizzas each =  4 crore pizzas

    The line BEFORE though reads “it’s very generous to say that at least 2 crore unique households in India bought a pizza”

    thanks!

  15. Profile photo of Jenifer

    as i understand as a layman

    the COD model works for dominos coz their own personnel deliver and collect money. As i understand from some of them if the payment is not made due to delay the money is deducted from their wages (they could be giving us a fake sob story — u never know ) but nonetheless this means that they have a stake in collecting that money

    … … compare that with e-commerce where a delivery/logistic service collects dues. The best they do is that they won’t release an item without compensation. They neither push sales nor would cross sell. Hence the company suffers delivery cost .. two ways. 

    as for direct cross sell from e-coms, it happens all the time … remember those recommendations for books u may like 🙂

  16. Profile photo of Deepak Mittal

    My simple questions :

    Is the delivery mode different in COD in comparison to delivery when the goods were prepaid? Ofcourse it will be costly because the logistics company is handling the cash and is accountable for it once received, is there anything else which is different in COD delivery vs. a prepaid delivery?

    Perhaps the only challenge in COD is that the goods need to be delivered at an address when the buyer (or the payer) is available. This needs to be better coordinated over phone at various stages of delivery in the shipment chain.

    OR

    is it the case that the customer declines to take the delivery because he changed his mind when it finally arrives?

    What are the stats or where is the real problem?

  17. Profile photo of Rabi Gupta

    You are right in saying that COD can not be blamed (alone) for the losses which these E-Com companies make. However I would like to say two things here-

    • Today’s Ecom companies want to sell anything and everything which makes the inventory costs very high. Dominos can have 4 stores in a city but they all sell only 2-3 products (in different variety) which is so doable for a fast food chain. So that analogy might not hold true here.
    • Having said that there is a great lesson too- Why sell anything and everything? Sell only one thing and have 4 inventories in every city which is manageable. Learn from Dominos or better from Zappos.
  18. Profile photo of Suresh Keswani

    I fully agree. The households are more reliable than the business people. I have bitter experience with online portals who in the name of offering discounts fleece the customers with their hard earned money. I had to take the help of a Rodinhood to get back my Rs 16000/- which the company took as advance for TV and returned the money after lot of correspondence to return the money. Another company fleeced with Rs 1200/- and never returned my payment. It was a failed payment as per the online company but money is debited to my credit card. I never will ever shop online with payment in advance. I like the idea of COD.
    Thanks for the article. I wish this should be highlighted to the online shoppers.

  19. Profile photo of Sridhar V

    The points on how COD can be leveraged effectively are definitely valid and must be explored. Thanks Alok for sharing these insights.

    The idea of checking the intent with token payment is a good check. Also the idea of using the customer network to advertise or promote other products is a wonderful idea. In some countries abroad promotional mailers or flyers are still being used along with shipping. We can even find that in credit card bills, bank statements, magazine subscriptions, etc. This way the COD customers become a captive audience for other products or advertisers to reach out.

  20. Profile photo of Sagar Mitkary

    Amazing observations!…. this should definitely work for COD model !

  21. Profile photo of Nitish Mehta

    Company Providing COD sucks ..!! I have ordered 3 time in COD and all 3 they have disappointed me . which include once not even getting it ..!! 

  22. Profile photo of Aparna

    As much as Cash on Delivery is being tossed for the e-commerce bubble , the real black sheep here is trial and money back guarantee.

    Dominos wins here in COD because customer has already made a choice to buy pizza.

    Where as in e-commerce, it is not so, Customer still has a choice to buy or not buy.

  23. Profile photo of Ashish Parik

    Dear Alok Sir and other Contributors of the post,

    Thanks a lot. It has been proved that “digging” pays. I was searching for something worth reading on e-commerce and came across this post. I am a new comer in the “E-commerce” segment and today only i shared few of my thoughts on trhs.

    We were thinking and planning about cross sells like giving pizza or soft drink free with Cake. Your post and the comments by other colleagues on this forum has given me many insights of the industry. Thanks to everybody for sharing on this post. 

    My take from the post:

    COD and E-commerce helps in growing business, if used with proper checks. Cross selling helps in multiplying sells. 

  24. Profile photo of Jitendra Gursingh

    Sir I agree that this is the best example of COD efficiency in India. However, apart from becoming an established COD player, Dominos is also in some sense, a logistics company with their own delivery people. That, I feel is the main problem with COD. For most Ecommerce companies, a third party is collecting the payments & delivering the goods. Also, each Domino franchisee is hyper-local, whereas an e commerce firm is spread as wide as the logistics firm they have tied up with. It would not be correct to compare both models. My humble $.02

  25. Profile photo of Suman Dash

    As a E-Commerce Startup and one which does give out COD service, we feel that its the best thing that has happened to us. Customers rely much more now and are ready to spend more. 
    60-70% of our sales happen by CODs are we also encourage our customers to use the facility as it comes out to be cheaper than the Shipping Charges+ Payment Gateway charges.

  26. Profile photo of Kunal Arora

    what are some creative ways in which 2 way delivery can be optimized! like in case of laundry where the delivery boy has to first pick up the clothes and then have to return in the next day!

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