COD Reject: Whose Loss is this?

Want to buy an item. Indecisive whether buy it online or search it from retail store. Order the item through COD and reject the delivery. How easy it is. Gaurav Singh even transfer to their bank using COD hack.  (Link: https://www.quora.com/Laziness-Whats-the-laziest-thing-youve-ever-done/answer/Gaurav-Singh-55)

There must be some cost involved in every COD unsuccessful delivery. Someone has to bear the cost. Have you ever think who bears to cost of these COD rejects? Read this and think again.

COD (Cash on Delivery) plays most important role in development of Indian E-Commerce market. Here is an excellent article about it (Link: https://sokrati.com/blog/how-cash-on-delivery-fuelled-ecommerce-growth-in-india/).

Much has been written about it and I am not repeating all the merits and demerits of COD. All marketplaces and almost all shopping sites offer Cash on Delivery facility in India.

According to industry estimate, almost 40% of COD orders are not delivered either due to wrong address or customer refused delivery (Link: https://yourstory.com/2016/04/cod-kill-indian-e-commerce/).  The question is whose loss is this?

(Image Credit: yourstory.com)

Consider a scenario where a seller is selling an item at 500 INR (say a mobile cover) and offer free shipping on this item. Seller is a small player and selling on his own website or other channels like Facebook or WhatsApp.

Assumptions:

  • Seller got 40% of orders as prepaid and rest 60% as COD.
  • Return rate of prepaid orders is 5% which is almost equal to industry average.
  • Return rate of COD orders is 20% which is less than industry average.
  • Seller is earning a healthy 50 Rs margin on every order.

Cost of Delivering order in Cash on Delivery Mode

There are two cost involved in a COD package. One is courier charge and second is packing expenses. Courier charges anything in between 50 – 70 Rs to deliver all over India for a small parcel. Let us fix 60 Rs. on this head. They also charged 2% of the order value or 50 Rs. (Whichever in maximum as COD charges). Supposed our item is low-priced item and we assume 50 Rs spend on this.

Packing expenses depends on the size and type of product. For small products, it ranges between 10 – 30 Rs. Fix it at 20 per shipment. If we did not consider other costs like procurement, labour, rent etc, the total cost per shipment for a COD order ranges would be 140 Rs. (60+50+30).

If the seller asked you to pay 140 Rs as shipping charge, in most possible way, you cancel the order and close browser. So the seller subsumes shipping cost into the item value and offer you free shipping.

Who pays for it?

According to our assumption, for every 100 COD orders, 20 orders will return. Loss for each order is 140 Rs and the total loss for 20 orders would be 140 X 20 = 2800 Rs.

  • Total Earning in 80 successful COD deliveries = 80 X 50 = 4000 INR
  • Total loss in 20 unsuccessful COD shipments = 20 X 140 = 2800 INR
  • Total profit after completing 100 orders = 1200 INR (Which turns out to be 12 Rs per order)

The question is will the seller bears this loss or not. The seller wants to earn at least 50 Rs for every order.  Options are

  • Procure inferior quality product
  • Distribute these 2800 Rs to good successful 80 orders.

Most of the sellers who think long-term, does not want to ditch their buyers by supplying them inferior quality product. So they distribute 2800 Rs to these 80 genuine and serious buyers.  2800 divided by 80 turns out to be 35 Rs.  So in the given scenario, right pricing for this product must be 535.

So this is the genuine and serious buyer who pays 50 Rs extra for the sins of a non serious buyer. Ultimately, neither the seller, nor the marketplace is at loss. It is the loss of a genuine buyer. Due to non seriousness of 20% buyer, cost of their product exceeds almost 7%. If the product is a low-priced product, the percentage increase would be even higher.

So next time, when you order something, whether from a marketplace or from merchant’s own website, read all the specifications thoroughly and return only if the product does not meet specifications given on the website.

Also when ordering items through COD, please ensure that you will receive the item. This is you who pay for every unsuccessful COD delivery as a genuine buyer. And you are paying in excess of 10% to 100% sometimes due to these unsuccessful COD deliveries.

Featured Image Credit: https://www.jewelslane.com/cash-on-delivery

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