Cash on Delivery (COD): A Double-Edged Sword for D2C Brands
Customer satisfaction is a critical thing in the modern-day ecommerce market. This has become more important for direct-to-consumer brands in India. This is because they depend on fulfilling the customer needs to ensure high conversions & year-on-year growth.
One of the most popular demands from Indian consumers is the option to pay using the Cash on Delivery option on the online store. While COD has its advantages, like it helps in building trust and expanding reach, it also comes with some sort of challenges from a business owner’s perspective.
In this article, we’ll explore:
Why do customers prefer COD?
How does providing COD help brands scale in the long run?
The disadvantages of COD for D2C businesses and strategies to handle them properly.
Why Do Customers Prefer Cash on Delivery?
COD remains a preferred payment method in India Tier 2, 3, and beyond cities even in 2024. This is largely due to limited digital payment adoption and the higher contribution of these regions to overall sales. Several factors drive this preference:
Trust Issues: Many shoppers hesitate to make online payments due to concerns about fraud or poor experiences with unknown eCommerce brands. COD allows them to build trust with a brand before switching to prepaid payments.
Product Quality Concerns: Shoppers worry about receiving damaged products or late deliveries. COD gives them the option to inspect, reject, or return products on the spot without financial loss.
Online Fraud: COD protects customers from potential fraud as they don’t need to share sensitive financial information.
Lack of Digital Access: In Tier 3 and beyond cities, 41.5% of eCommerce orders rely on COD due to low digital penetration and limited access to online payment methods.
How Does COD Benefit D2C Brands?
Despite the operational challenges, COD offers distinct advantages for D2C brands:
1. Building Customer TrustÂ
By offering COD, brands demonstrate an understanding of customer hesitation and prioritize fulfilling orders over immediate payments. This improves the overall customer confidence and loyalty towards a particular ecommerce company.
2. Security for Customers
COD reassures shoppers that their payments are safe and only made after receiving the product. Partnering with secure payment platforms further enhances this trust.
3. Expanding ReachÂ
COD helps brands cater to areas with limited digital payment infrastructure, unlocking new markets and reaching untapped customer bases.
4. Increased Revenue OpportunitiesÂ
Offering COD can lead to:
Higher revenue by attracting more customers.
Brand awareness in regions competitors are yet to explore.
Greater loyalty from customers who feel the brand is accessible to them.
Example: Lenskart offers COD across 26,000 pin codes in India, helping them make eyewear accessible to a diverse audience.
The Disadvantages of COD for D2C Brands
1. Risk of LossesÂ
COD makes businesses vulnerable to Return-to-Origin (RTO) incidents when customers cancel or reject orders at delivery. Each RTO incurs:
Forward and reverse logistics costs.
Operational costs for processing orders.
Packaging and quality check expenses.
Increased risk of product damage.
2. High Logistics Costs
Multiple delivery attempts due to customer unavailability lead to higher logistics costs, including fuel expenses and delivery time.3. Restricted Cash FlowÂ
COD payments delay revenue collection, creating cash flow challenges for businesses relying on immediate capital for operational expenses.
4. Cash Management IssuesÂ
Managing cash collected by logistics partners and reconciling it with delivery records is tedious and costly, especially for businesses handling high COD volumes.
