Cash on Delivery as a payment option, is it a blessing or a curse?
On the surface, Cash on Delivery is a payment option. From another angle, it is an incentive. Startups use it as a form of assurance mechanism that buyers get utmost value for their money. That is, customers have the luxury of physically assessing what they saw online and convince themselves that it is worth their money before paying. It is a popular escape route to making more sales. But, does it generate more profit?
The Jumia’s and Konga’s of the Nigerian e-commerce industry space, entice buyers with this option. They sure have more orders as a result but has it proven more profitable than pre-payment? Too many questions, too many issues surrounding this mechanism, but we will round up this post with what startups and SMEs can do to win the fatal war against business loss orchestrated by Cash on Delivery.
How profitable is cash on delivery?
From return rates recorded by the fore-runners of the concept in Nigeria, Cash On Delivery has not delivered the goods. With a little bit of research, you will have an idea of how e-commerce big brothers in Nigeria are getting more orders, but less sales. Startups who are using this concept are suffering seriously, the money bags are not enjoying it as well. Yet Cash on Delivery does not look like what is coming to an end anytime soon.
What makes Cash on Delivery an option?
At the top of the stack of reasons why buyers prefer cash on delivery is the fear of getting scammed. The trust in online payment is still considerably low.
Thus, most people still prefer to go with their doubt that it is safer to pay when their orders are in their hands.
Another ugly trend that encourages Cash On delivery in Nigeria’s e-commerce is the fact that sellers sometimes do not deliver on their promises. On many occasions, people have ordered for red stuffs but got blue delivered. Merchant have promised so much that they fail to deliver what was promised. This disappointment over time has created prejudice in buyers’ minds. When people order for items online in Nigeria, only few actually believe they will get exactly what they ordered for. It is either that the items look too nice online, lack some features stated in the description or they are not as up to date as claimed. Merchants have fallen many buyer’s hands in recent past. Thus, buyers don’t trust what they see on e-commerce websites.
Getting a substandard item is one problem that leads to another. When it happens that customers’ expectations have not been met and they have pre-paid for the item, getting refunds can mean going through hell.
Putting a cumbersome refund policy in place does not help matters here. Many businesses indulge in this to avoid returned orders as much as they can. But, if startups can focus on delivering the best quality items always, they can be sure only few people would want to return their orders.
It doesn’t encourage people to use pre-payment if to get back their money, they have to call frantically, send abusive emails or do bad reviews online.
Missing orders is prominent on this notorious list. A colleague told me last week of how one of our big e-commerce players shipped to her former place of residence. She has ordered a couple of times from that particular platform in the past and her information has been saved. But she updated her address before making this troublesome order. The order was confirmed with the new address but it was still shipped to where she had moved from a couple of months back.
Things like this happen often in the e-commerce system. I once took an order from a chef and was given another person’s order alongside mine without signing a thing. I knew the person who made the order and I knew he was expecting it. But, what if I took the order and claimed I didnt receive for him? Another issue would have crept up between my colleague and the chef.
What is the implication of cash on delivery on startups?
It has been a bitter-sweet experience so far with as many business owners that I have spoken with. There is so much risk involved in Cash on Delivery. For flimsy reasons, customers return orders which accumulate into huge losses. Apart from the high return rate, the cost of running the mechanism is counter-productive. When an order is processed, the startups remove such orders from inventory, but has no record of fund for it. How to replace the item is not certain yet until payment is received.
How can startups sell more without Cash on Delivery?
Having identified reasons why buyers choose cash on delivery over pre-payment, resolving those problems can actually encourage more people to pay online when they order.
Fear of fraud: using this medium and some other, VoguePay has been educating audience on security of online payment.
Startups and small business owners should collaborate with payment processors to enlighten internet users on how much security has been achieved in online payment in Nigeria of today.
Of recent, we published a post on How to Avoid Online Payment Fraud. The response was awesome. This shows that buyers want to know more about how to make secure payment. Customers need some assurance that their payment details are safe.
Delivering sub-standard item: startups and merchants should try as hard as possible to make good on their promises. “Integrity is expensive, you don’t get it from cheap people”.
Substandard items: Word-of-mouth is still ahead of all other marketing techniques, whether online or traditional.
What people say about your brand matters. Delivering products or services that are short of expectation scores you a very bad rep.
Startups should take their time and put in all the hard work required to always deliver above customer’s expectation. The more credible a brand becomes, the easier such brand finds it to encourage to pay online.
Refund process: no matter how smart your team is, system failure happens. It is given. It is the recovery process that makes the difference. Startups should educate their customer service reps to be careful with complaints relating to refund. It will do a lot of help if customers are actually treated as kings they are, especially when they have been hurt by your system.
Startups should review their refund policies. When customers are sure of a friendly refund process, they find it easy to make pre-payment for whatever they want to buy. Cumbersome refund process is frustrating. Businesses can encourage pre-payment by being more flexible and understanding with returning customers’ money when are problems.
Much as quality is not being compromised, discounts, deals, limited offers can be attached to pre-payment to make it more fascinating. We all love to cut cost when we have the opportunity to do so. Free delivery can also motivate some buyers. Knowing that they won’t pay for delivery if they buy certain amount with their cards online, will ginger them to choose pre-payment.
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