The number of e-commerce users in India has seen a 75.6 percent growth in 2011, as compared to that in 2010; while the non-travel e-commerce sites have seen a growth of 123 percent, thanks to the 65 million (and growing) internet users in India in 2011. Though ecommerce caught on with U.S. and UK economy reaping huge profits, India was slow to realize the potential of ecommerce. The sites in India sold electronic items and small products which were unavailable in the local markets, but they had a tough time getting across the Indian psyche. The major reasons were that Indian customers were still not ready to trust the products sold online owing to a lot of cyber scams, the touch-and-feel element was missing, and the customers were just not comfortable with the idea of buying a product online.
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The Indian customers were used to examine a product before buying it, which was missing in the ecommerce model and they were unable to trust an unknown retailer. Adding the fact that buying online means paying online, which was a big no due to lack of trust and confidence in the security of the transaction.
Thus, the ecommerce companies in India came with the idea of using the cash on delivery model, which ensured that the customer pays for the product only after seeing it. The cash on delivery model helps e-commerce companies to expand their audience beyond those who owned credit or debit cards. Now the ecommerce sites are selling products ranging from gadgets to clothes, and offer pre-booking of products.
COD has become a big hit with the Indian markets with sites like Flipkart, Home Shop 18, Letsbuy.com, and many more adopting the cash on delivery model. The success of COD model can also be attributed to the fact that majority of the Indian consumers are yet not exposed to the plastic money. In the U.S., payment by cards is the most preferred method, whereas in India there are only 8-9 million unique credit card users.
The model has helped a lot of traditional consumers turn to online shopping. It has helped build trust as they have their own apprehensions about the online transactions, and cash on delivery helped bring them closer to the traditional models of purchase. 40-60 percent of Indian customers order through cash on delivery even if they own a credit or a debit card.
Co-Founder and Director of FashionkaFatka says, “The Indian customer feels more secure buying products by paying cash, rather than through cards. Even if they have a credit or a debit card, they prefer to make their first purchase through cash to ensure the reliability of the company. Majority of the youngsters in India still depend on pocket money, so cash on delivery is a good option as it helps them use the excess cash. The cash on delivery model helps to retain the touch and feel, which is one of the most important components while buying a product.”
Like FashionkaFatka , Flipkart, the Bangalore-based ecommerce company, has a growth rate of 100 percent every quarter, and 60 percent of all its orders are cash or card on delivery. Many other ecommerce companies have about 40-50 percent of their transactions via the cash on delivery pattern.
While, the COD model is helping the ecommerce companies to grow, it has its flip side too. The e-commerce companies have to increase their working capital. Many customers change their mind on getting the products and send them back. Also the payment gets delayed due to the time taken in the delivery of the products.
The return rate is high in case of new customers but pretty low in case of repeat buys. It all depends on the kind of product the company is selling.
The ecommerce startups are getting higher valuations than the companies in any other sector and are attracting a lot of venture capital funds. The ecommerce companies have attracted over $200 million since January, which is an indication that the VCs see a lot of growth potential in the India e-commerce companies.
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