Why Cash on Delivery is Good for your Business (if handled properly)

CAsh on delivery

  • Despite having one of the highest broadband penetration rates in the world, eCommerce in the UAE has not met its potential, as it merely represents just over 2% of overall retail sales.
  • Widespread use of cash on delivery and customer’s changing their mind and cancelling orders if they haven’t paid in advance, are the most cited reasons behind lower than average successful delivery rates in the region. 
  • However, a close analysis of eCommerce data gives useful insights into customer mindset, which can help eCommerce companies handle cash on delivery more effectively.

eCommerce in the UAE is not as big as it should be when you take into account the fact that we have one of the highest broadband penetration rates in the world, coupled with a population that loves to shop. Combining these two factors should make online sales as a percentage of retail relatively high, on par with standards in Western Europe and the US. However, the UAE lags behind and e-commerce still represents a very small percentage of retail sales (>2%).

One of the many reasons that commentators cite as to why eCommerce is in its infancy in the region is the popularity of cash on delivery as a payment method and the very nature of its unreliability.  Lower than average “successful” delivery rates in the region, are usually blamed on the widespread use of cash on delivery as a payment option.   This is based on the belief that people are more likely to change their mind if they haven’t already paid for it.

Courier services usually charge the seller once a delivery attempt is made, whether or not it is successful.  When the seller is reliant on cash on delivery for these items, their costs can mount before their sale has even been finalized (and cash has been received). There also remains a risk of the customer changing their mind and cancelling the order.

But does the data support these views?

Hassan Al Sayegh analyzed all the shipments we carried out in the past few months analyzing more than 15,000 eCommerce deliveries. An analysis of these transactions shows that 77% of all orders were cash on delivery. This gives us a clear insight into the market here, and its appetite for COD. Although the use of credit cards is increasing, the uptake is quite slow.

Another valuable insight is that the average basket size for a cash on delivery order is almost 2.5 times that of a credit card order (a whopping AED 439 compared to AED 176). A possible explanation for this might be that people are less inhibited, more impulsive and tend to opt for more expensive items if they don’t have to pay for them upon check-out. The check-out experience is also significantly simpler for a cash on delivery order, with no credit card details needing to be inputted, increasing the successful conversion rate of a website visitor to a buyer.

Both these elements show the criticality of introducing COD solutions to your customers to truly leverage the e-commerce scene.

Successful delivery rate

The successful delivery rate for a cash on delivery order is significantly lower than that of a credit card order. On average, 99.5% of all credit card orders received by MENAVIP are delivered to the end customer, compared to 92.5% for a cash on delivery order. Our goal is to always try to increase successful delivery rate and have introduced multiple thread of actions including the following ones.

One way that has been trialed by a number of clients is to qualify all cash on delivery orders with a phone call to the customer. Only after this confirmation is obtained is the order dispatched to the courier. A further phone call from the courier (standard practice at MENAVIP) is then made to schedule the delivery and more importantly, confirm the cash on delivery amount. Combining these two best practices increase the chances of a successful delivery substantially. One client trialed this approach and found that it increased the chance of a successful delivery from 92.5% to 96%.

In order to succeed, an eCommerce player in the region must cater to the local market, and it’s very clear that the market prefers cash on delivery. If a supplier wants to sell online in the UAE and take full advantage of a world leading basket size, cash on delivery is a must. Although the risk of unsuccessful deliveries is higher, there are ways to mitigate this: by taking a proactive hands-on approach to securing your orders by interacting with the customer prior to dispatch. Also the gains pertaining to being able to reach out to 4x the potential customer database should largely outweigh the increment of the return rate, especially if the delivery (and return operations) are being performed transparently and with a fast turn over (quick pick up, bringing products back into inventory, tracking system…).

Imagining delivery operations with the same return rate for credit card as COD along with a fast turn-around on operations and cash collection is – I believe – the true enabler of e-commerce in the region for the years to come.

The article was is written by Idriss Al Rifai for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review
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