By Saahil Goel
Indian e-commerce is a strange mix of the new and the familiar. Spurred on by increasing internet access and smartphone penetration, industry estimates suggest that over 200 million Indians will be digital buyers by the end of 2018. A prosperous new ecosystem of e-commerce platforms, digital payment providers, and online marketing channels is driving e-commerce to grow to USD 200 billion in gross merchandising volume by 2026, according to research conducted by Morgan Stanley.
Long tail commerce and COD
What hasn’t changed are the entities engaged in selling to India’s newly-forged digital natives. A vast number of Indian SMBs have become online sellers, looking to unlock more sales by using e-commerce platforms. These online sellers lack the resources or the capacity to engage in mass production and rely on offering a large number of niche products – a sales strategy which is known as long tail commerce. This helps these businesses keep inventory costs relatively low, which is extremely important as they tend to lack deep pockets. However, this business model relies upon strong e-commerce platforms providing these businesses access to customers, which results in SMBs becoming very dependent upon them.
Another familiar aspect of Indian e-commerce emerges from these large platforms and their embrace of Cash on Delivery (COD). It was the adoption of Cash on Delivery by Flipkart in 2010 that helped online shopping make its initial mark in the country, and all major platforms today continue to enable such transactions. This is because a large number of Indian consumers, especially from Tier 2 and Tier 3 cities, still mistrust online payments and the unknown businesses they are transacting with. This is why, even one and a half years after demonetisation, market estimates suggest that 50-60% of all e-commerce transactions continue to be paid for using COD.
COD and the dreaded Return to Origin (RTO)
While COD is convenient for Indian customers placing impulse orders or for those who still harbour mistrust for pre-payments, it leaves online sellers vulnerable to losing money and orders due to RTOs, i.e., orders that are returned to the seller. What this results in is a scenario where the SMB engaged in online retail loses a sale and additionally has to cover the cost of delivery and return even as the product is stuck in transit for an extended period of time. While this would be harmful enough in the ordinary course of affairs, for a small seller who can hardly afford such costs, it becomes even more difficult to absorb costs of order cancellation in the case of COD.
RTOs can occur for many reasons, but are just more likely to happen in instances where the buyer has nothing to lose. This is the case in COD transactions, when there is no pre-payment or obligation to receive a package. Buyers make themselves unavailable since they have nothing to lose or have changed their mind about buying the good. As the buyer is not already invested in the transaction and the logistics companies profit from such RTOs, the only loser in this event is the SMB seller. This isn’t limited to transactions initiated on e-commerce platforms – even as SMBs expand to selling through Facebook, Instagram, or WhatsApp, they continue to be vulnerable to the RTO bane. The RTO problem is worsened by the fact that industry estimates peg the use of the RTO mechanism as the source of 30% of all frauds perpetrated against businesses in the e-commerce ecosystem.
With a vast majority of sellers finding it hard to run their businesses while absorbing such costs, it is important for Indian e-commerce as a whole to solve the issue of RTO to improve seller profitability and business health.
Reasons for and solutions to the RTO issue
Ordinarily, resolving a problem requires studying it to identify the key variables that are causing the trouble. However, even where the RTO variables involved are charted out, there is often no single causative agent that definitively leads to an RTO. In some instances, there will be an error in the address; in others, the intended recipient will just not be available at the location or on their phone number. The complex and varied nature of the different variables make being prepared for RTOs or preventing them impossible.
This is because no human being has the control or ability to influence all the different variables. Even if the e-commerce platform takes due care in collecting addresses and trying to correct errors, no one knows all the addresses in the country; some incorrect ones are bound to slip through. Repeated phone calls to verify information and confirm the address would help, but customers might be at work or unable to take phone calls regardless of how careful the SMB is. Essentially, taking these variables one by one and attempting to engage with them won’t work. Resolving this problem and predicting which transaction will result in an RTO and which ones won’t, will require superhuman data-parsing abilities.
That’s where Artificial Intelligence comes in. These systems can track such variables like time of order placing, buyer’s city tier, geographical zone, order value, marketing channel of order acquisition, address, character length, availability of additional information like house number and street numbers, product category etc. to recognize the latent patterns in this information. This helps the system generate and project delivery outcomes and predict the RTO probability of individual orders. By highlighting the potential causes and the probability of an RTO, small businesses can be better prepared. If the address has a high probability of error, the address needs to be double-checked and confirmed. If the buyer has a history of disappearing, the seller can opt to cancel the order. Simply by being aware beforehand, these SMBs can act to prevent the unnecessary loss caused by a possible RTO.
SMBs and online sellers engaged in e-commerce can access these systems from startup companies that cater to this market segment. Through these cutting-edge technologies, India’s SMBs stressed by RTOs can get much-needed relief from the threat and waste caused and participate more greatly in India’s booming e-commerce sector.
Saahil Goel is CEO & Founder, Kraftly.