Today in Tedium: For reasons clear to basically every home consumer in the U.S. who purchases products in 2020, we tend to pay for the things we buy ahead of time, with the goal of having a simple delivery process. As any Amazon Prime user will tell you, it just works. And while there are some rare exceptions—food comes to mind, though that’s changing—in North America, people just accept the goods, pay for them ahead of time, and return them later if they need to. But there was a time where this was a very common model for paying for goods in these parts—or not paying, if they weren’t up to your standards. Today’s Tedium talks about the rise, fall, re-emergence, and possible re-fall of the C.O.D. model. — Ernie @ Tedium
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“Quick: What does ‘C.O.D.’ stand for? Cash On Delivery? Or Collect On Delivery? If the answer is not ‘Both,’ then I’ll go AWOL.”
— William Safire, the famed New York Times columnist, in a 1981 essay discussing his frustration with some abbreviations, specifically those that can stand for multiple things. In his case, the phrase that set him off was “F.O.B.,” which can either mean “free on board,” in that the item is shipped to the recipient free of charge; or “freight on board,” an alternate definition that is not widely recognized as a commercial term, but is sometimes used. C.O.D. suffers from this problem as well—“cash on delivery” and “collect on delivery” mean effectively the same thing, but for much of the abbreviation’s history, both terms have been used interchangeably.
Before postal systems came into place, delivering goods basically required a cash-on-delivery approach
The first possible reference to “cash on delivery” or its sibling “collect on delivery” I can find dates back roughly 260 years.
In a 1781 classified ad in the Charleston, South Carolina Royal Gazette, a man named Brian Cape asked for the services of someone who had “working Oxen, stout Steers fit to break, able draught Horses, or Wagons with their Gear.” He offered “READY CASH, on delivery,” for this gear.
Because, honestly, would he have had a choice otherwise? The concept of credit was still fairly unusual at the time, and when you’re purchasing something that expensive, you likely needed to pay for it in full at the time. Now, compare that to how you might pay for a Domino’s Pizza to come to your door in the present day. If you don’t use a credit or debit card, you can still pay cash, but for many obvious reasons, the pizza seller would prefer the money up front—because, if you stiff them, they’re out money on gas, production, and labor.
Just this week, there was a guy in the news whose biggest problem would be solved if pizza delivery shops didn’t use cash-on-delivery: Jean Van Landeghem, a poor fellow from Belgium who has received repeated orders for pizzas on a near-daily basis for almost the past decade.
He’s ultimately the exception to the rule, however. In many ways, C.O.D. puts the ball in the court of the consumer, who gets the ability to inspect the thing they’re accepting before paying for it, which means they can turn it down. That, of course, means that much of the risk gets placed onto the seller, who may have to cover the shipping and return costs as a result.
But companies were often willing to take the risk if it offered a way to shore up trust in a mail-order business model. In November of 1873, for example, the Chicago Tribune, without any proof whatsoever, attempted to light ablaze the business model of Montgomery Ward, claiming that the operators of the mail-order firm were “scam artists.”
“Another attempt at swindling has come to light,” the article starts. “This time it is a firm, Montgomery, Ward & Co. by name, and the parties specifically aimed at by the project are no less important a body than the Grangers.”
But a month and a half later—on Christmas Eve, no less—the Tribune published a full retraction, after the newspaper investigated the business and realized it was “a bona fide firm, composed of respectable persons, and doing a perfectly legitimate business in a perfectly legitimate manner.”
Montgomery Ward had to win over the trust of its target audience, and one way it did that was by offering C.O.D., so that consumers could inspect the goods before they purchased them—not a small task, and not a cheap one, either.
It was good for Montgomery Ward, and a widely used model for more than a century in North America. But by the 1980s and 1990s, the way that many people heard about the model was through commercials that specifically dissuaded people from paying for things using C.O.D.—in many commercials, outright telling people not to send it (often using the phrasing “Sorry, no C.O.D.”), or by pushing them to use a credit card or to send a check or money order instead.
Like airplanes telling people not to smoke, it felt like nobody was actually doing it, but they still had to say it anyway.
An example of this is Heartland Music, the Lawrence Welk-associated music reseller that I wrote about in 2017 and republished back in January.
“Use your credit card and save C.O.D. charges by calling toll-free, 1-800-367-0500,” one such commercial, featuring Conway Twitty, says near the end.
The C.O.D. model has arguably been ripe for abuse—one can imagine, just like with the guy saddled with fake pizza orders, someone repeatedly ordering Conway Twitty records via C.O.D. to torment a country hater—but in some contexts, it persists.
The year that Congress passed a bill establishing a system for money orders. This law, championed by then-Postmaster General Montgomery Blair, allowed the U.S. to replicate a popular British system for sending the equivalent to through the mail—but helping to prevent theft in the process by not sending actual money through the mail. Money orders enabled cash-on-delivery systems to thrive in the days before credit cards.
An unsung hero is likely responsible for formulating the USPS’ collect-on-delivery system
Harry H. Charles is not exactly a person for whom history books are written. If he was, he would only be mentioned in passing.
But Charles, of Quincy, Illinois, did something very important whose impact can be felt on the modern use of e-commerce even today: In 1899, he successfully pitched the United States Postal Service on the idea of collect-on-delivery.
As a document of the Proceedings of the National Board of Trade from 1901 explains, Charles was in a position where his business offered a variable cost product that would be best managed through the mail.
In the modern day, if he had access to an invoicing system, he could likely charge his customers before he sent. But we’re talking at the turn of the 20th century, when commerce was largely done using paper, checks, or other physical objects. So he needed a way to send goods through the mail and accept payment.
Collect-on-delivery was it. He worked with his local post office to set up a C.O.D. system, and ran into few problems in the process. His work, as explained at the National Board of Trade meeting:
A little more than a year ago Mr. Charles decided to send a few of these parcels through the mails, collect on delivery, in exact accordance with the plan heretofore outlined. In every case the parcel was promptly delivered and the collection made and returned by the postmaster. Then Mr. Charles presented his plan to the attention of the Department officials at Washington, and was advised by them to give it still further trial. This he has done. In the past year he has sent over 900 “C.O.D.” parcels through the mails, to post-offices in every State and Territory, and in every single case, save one, has received prompt returns, the remittances being made in all cases by money order, registered letter or postage stamps. On investigating the single failure for the year, it was found that the postal car containing the “C.O.D.” package was ground to pieces in a wreck, and not even the wrapper of the parcel could be located.
Judging from the extended and satisfactory experience of this manufacturing concern, this feature seems in a fair way to work out its own salvation.
It should be noted that USPS was more willing to experiment at this time, which led to innovations such as registered mail and the use of the money order, two features that Charles’ test took advantage of.
For decades, this was a primary use of money orders, and in fact the only way to pay for a C.O.D. order using the USPS was to get a money order. (This changed in 1987, when checks were finally allowed.)
You can still send things collect-on-delivery even today, but for both consumers and customers in the U.S., the convenience of credit cards eventually won out. Still, you can’t quite imagine that we would have gotten to credit cards without the help of Harry H. Charles. He remade the way we get mail in the image of the C.O.D.
“It is not permissible to send, in a ‘dummy’ or ‘fake’ package containing no fourth-class matter, a bill, whether receipted or not, for the purpose of having the service collect a former debt, and the practice of sending C.O.D. articles to persons who have not ordered them is discountenanced.”
— A passage from the annual report of the U.S. Postmaster General, circa 1914, explaining how some would attempt to scam the C.O.D. system by using it as a medium for debt collection. As the Smithsonian’s National Postal Museum notes, this type of scheme is banned even today.
The U.S. may have given up on C.O.D., but many parts of the world have not
It’s quite easy to think about ideas like cash-on-delivery in a Western-centric way. After all, many consumers in the U.S. are only familiar with the concept because of commercials in which people are told, “Sorry, no C.O.D.,” presumably because Heartland Music got burned once again by that guy who didn’t actually want that Conway Twitty album.
But outside of the U.S., the cash-on-delivery system is actually fairly important, with some parts of the world particularly reliant on the model. In fact, it’s even seen as an important element of e-commerce in areas of the world such as Southeast Asia, Africa, and the Middle East.
One particular hot spot for C.O.D. payments is India, where 83 percent of consumers said they used the payment model for an online purchase at the tail end of 2015. A key reason for this was the emergence of a e-retailer, Flipkart, that found much success with the model.
As The New York Times reported in 2011, the model helped Flipkart break through with online shopping in a culture that tends to prefer the sale of physical goods.
As Prabhu Kumar, a software programmer, told the Times in an interview for the article: “I think it perfectly fits the Indian mentality.”
When Amazon entered the market in 2013, it was quick to adapt C.O.D. as a model as well.
And this is not some declining model in these countries—quite the opposite. For example, the digital retailer AliExpress, effectively China’s version of Amazon, started offering cash-on-delivery to customers in Saudi Arabia last year.
In a 2017 Cornell University SC Johnson College of Business research paper, authors Cayla Chen and Chris Hooper noted that Flipkart succeeded in part because the use of C.O.D. showed that the company understood its customers.
“The company had an acute understanding of the Indian market; they understood the challenge of low credit card usage in India and realized that customers preferred to pay cash only if they were satisfied with the delivery,” they wrote.
But it came with challenges for companies that used the model, of course. As Business Insider put it in 2015:
For COD to work, the consumer needs to be physically available to receive the goods in order to provide payment. Often times the consumer is not available, which means that multiple delivery attempts are made for one order. The average number of delivery attempts per order is 1.24, notes Your Story. This translates into an extra 24% of labor costs in last-mile delivery for the seller.
Furthermore, e-commerce retailers with high COD orders face higher cancellation rates due to the consumer refusing the order. For example, the consumer may not be satisfied with their purchase upon seeing it and refuse payment. In such a case, the seller is responsible for all costs associated with the return of the item, increasing logistics costs.
There are lots of reasons C.O.D. persists in e-commerce in the modern day, one of the largest being digital security weaknesses in some countries. But that consumer preference has been pretty hard to shake, especially in India.
A Quartz article from last year noted that many e-commerce businesses in India were hoping to wean consumers off of C.O.D., with the reason for this being obvious—retailers are essentially forced to take all the risk of shipping and delivering the goods, while floating cash payments before they show up in their accounts.
“Ask an entrepreneur if they want C.O.D.—absolutely not. At the end of the day, the cash is not directly on your balance sheet,” noted Sampad Swain of the payment gateway firm Instamojo, in comments to the website. “Digital payments almost immediately come to the bank account while C.O.D. may take over a week.”
Back in 2016, the Indian government did something that seemingly should have encouraged people to use electronic forms of payment—it demonetized 500-rupee and 1,000-rupee banknotes in an attempt to remove “black money” from the system, replacing them with 500 and 2,000-rupee equivalents. This was a hugely controversial policy undertaken by Narendra Modi, and despite the push towards digital currency being one of the goals of this policy, C.O.D. payments bounced back almost immediately.
Of course, cash-preferring consumers eventually may not have a choice if they want to do e-commerce in the future. See, C.O.D. payment systems only really work if it’s safe to exchange cash as a part of the transaction. Usually, when a line like that is written, it’s to imply the danger of fraud or counterfeiting.
But the coronavirus introduced health as a major concern, and that led Flipkart, Amazon, and others to stop offering C.O.D. payment options to customers in India at the start of the crisis.
For businesses, C.O.D. is not a well-loved model, at least not anymore, given the fact it’s possible to get paid using other means almost immediately.
But it represented something hugely important—and that was a way to turn the delivery of goods into a powerful and useful business model. In some countries, it’s still doing that. And if this disease slows down, it still might.
That’s certainly a better legacy than repeatedly delivering unwanted pizzas for a decade.
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