A fee to use a service — whether it be called a convenience, platform, or fulfilment fee — is now becoming standard as companies claim it helps them pay their bills. While the fee is a relatively new concept for companies, ecommerce firms and service providers such as BookMyShow were among the first to impose an additional fee on each booking.
Ajio, Reliance Retail’s online fashion portal, is the latest to join the list of companies that impose such a fee, which has resulted in e-commerce orders getting costlier.
Companies that have gone down this route have tried to mask it in different ways. Moneycontrol had earlier reported that Nykaa Fashion labels the additional fee of Rs 29 as ‘convenience charges.’ Ajio has a ‘fulfilment fee’ of Rs 19. Myntra, which calls it a ‘convenience fee,’ initially charged Rs 10 but has now hiked it to Rs 15.
A spokesperson for Ajio did not reply to Moneycontrol's email seeking details.
This fee is typically 0.5-1 percent of the platform’s average order value (AOV). For instance, Nykaa Fashion, which had an AOV of Rs 4,413 as of the June quarter, levies a fee of Rs 29. Myntra, which has an AOV of around Rs 1,400, charges Rs 15.
While the additional fee varies across companies, the purpose is the same: making each order more profitable and boosting the bottom-line, per internet sector analysts.
"The additional fee is being levied because e-commerce, as a sector, is maturing and people value the ease of shopping from home. If this fee had been introduced four years ago, e-commerce companies may not have taken off as they have. However, the propensity to shop online has now increased and customers are ready to pay an additional fee, because of the convenience and services these companies provide," according to Rajat Tuli, Partner, Consumer and Retail, at Kearney, a management consulting firm.
He added that firms have room to increase the ‘convenience fee’ to around Rs 40-45, but anything over Rs 50 will make orders too expensive and prove to be a deterrent.
“If you ask me to do a survey, even the wealthiest person will be hesitant to spend an extra Rs 10-20, but the percentage of shoppers who would abandon an order just because of the additional Rs 10-20 will be very low,” Tuli said.
Convenience vs bargains
However, it’s not easy to make people pay for a service that they are used to getting for free.
“Customers are not inclined to pay extra for products or services, because everything besides the product was free for them,” said Satish Meena, an independent e-commerce analyst who earlier worked with Forrester, a research firm.
Meena slots online shoppers in two categories: those who shop online for convenience and are okay with the additional fee, and those who shop online for discounts. Any additional fee will deter the latter from purchasing online because a local store offers a better proposition.
“That is why a company like Meesho will think twice before charging a convenience fee,” Meena said.
Meesho has positioned itself as a low-cost shopping destination which mostly focuses on shoppers in non-metro cities. For context, the SoftBank-backed start-up has an AOV of Rs 400-450, which is just 10 percent of premium segment player Nykaa Fashion.
In fact, Vidit Aatrey, co-founder and CEO of Meesho, had earlier told Moneycontrol that levying an additional fee impacts consumer experience. "I don't think we're going to charge customers a convenience fee for returns, or do something else to bring our return percentage down. I don't think that's the right thing to do as a business," he had said.
Softening the blow
Returns are a cross all e-commerce firms have to bear. Analysts say that return rates are considerably higher in fashion — about 20-30 percent — due to issues of size, mismatch between pictures and the actual product, etc.
While some players have taken measures to discourage returns, Meena and Tuli say that an additional fee is good for companies since it softens the blow each time there is a return. Companies typically spend anywhere between Rs 40 and 70 per order on logistics. The additional fee helps absorb some of this.
In most cases, the newly-imposed additional fee is not refunded, weeding out shoppers who order multiple items, try them on, and eventually return all the products.
“Convenience fee is non-refundable,” a pop-up message on the Ajio app said.
A convenience fee on every order also encourages customers to bundle their orders. “A customer who wants to buy two shirts would earlier place two orders as and when they wished. But now they would place a single order just to save on the convenience fee,” Kearney's Tuli said.
This is also better for the company because it pushes up their AOVs.
Food delivery
It’s not just e-commerce companies that are looking to improve their unit economics.
Swiggy began levying a ‘platform fee’ of Rs 2 on all food orders in April, and is now pushing it up to Rs 5. Rival Zomato followed suit with a Rs 2 platform fee in August and is also testing a higher amount in certain cases. It had started off as a pilot but has been extended to all users now.
While the fee they charge may look nominal, it is still about 0.5-1.0 percent of their AOVs, as is the case with fashion e-commerce companies.
Food delivery players have an AOV of Rs 400-450, and the platform fee is levied on all orders, even if certain customers may have enrolled for their paid loyalty programme. Zomato delivered around 17.6 crore orders in the June quarter, which translates to roughly 20 lakh orders a day, according to a note by JP Morgan. Based on a back-of-the-envelope calculation, Zomato’s decision of levying a platform fee would result in nearly Rs 40 lakh in additional revenues each day.
Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
