Jet, the pure-play e-commerce retailer that launched July 21 promising the lowest prices on the web, is abandoning its membership-based model, founder and CEO Marc Lore last week announced in a blog post entitled “Jet for All.”
What’s going on? According to Lore, the move is due to better-than-expected response by consumers.
“With the average number of units per order twice what we expected, Smart Carts have been the rule, not the exception,” Lore wrote. “Our customers are taking every advantage of our dynamic pricing engine to place orders that can be fulfilled at a lower cost — and to have those efficiencies shared with them as savings. … By enabling even more people to embrace this new way of shopping, we believe we can more fully realize our vision of a reshaped e-commerce landscape and deliver unprecedented value to consumers and retailers.”
It’s quite a turnabout, though. Before and at time of its launch, Lore and other Jet executives were touting the $50 membership fees as the e-retailer’s sole source of profits, by way of bolstering their contention that the merchandise would be priced at rock-bottom levels. Consumers could — and still can — squeeze even more savings by choosing variables that might, say, slow their delivery but save them money, the practice of dynamic pricing. After losing that source of profit, how does Jet plan to stay afloat?
Membership has its privileges
The membership model is a proven one; Costco and Amazon both have found success — and extremely sticky customers — that way. The problem is there may not have been room for another membership-based general retailer, says Profitero VP of strategy and insights Keith Anderson.
“It’s successful, but saturated,” Anderson told Retail Dive. “They may have seen the writing on the wall.”
Jet by and large had come through on its low-price promise, though it sounds like that's changing. On launch day, for example, a Profitero study found that, on average, Jet did deliver prices on “exactly-matched products” that were 9% lower than Amazon and 6% lower than Wal-Mart.
Those low prices may have pleased many customers. But they were ruffling the feathers of another important stakeholder — retailers. And that created something of a mess. While Jet CRO Scott Hilton in February told Retail Dive that Jet was taking special care to operate a clean and intuitive site, the company was opting not to show the sometimes significant savings that could be had through Jet’s dynamic pricing, leading to confusion. In August, Lore told Re/Code that one reason for hiding the added savings was brands’ unwillingness to drastically undercut other retailers (including themselves) that were selling the same goods at higher prices.
That, plus a design decision to use “plus” signs rather than “minus” signs to indicate further savings was also perplexing, and probably caused some amount of abandonment. Lore acknowledged the issues, telling Re/Code: “In either case, people are confused. I think we’ll figure it out.”
Price changes ahead
To make up for the loss of its membership-fee base, Jet says it will be delivering single-digit discounts of 4% to 5% rather than its original double-digit savings when they could count on membership fees.
That could help ease the concerns of brands, some of which may have ultimately refused to sell through Jet, according to Anderson. That interferes with its price-competition focus, though Amazon and Wal-Mart have proven themselves to be masterful price competitors themselves. But there's even greater pressure to scale quickly, Anderson and others tell Retail Dive.
"Jet.com dropping its membership fee is a two-edged sword —while it may open up new opportunities, it also will increase the pressure on its business model,” says Rick Chavie, CEO of product information solutions company EnterWorks. “Jet must scale up even faster under a ‘loss is more’ strategy, meaning, while they will lose cash faster without the fee, they may access more customers to drive its market share.”
Jet, in fact, may not even be really trying to compete with Amazon (or Wal-Mart) exactly. In fact, in an interview in February, Jet’s Hilton dismissed Amazon has having a “very small fraction of the core retail space.” And Anderson says Jet appears to be reaching for new online customers rather than for stealing them away from Amazon.
“If you take Jet’s comments at face value, I don’t know if they have a strong ambition to convert a lot of shoppers from Amazon to Jet,” Anderson says. “They seem to be trying to convert new shoppers to be online shoppers, which I find to be a risky gamble. They’re interested in the household that values money more than time …it’s such a precise segment of shoppers that they hope exists.”
Perhaps that’s the more rural Wal-Mart customer, interested in low prices, and less concerned about delivery times (though that hasn’t been proven). But, when asked about that, Anderson notes that Jet’s media blitz so far has been in highly urban areas. (Jet was unable to speak on the record for this article.)
Even if Jet isn’t aiming to compete with Amazon, the reach, assortment, and search capabilities of its elder is formidable.
Jet's new challenge: Customer experience
And while higher prices (or lower savings) might ease the concerns of retailers, Jet will now have to find a way to deliver a superior customer experience, says Chavie. Without the brick-and-mortar experience of Costco and the great bundle of extras that Amazon brings to its Prime members, that could be difficult, unless Jet has something up its sleeve.
“That pressure to deliver on a better experience will accelerate,” he says. “It's a given that its third-party approach—delivering market baskets at lower prices from retailers which are local to the customer—will have a likely insurmountable, short-term challenge to deliver a seamless omni-channel experience in customer service, order management, and delivery when compared to Amazon. In order to make the reduced discount attractive to customers, they will need a robust content-driven approach to create a more personalized and compelling experience.”
Jet captured a lot of attention with its launch and garnered a lot of press about its potential. This switch isn’t necessarily doomed, but it doesn’t have the fresh buzz of July.
“Without the buzz of the launch and with less savings, they will need to be eminently discoverable through organic search, easily parameterized upon arrival on their site with the right facets, and having readily accessible visual and text content as they navigate the site,” Chavie says. “As many who attended the Shop.org convention in Philadelphia heard this week, a compelling digital customer experience is the next wave of content driven commerce. For Jet.com to realize its ambitious goals, the convenience of their site for both the casual shopper and converts needs to head in this direction."
There’s another possibility for Jet: following in the footsteps of Lore’s last retail venture, Quidsi. Amazon acquired Quidsi and its basics-focused retail sites Diapers.com, Wag.com, and Soap.com five years ago for $500 million, and hired Lore in the process.