Jet.com E-Commerce Takes Aim at Amazon & Costco

Five Ways the Guy Behind Diapers.com Plans to Challenge Amazon - Again

1. Product prices on Jet will be on average five percent to six percent cheaper than anywhere on the Web - including Amazon, Lore says. Lore and I tested the pricing while we were meeting. We searched for some diapers here, some detergent there. The savings were real.

Then we searched online for a Sonos Connect device and decided that $349 was pretty much the best price out there. Then we checked Jet: $301. Wowser. Fellow membership clubs like Costco can sell at steep discounts because they buy in bulk. But that’s not Jet’s approach. So how can it possibly afford to discount so heavily?

Lore says that when a retailer sells on Jet, they give Jet a cut of each sale. The size of the fee varies depending on the product category, but more or less mirrors Amazon’s fee schedule (which typically ranges from eight percent to 15 percent). Jet then essentially takes that commission and uses it to fund the initial discount its customers will see on all products. Jet plans to make its profit solely from membership fees, not the products it sells.

“All our products are basically sold at our cost, plus a little to cover overhead,” Lore said.

2. Discounting strategy is just the beginning. If a customer orders a few products at the same time, they will save 10 percent to 15 percent on average, Lore says.

How? If you order a few items at a time, Jet’s technology will search behind the scenes to find a retailer that has both items in its warehouse. If it does, the system will automatically apply additional discounts to the order since it is more cost efficient to ship to you.

Jet’s system will also look for a warehouse that is closest to your home, which can add additional discounts to your order. All of this is happening behind the scenes while the shopper just sees additional discounts piling up as they add new products to their shopping cart.

“It’s not like we’re smarter with the way we ship stuff,” Lore said. “We’re really just exposing the true underlying economics. And when we make that transparent to the consumer in discounts, we’re creating in effect more efficient orders.”

There’s more. Want to waive your right to return an order? A few more percentage points may drop off the price. Are you fine paying with your debit card or your bank account instead of a credit card? Jet will discount your order some more, since it pays lower payment processing fees when you don’t use a credit card. Give the seller your email address and your price may drop again. Each seller gives Jet the business rules that determine what type of order characteristics trigger what type of discount.

3. Delivery is free for orders of $35 or more and will otherwise cost $5.99 for smaller orders. Orders will arrive in three to five business days for most goods.

But for consumable products - think napkins, cereal and toothpaste - Jet will get them to you in two days max, just like Amazon Prime, for no extra charge. Jet is able to do this because it has two (soon to be three) warehouses, stocked with these items in geographically efficient areas.

Jet also believes that shoppers typically want, or need, these types of items sooner than, say, a camera or toy car. Lore said Jet would rather not have to warehouse any goods. But it needs to in this category because the type of retailers that stock a wide assortment of consumables in a given warehouse (Amazon, Walmart, Target), are the type of retailers that won’t sell on Jet.

4. “It’s a very simple brand promise,” Lore said. “Pay $50 a year and you will save on literally every single product you want to buy online.”

Sounds amazing. One problem: How can Jet promise this when its site will launch with millions of products, but not every product on the Web? Lore thinks his company has an answer. If you search for a product on Jet and can’t find it, the company will allow you to still place an order. The site will order it for you and still give you some type of discount, though Lore didn’t say how much. This tactic we’ll have to watch, because it’s not clear how Jet will be able to execute it at scale.

5. Lastly, every big online marketplace aspires to sell popular fashion brands that traditionally haven’t sold their wares outside of their own stores or websites. Amazon, for one, has mostly failed in their pursuit of these brands. Jet knows it would likely suffer the same fate.

Instead, Jet has created an affiliate program, called Jet Anywhere, that will reward Jet members when they shop on retailer sites that are part of the program. For example, if a Jet member buys something on the websites of Gap or J.Crew - two brands that Lore says have signed on with Jet - the shopper will receive a Jet credit of 20 percent to 30 percent of the purchase as a reward.

“It’s an extra benefit that should make it a no-brainer to shop with us,” Lore said.

Source: Re/code