Amazon will forever be known in cyber-lore as the great disruptor that turned brick-and-mortar retail on its head. Having started out as an online bookseller, the company wasn’t content with simply shuttering chain bookstores across the globe, and became the one-stop shop for everything from groceries to digital video content. While Amazon’s media offerings haven’t toppled cable television in the United States quite yet, the website has become an ecommerce powerhouse, undercutting the prices of not just traditional retailers but also competing online stores in seemingly every category.
If the founders of internet startup Jet.com have their way, the great disruptor will soon become the disrupted. Under a business model not unlike the one American wholesale brick-and-mortars Costco and Sam’s Club use, Jet.com originally asked buyers to pay a membership fee for access to goods at below-market prices.
The website sources their merchandise from partner retailers, who essentially sell Jet.com their surplus inventory. While members have access to individual goods if they’d like, the real savings can be had when purchasing bulk quantities, where each additional item added to the bulk lowers the net price per item.
When the site exited its trial period and came online in July 2015, it offered buyers a three-month free membership before charging a $49.99 annual fee for the service. But after only three months live, Jet changed their business model in October 2015 by removing membership fees entirely.
“IF THE FOUNDERS OF INTERNET STARTUP JET.COM HAVE THEIR WAY, THE GREAT DISRUPTOR WILL SOON BECOME THE DISRUPTED.”
This originally gave the company a perceived edge over Amazon, which charges a fee for Prime Membership that comes with fast and free shipping on discounted items and access to an expanding media library. At Jet.com, anyone can now dive in to take advantage of savings regardless of membership. But, this new model may not always be the savings boon that customers perceive.
For instance, membership fees were originally the only meth- od of revenue for the company, which helped to facilitate prices 10 percent to 15 percent lower than other online stores.8 However, Jet.com founder Marc Lore told Re/Code in October 2015 that re- search conducted by the company shows most customers were happy with only 4 percent to 5 percent discounts.9 This indicates that the company would start seeing revenue from merchandise sales instead of membership fees – assuming that their modified business model stands up.
“BUT BY TAKING THE TRADITIONAL ECOMMERCE MODEL AND STREAMLINING IT, JET.COM HAS BEEN ABLE TO –SOFARATLEAST–
OFFER A CONSUMER-FRIENDLY SERVICE THAT MAY BETTER FIT THE TRADITIONAL AMAZON CUSTOMER’S NEEDS.”
One of the key differences between Jet.com and Amazon – which Jet.com has proudly publicised – is that the former doesn’t have to rely on their own warehouses and delivery models. The potential flaw in this logic is the fact that Jet.com customers are instead relying on delivery from the various warehouses of the company’s partner retailers. This could result in additional packaging fees, as customers may see individual items from a single bulk purchase coming from disparate warehouses with different delivery pricing.
Despite these potential flaps in Jet.com’s evolving business model, the website seems to actually be delivering on the discounts they promise – even without a membership fee. A comparison shopping exercise conducted by Money Magazine in October 2015 showed that Jet.com regularly undercuts Amazon pricing by much more than 5 percent.10 When comparing prices on the same four popular household items (same brand and quantity) in the casual experiment, the total bill at Amazon was $87.67 while the total for Jet was only $54.37 – a difference of $33.30.
There are of course inherent flaws to this exercise, since prices on both sites change depending on the location of the buy- er and daily or hourly promotions on popular products. But by taking the traditional ecommerce model and streamlining it, Jet. com has been able to – so far at least – offer a consumer-friendly service that may better fit the traditional Amazon customer’s needs.
Amazon remains dominant, but companies like Jet.com are fast coming up the rear with new sales strategies and customer interaction models that are threatening the old guard – and Amazon doesn’t appear to be shifting their retail model much to address the change.