Jet.com looks to disrupt online retailing
Through a special arrangement, presented here for discussion is an excerpt of a current article from Commerce Anywhere Blog.
It used to be that I always assumed Amazon had the lowest price. Now I have to double-check before placing an order. Lately, Amazon has been focused more on customer experience than price, offering lots of goodies for Prime customers and really fast shipping. Might that allow a new competitor to enter the market?
In the early days, Diapers.com sometimes had to buy diapers at Costco to ship to its subscription customers, sacrificing margin for share while the rest of infrastructure caught up. The company was based on supply chain efficiencies and a lower cost to acquire and retain customers. It worked so well that Amazon first fought them, then bought them.
So after spending two years with Amazon, Marc Lore, co-founder of Diaper.com parent company Quidsi, is on his own again building a new kind of retailer. Jet.com is a cross between Costco and eBay with a huge focus on squeezing out every nickel of savings. Consumers pay a $50-a-year membership fee, which is the only income for Jet.com. Then Jet.com offers products from various retailers at deep discounts. Those discounts come from passing on sales commissions, using the most economical shipping, combining orders and avoiding credit cards.
Source: Jet.com website
In a recent note on a new funding round, Mr. Lore wrote that Jet.com doesn't compete with its retail partners, "rather, we empower them with pricing tools that enable them to set different rules based on their business goals and profit targets."
"As a result," wrote Mr. Lore, "Jet is able to dynamically adjust prices in real time in response to the unique composition of a shopper's basket, always maximizing for cost-savings."
To be successful, Jet.com must have the world's most efficient supply chain — perhaps more efficient than Amazon and Walmart. The lynchpin will be an intelligent order management system that can efficiently source, combine and ship products at the lowest cost. There will also need to be lots of creative deals with merchants to lower prices in exchange for waiving the right to return merchandise, sharing customer data or establishing subscriptions.
Of course, this business plan requires massive scale, so the trick will be staying in business long enough to establish a large and loyal customer base. Jet.com has already raised $220 million before the website is even live, every penny of which is required for infrastructure and marketing. But I just don't think Amazon and Walmart will stand by idly. I think a major online price war is on the horizon, and consumers will be the big beneficiaries.