Retail today is a highly competitive space with an increasing focus on e-commerce. While Amazon and eBay have very strong presence in the online marketplace, the competition is fierce. A recently launched start up, Jet.com, is a new player in the field.
Jet was founded in July 2015 by Marc Lore, who previously founded Diapers.com, which was then bought by Amazon, where Lore spent his next few years until recently, when he decided to start Jet. Lore and the other two co-founders, Mike Hanrahan and Nate Faust, even prior to launching a company secured $220 million from Google Ventures, Goldman Sachs, Bain Capital Ventures, Accel Partners, and Alibaba Group. The website went live on July 21, 2015.
While currently Jet burns a lot of cash (estimates to spend ~$100 millions this year) and generates losses, Jet delivers on its value proposition.
What is the business model at Jet.com?
- Jet offers the lowest price on the Web. Always.
- Offers 4-5% and more of a discount on products currently sold online
- Also offers an additional discount if a customer waives its right to return an order
- Also offers an additional discount if a customer pays with debit vs. credit card
- In some cases, offers additional discount if a customer shares email address with the seller
- Offers more exclusive / fashion brands that are not otherwise offered through other marketplaces, like Amazon
- Always has the product that a customer wants, even if it is not available through Jet or its retailers
Its business model allows Jet differentiate itself against well established online retailers like Amazon that have a huge infrastructure that it took years to build. Today Jet cannot afford itself to spend 21 years it took Amazon to get where it is today. The competition won’t allow. Thus, Jet innovates and heavily invests in customer acquisition.
While Jet owns several warehouses across the U.S., the number is very far from that of Amazon. However, Jet still offers all of the products a customer may want to buy. When a customer buys a product that is not available through Jet or its partners, a representative would buy it from another site and ship it to the customer at the promised price. This is done to keep customers and attract new ones while the company aggressively works on establishing new contracts with retailers. The price cut that Jet takes in this case can be seen as a customer acquisition cost.
Operating model effectiveness
Jet operations support its business model. The key price discount comes from a promised 4-5% lower price, and it is achieved through “smart-cart” system. When an order is placed, Jet identifies the closest warehouses that have the products. If a customer orders two products from a close-by warehouse, the discount is large; if a third product is located in a distant warehouse, the discount is reduced. Jet customers earn the Smart Cart savings by building bigger orders that are more efficient for Jet’s partners to fulfill — either because they contain multiple items located in the same warehouse or in a warehouse close to the shopper.
Since the delivery is slightly longer than that of Amazon: 2-5 business days vs. 2 business days, Jet translates those savings into discounts to customers. Most of the products that people buy are not necessities and customers usually prefer waiting an extra day-two for getting a bargain price. Nonetheless, to compete Jet offers 2-buisness day delivery on all consumable goods, such as napkins and cereal, at no additional cost, as for these types of products customers may be less flexible to wait.
One of the key differentiators for Jet is its focus on attracting fashion brands that are not otherwise offered at other marketplaces. These brands are usually very price cautious and discount-unfriendly. Jet has a special proposition for these brands:
- Jet allows brands to control which sellers sell their goods on Jet and what the minimum prices are – something that most of the big marketplaces do not offer
- Jet built its brand so that it is not perceived as a discount retailer. For this reason, Jet recently abandoned its earlier business model where it charged members a $50 fee for an annual subscription and an additional price discount, resulting in the discount below what many brands would want to sell for
Jet is also heavily focused on building out its network with retailors. It charges retailers the same 8%-15% fee like Amazon does, and allows partner retailers to only accept orders that will be profitable for them.
Finally, if a customer wants to shop at other online places, like Saks or Uniqlo, Company offers Jet Credit money back through its Jet Anywhere program in order to build customer loyalty.
Today, Jet is at the early stage and requires significant funding to keep its customers and attract new ones and to build out its network with retailers. While there are obstacles, the business model and the operating models are well linked which results in outstanding performance the Company had so far.