What does the launch of Jet.com mean for marketplace sellers?
Earlier last week, a new online marketplace, Jet.com, opened the doors to its virtual showroom. As the Harvard Business Review reported, the eCommerce site garnered a lot of attention pre-launch, with investors valuing the company at $3 billion before Jet.com even made its first sale. The site was founded by Marc Lore, who is best known for his role in the successful start-up Diapers.com, which was sold to Amazon for upward of $500 million and is one of the reasons the project has attracted so much attention.
So, what is Jet.com? To put it simply, it’s an online marketplace that uses a Costco or BJ’s Wholesale Club membership approach, where customers pay a membership rate to gain access to heavily discounted goods. Jet claims it does not make a profit from any item sold on the site, which should in theory result in prices that could be well under the usual going rate, since most retailers aim for a 10 to 25 percent margin. The model is successful for a number of reasons – people love low prices, plus it creates a pool of loyal repeat customers who are invested in buying from that marketplace since they are already paying a membership fee.
Jet also offers customers additional ways to save money based on different efficiency factors. Many retailers would keep this information behind the curtain to bolster margins – for example, credit card purchases generally have the highest transaction fees associated with them, so most retailers encourage cash or other payment methods as a way to bolster their margins. Jet informs customers of these options, allowing shoppers to waive their right to return goods, choose more convenient fulfillment options or opt for alternative payment methods for further discounts.
Operating a discount marketplace online is no easy task, with many digital players in the space, such as Amazon, able to offer incredibly low prices due to the sheer number of products they sell in bulk. Jet seems committed to its cause, however, and even compares prices with Amazon on all of its product pages.
Should merchants book a seat on Jet?
With the launch of Jet this week, there was an understandable amount of enthusiasm surrounding the new marketplace, both from the perspective of customers and sellers. Many retailers have begun utilizing third-party marketplaces, such as Amazon or Jet, to extend their reach and engage prospects that may not go to their own locations otherwise.
Jet has turned to retailers with open arms, noting several benefits that merchants can capitalize on by selling their goods via the marketplace, including:
- More control: Jet provides sellers with even more options to engage customers, allowing them to easily control their profitability via custom rules and dynamic pricing.
- Engage new, high-value customers: Because Jet shoppers pay a membership fee, they are more likely to become regular shoppers at the site. This means that Jet sellers can capitalize on a broader audience of engaged customers, building a relationship with buyers through the site.
- Easy integration: Once retailers apply for a Jet Partner account, they can use the Jet API to easily and quickly integrate their operations with the marketplace, allowing for a seamless setup.
For omnichannel sellers, Jet represents another sales avenue to sell their goods. When it comes to reaching new customers, casting a wide net and utilizing a variety of channels can only be a good thing, provided merchants are not overextending themselves trying to do so. Retailers should monitor the development of Jet and the public reception of the marketplace closely, as it may be wise to jump on board.
The drawbacks of Jet
Jet seems to be a unique eCommerce venture that offers a fresh take on the marketplace approach to retail. However, there may be some drawbacks to the system as well that retailers need to keep in mind.
First and foremost is the fact that trying to undercut Amazon and other major marketplaces in terms of price is a risky gamble. Amazon has the customer base and the clout to command deep discounts from retail partners. A price war may ensue, and there is no guarantee that Jet will ever manage to be anything more then a whacky concept. In fact, Lore even told The Wall Street Journal that he expects the venture to lose money for years until the site gains enough members to profit from membership fees.
Membership could wind up being another big issue. Other marketplaces already offer value programs, such as Amazon Prime, and Jet may have trouble winning over these customers. People can only spend so much money on these initiatives, and it is hard to say whether Jet will be unique enough to command its own following.
The launch of a new marketplace could mean new customers for retailers, but it is critical retailers consider all the pros and cons before getting on for the ride.