The New Kid On The Block That Will Threaten Amazon – Strategy With RS

A new e-commerce site, Jet.com, which started business in 3rd week of July’15, may have the potential of disrupting Amazon.com.

(Image Courtesy : Time.com)

Here’s why!

Jet .com is promising its customers lowest price on almost everything + free shipping & return.

Here is how Jet.com works:

*Membership Model: To shop at Jet.com you have to become a member. The membership fee is $49.99 per annum. This membership fee is half of Amazon, which is $99 per annum.

*Make a promise, which is easily understood & experienced by customers:Jet.com guarantees its members that over the year for which they are member, they will at least recover the membership cost. And in the unlikely event they do not, then Jet.com will refund the difference.

*Demonstrate the ‘promise’ prior to them becoming a member to de risk there investment in membership fees & to ensure there is no ‘post-purchase dissonance’: Jet.com is offering its ‘customers’ 3-month trial period – free. During this trial period, ‘potential members’ can themselves see if the promise made to them is merely a promise or it is being delivered.

*Strategy to get members to order from the site the ‘next time’: Jet.comhas introduced Jetcash for its members. These are reward money offered by brands such as – Sephora, Warby Parker etc. They can be redeemed on Jet.com platform the next time members order from the platform, making purchase even more lucrative.

How does Jet.com function & how does it make money?

Jet .com is akin to a financial trading platform. It makes money purely out of the membership fees & strives to pass on every other benefits – economy of scale in purchase, discount received form brands etc. on to its customers that further drives down the price.

Jet.com already has 50000 trial members & one third of them have already gone in for repeat purchase. As the trial period draws to an end, the challenge for Jet.com will be to convert these 50000 into members by getting them to pay the annual membership fees. Will they succeed? Only time will tell?

So how does Jet.com hope to get this model to generate business? When its member’s experience the promise made by Jet.com they are likely to become Brand Advocates for the brand. This will ensure:

*Higher Net Promoter Score for Jet.com
*Lower Advertising & Sales Promotion cost
*Better believability for its promise
*Lower Customer acquisition cost
*Lower Lead generation cost
*Higher Customer Retention rate
*Lower Customer Attrition rate.

All this will result in a healthy bottom line for Jet.com, over time.

If you wish to get an insight into how these benefits can accrue to Jet.com, I would recommend my article published earlier

 

 

———-

rajesh-srivastava-insideiim

 

In this series, Rajesh Srivastava, Business Strategist and Visiting Faculty at IIM Indore gives you a regular dose of strategy case studies to help you think and keep you one step ahead as a professional as compared to your peers. Rajesh is an alumnus of IIM Bangalore and IIT Kanpur and has over 2 decades of experience in the FMCG industry. All previous Strategy with RS posts can be found here

Comments

7 comments

Rajesh Srivastava

Team Inside IIM – I am really thrilled to read your comment. Here’s what I feel …
1. It does seem that they have discontinued or not made membership mandatory. This I think they may have done after seeing the ‘Conversion Rate’ of 50000 users who had sampled the service. They had got used to shopping on Jet.com without membership fees & would now be unwilling to pay for the services.
2. In Jet.com earlier proposed business model, it was taking the ‘money’ (through membership fees) in advance & then returning it back gradually to members. With the new model they will get the money gradually over ’12 – months’.
3. Jet .com had anyway promised its members that over the course of a year they would recover the membership fees. And if they did not then Jet.com would pay the difference. To make sure that the members recover the fees they, Jet.com were passing on schemes etc. which they got from manufacturer to there members. Since they do not have to ‘return’ back the membership fees, some of the margins Jet.com got they may not pass on to there customers. Result: The customers may have to pay a slightly higher price for their purchase, now.