Jet.com, which is attempting to merge the Costco/Sam's Club idea of a yearly membership fee with the all-over-the-board sales attraction of Amazon.com, has launched to general availability following a beta program that processed mostly good feedback from more than 100,000 users.
The Montclair, N.J.-based e-retailer, whose first general availability day was July 21, immediately set out to disrupt Amazon.com and Walmart by undercutting prices when and wherever possible. It has raised $225 million in venture and personal capital, so it's got a cushion supporting it for a while.
On launch day, July 21, e-commerce analyst Profitero said it compared more than 16,000 exactly matched products across seven categories on Jet, Amazon and Walmart. It determined that Jet was priced an average of 9 percent lower than Amazon and 6 percent below Walmart.
Jet is pricing very aggressively at launch, especially on key household essentials, such as baby, beauty, pet supplies and household products, Keith Anderson, Profitero vice president of strategy and insights, said in his report.
Pricing Is Center of Strategy
"Price competition is at the center of Jet's strategy, and the price comparisons Jet includes on its own product pages are likely to intensify competition," Anderson said.
Anderson said that there were some price disparities across the categories, which included the baby, beauty, electronics, grocery, household, office supplies and pet sectors. For Amazon's best-selling products, the research showed that Jet was 8 percent lower in price.
Profitero considers exact matches to be products that are identical (same UPC, brand and pack configuration). However, the company said that it's important to note that all pricing analyses do not consider extra discounts at Jet from combined orders, waived returns and preferred payment methods.
By the way, there is plenty of head room for new competitors in the online retail market. According to industry analysts, about $300 billion in sales were recorded worldwide in 2014, and that's expected to blossom to $414 billion by 2018.
Uses Data Analytics to Find Best-Priced Items
Jet.com uses data analytics to scour through thousands of vendors to offer the lowest prices on items dialed up by buyers. The shopping cart then calculates the amount saved in addition to the retail total for the customers.
The company, however, isn't looking specifically at the Amazons and Walmarts of the world as its only competition.
"Everyone who sells products online is our competition. We see a really big opportunity to innovate around price in a way that no one else has before us," founder and CEO Marc Lore, former co-founder and CEO of Quidsi (which owns Diapers.com, Soap.com, etc.), told CNN.
The question is, however, this: Is the $50-per-year fee Jet.com charges members enough to offset those price cuts and keep Jet.com in business?
Lore said that he believes his company will succeed because its profits initially will come from collecting those annual membership fees rather than from margins on individual purchases. He's also banking on gaining a loyal clientele by selling a wide variety of products and because it will set its prices using special price-minimizing software; this includes a so-called "smart-cart" feature that lowers the total cost of an order as you add more items to a basket.
Lore told The Wall Street Journal that once the company gets up to $20 billion in sales per year—or in about 2020—the annual membership doesn't become the main way Jet.com will make profits and the company will be self-sustaining.
Don't Have to Buy in Bulk
One big advantage Jet has over Costco is that buyers do not have to buy everything in bulk; they can buy an individual six-pack of beer, for example, instead of being forced to buy a case of 24 or more.