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Jet’s day one beats Amazon prices

July 21, 2015 05:17 PM
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Jet needs scale for its e-commerce business model to turn a profit. To get there, Jet founder and CEO Marc Lore said today in a televised interview on CNBC that the merchant needs 14-15 million customers generating $20 billion in annual revenue. He projects it’ll take five years to get there and more funding than the $225 million the startup’s already raised.

Jet.com came out with a bang today, its first full day open to the public, but it’s got a long road ahead. The e-retailer, which charges a $49.99 annual membership fee, is aiming to innovate around price, with a pricing algorithm that adjusts prices as consumers add products to their carts, based on how much efficiency Jet can squeeze out of the fulfillment process.

Jet started on its customer collection quest today, offering the 100,000-plus consumers it invited to test Jet.com in its beta phase six months of free membership, starting the day the consumer places his first Jet order. It also offered new sign-ups three months of free membership, or six months with the promotion code “LESSMAYO,” a take on a joke explained in a five-minute video instructing consumers on how Jet works and how it is different from other online retailers. Jet also engaged in a media blitz, with Lore appearing on CNBC’s Squawk Box and NBC’s Today show. It’s also wrapped New York tour buses with the message “The biggest thing in shopping since 99¢” and began posting to Facebook and Twitter.

But since its pitch is all about price, several price monitoring firms immediately began tracking and comparing its prices against market leaders. Tracking 900 products, Boomerang Commerce found 729 of them priced cheaper on Jet than on Amazon.com Inc.

Profitero meanwhile tracked more than 16,000 matching products across Jet, Amazon and Walmart.com. It found Jet prices were 9% lower than Amazon and 6% lower than Walmart.com, on average. The analysis did not factor in additional ways consumers can save money on Jet, such as by waiving the option to return items or paying with a debit card instead of a credit card.

Where things might get really interesting, says Boomerang Commerce CEO Guru Hariharan, is if Amazon decides to price match Jet, and other retailers follow. “Retailers like Walmart and Best Buy, they match Amazon pretty vigorously, especially on popular products,” he says. “Imagine the situation if Amazon matches Jet, and the other retailers start blindly matching Amazon, in turn they are starting to match Jet. There is going to be massive profit erosion.”

There’s no sign, yet, that this might happen. Amazon, No. 1 in the Internet Retailer 2015 Top 500 Guide, declines to comment whether it will add Jet to the list of sites it will price match for TVs and cell phones.

“It is clear Jet is pricing aggressively at launch,” says Keith Anderson, vice president of strategy and insights at Profitero. “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.”

Hariharan says most retailers aren’t concerned about Jet yet, and are waiting to see whether Jet gets traction with consumers and poses a threat to their own businesses.

If so, everyone will be watching.

 

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