On Wednesday, Jet announced that it was ditching that membership fee, a move that appears to be a concession that it has not attracted as many shoppers as it expected. Eliminating the fee might make the site more attractive to more shoppers, but it also profoundly shakes the company’s business model.
If Jet is not making a profit from these fees, as it originally planned, it’s difficult to see how it could become profitable without consumers ultimately seeing higher prices. And raising prices would make it harder for the company to compete against the likes of Wal-Mart and Amazon.com for discount shoppers.
Jet did not immediately respond to a request for comment about how it would aim to make money given this new strategic tack.
Jet has had a somewhat bumpy debut in the retail marketplace. It chafed some of its fellow retailers with the Jet Anywhere program, which gives customers rewards they can use on Jet when they shop at outlets such as Ann Taylor or Petco. Some retailers asked Jet to exclude them from the program. Meanwhile, some shoppers have taken to social media to complain about long delivery lag times or other customer service snafus.
Still, in the announcement about abandoning the membership fee, chief executive Marc Lore also highlighted sunnier news for Jet: The average number of items per order has been double what the company expected. And that is a sign that its other key value proposition — a pricing model that rewards multi-item, bundled orders — is catching on with its shoppers.
Lore has made the case that the trouble with Amazon’s Prime program is that it has trained consumers to “un-bundle” their orders, meaning that the promise of free two-day shipping on everything has made you feel okay about, say, ordering a book to read on vacation and then placing a separate order for a bathing suit 10 minutes later. That increases shipping costs for the seller, which will have a harder time offering rock-bottom prices. Lore has hoped that Jet would retrain shoppers to place bigger orders that are easier for sellers to deliver at a lower cost.
Also encouraging for Jet’s future prospect is a recent study from ChannelAdvisor, which found that the start-up is having success in building a stable of repeat customers.
(Amazon’s chief executive, Jeffrey P. Bezos, owns The Washington Post.)