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Jet.com Ushers in Radical Shift of E-Commerce in Retail Marketing

in Reports & Whitepapers with tags , , , , , Both comments and trackbacks are closed.

Over the last few weeks, it’s been almost impossible to ignore headlines about the launch of Jet.com – a new low-cost e-retailer founded by the man behind Soap.com and Diapers.com, Marc Lore.

Jet.com is billed as the new innovative contender to take on industry “Goliath” Amazon.com and brick-and-mortar stores Walmart and Target. There’s been so much media hype, it’s been more like the lead-up to a world-class boxing match than your average business headline.

Despite the hype, in the short-term, traditional brick-and-mortar retailers like Costco, Walmart and Target likely won’t feel the jab of Jet.com, as surprisingly e-commerce remains a tiny portion of all U.S. retail sales – just 7% in fact.

But long-term, traditional brick-and-mortar retailers may have a bit more to be worried about. E-commerce is growing at lightning speed, even for grocery and consumer packaged goods (CPG) purchases, that have traditionally been predominantly in-store transactions. Between 2014 and 2015, e-commerce sales increased by more than 14 percent. In addition, online sales of CPG brands are said to have reached a tipping point in the U.S., and are projected to increase from 5 percent of all sales today to well over 10 percent by 2018. (BCG)

A Nielsen global survey of 30,000 people revealed that 55 percent would prefer to order groceries online, and today 30 percent of Millennials are already doing it, compared with just 17 percent of Baby Boomers. The trend towards online grocery shopping will accelerate as Millennials – the largest generation in 30 years – become the dominant share of retail spend in the next few years.

So the question is: Will Jet.com impact marketers and brands in a big way over time? In this post we provide an overview of Jet.com and outline several watch-outs and opportunities for marketers.

What is Jet.Com?

Jet.com is an online version of a discount warehouse like Costco, with a more up-to-date, Millennial-friendly shopping experience. It launched in July, and with an impressive $220 million in seed funding – one of the largest start-up war chests ever – it is promising a radial new approach to online retailing, unprecedented transparency in how it does business, and 10 to 20 percent cheaper prices than its competition.

Users are charged an annual membership fee of $49.00 (after 90 days of free use), and to date, the e-tail company has 50,000 users – of which 1/3 of them have made repeat purchases of the more than 10 million products available on the site.

The radical new business model means Jet.com will not make profit from any products it sells, but only from annual membership fees. Its strategy is to eradicate every last bit of supply chain inefficiency, to get the best deal for customers.

Consequently, Jet.com is a stripped back shopping experience, with less variety and product data, and no product customer reviews. The key differentiator is a unique “Smart Cart” algorithm that offers discounts if the shopper selects the right combination of products that can be shipped most efficiently. Shoppers can reduce prices further by waiving their rights to a free 30-day return, or by choosing to pay by debit card.

Jet.com also has an affiliate platform Jet Anywhere that gives the consumer up to 30 percent ‘JetCash’ back to spend on Jet.com.

What are the watch-outs for marketers?

  • Jet.com’s new business model is good for consumers, but not great for brands: Jet.com will make profit from the annual membership fees – not by making a mark-up by selling products. This poses a challenge to channel marketers who now have less leverage in negotiations.
  • Jet.com is not a data-rich environment like Amazon: There will be fewer opportunities to support a product through communicating product benefits, and as there are no user generated reviews, marketers won’t be able to rely on passionate brand advocates to help drive buzz and purchases.
  • Jet.com may trigger a price war with Amazon, Walmart and Costco: Once the cycle of brand price deflation begins, it’s hard to stop. It can cause a cascade of margin reduction across the entire supply chain, from retailer to manufacturer, to supplier to producer. In the end, consumers also don’t necessarily win. Manufacturers that become squeezed on prices have to rationalize product portfolios – creating less choice for consumers and slashing marketing budgets. Advertising strategies become excessively price driven, to the detriment of long-term brand building.

What are the opportunities for marketers?

  • Marketers can use Jet.com to reach the emerging consumer segment of middle class digital value shoppers. To quote Marc Lore, “There’s a huge middle class of people that are going to be spending more and more online, and for them it’s going to be about price.” The latest recession boosted the popularity of warehouse clubs, and interestingly, in the last six months 63 percent of U.S. consumers have shopped in-store at one. Only 25 percent bought online at a warehouse club – so there’s growth potential for online as total warehouse club sales are predicted to rise 29 percent to $181 billion by 2019. (Mintel)
  • Marketers can use Jet.com to make it more convenient for consumers to find and stock-up on their brands. Recent data from GroupM says 58 percent of people ‘wish shopping in-store was like shopping online,’ and 70 percent say ‘it saves time.’ 69 percent say ‘it’s easier to find the products you want,’ and 42 percent ‘love price comparisons and product information.’ With people becoming more time pressed than ever before, serving up brand products in the most convenient, consumer-centric way is vital to a brand.
  • Marketers can use Jet.com’s gamified shopping experience to cross-sell multiple brand products. Shoppers love the treasure hunt of warehouse stores, and Jet.com is no exception. Daily specials, prices that fluctuate constantly, comparison tools and the unique ‘Smart Cart‘ algorithm further make for additional shopping fun. Marketers should engage consumers on the site and offer innovative promotional bundles to cross-sell multiple brands in their portfolio.

Jet.com is intelligently leveraging emerging trends and bringing more innovation to the retail category with its radial new approach to online retailing. For marketers, its introduction is confirmation that the shift to online shopping is accelerating, increasing the importance for marketers to pause and question if their brands and retail strategies are adaptive enough to capitalize on shifting digital consumer behaviors.

Evidently, the investor community believes Jet.com will be a game changer, as it now values the site at a staggering $3 billion. Not bad for a 4-week-old company.

Cover photo via Jet Twitter