Red-hot ecommerce startup Jet has just completely shifted its business model, dropping the $US50 membership fee that it once proposed would be its sole source of profit.
The move comes less than three months after Jet’s official launch in July.
Originally, Jet used a Costco-esque model: Instead of making money on individual product sales, its profit would come from the $US50-a-year membership fee. It would convince people to pay the fee by promising prices that were 10 to 15% lower than anywhere else.
With that audacious push to take on Amazon, Jet raised $US225 million at a $US600 valuation. Now that it’s dropping the membership fee, the company will try to make profit margins on each sale.
CEO Marc Lore announced the news on Medium, writing that “the response to Jet’s core value proposition has been stronger than we anticipated.” He’s referring to Jet’s “Smart Cart” dynamic pricing model, which offered shoppers discounts when they combined multiple orders into a single shipped, waived the ability to reutrn something, or used debit cards instead of credit cards. Originally, products started about 8% cheaper than they could be found elsewhere, and the Smart Cart savings would knock off another 4 or 5%. Now, it’s all about the Smart Cart savings.
Lore assured Re/code’s Jason Del Rey that the company isn’t cutting the fee because it didn’t think enough people would pay for it. The move, he says, comes because the company noticed that people were buying more per visit than it expected, and because dropping the fee will help broaden its appeal. Eliminating the up-front ~8% discount will help convince retailers who don’t sell on eBay or Amazon to try it out.
“A lot of brands and retailers were telling us, ‘We love that you’re brand-friendly and if you just didn’t have these (discounted) starting prices, we’d be really interested,” Lore told Del Rey. “We think long-term we have the ability to win with brands and retailers that don’t want to sell on other marketplaces.”
Lore has previously said that Jet didn’t plan on reaching scale or profitability until 2020, when it projects to have 15 million paying customers and $US20 billion in sales.
It’s unclear how this shift will alter those projections.