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Five things Jet.com needs to do to rival e-tail giant Amazon

After officially launching in the US on Tuesday, the retail industry is looking at Jet.com as a potential rival to eCommerce giant Amazon.

The new pureplayer raised $255 million before launch and claims its prices are 10-15% cheaper than online competitors. Jet.com charges a membership fee of $49.99 per year, providing customers with free two-day delivery as well as video and music streaming.

So what does Jet.com need to do to be a successful online marketplace?

1. Club Price savings

Jet.com claims it will not make a profit on the products it sells, only from its membership fees, which will allow the e-tailer to keep prices low and give it a unique advantage over Amazon.

Jet.com also offers further discounts when customers choose to buy additional items. Using pricing algorithms, the e-tailer matches the basket item to similar items in the same merchant's warehouse and offers a real-time discount. The data is also used to triangulate the optimum merchant, packing and shipping zones to reduce system costs and in turn reduce prices for its customers.

Nicole Santosuosso, junior analyst at Kantar Retail, said Jet.com and Amazon are targeting two different types of shoppers. "Amazon provides convenient online retailing and immediacy by delivering products as fast as possible, while Jet.com is targeting the value-minded shopper who is willing to wait a few extra days in order to save money."

But if Jet.com wants to make a big impact in the eCommerce world it will need to keep its prices low. "If you compare the membership fees, Jet.com is $49.99, half the price of an Amazon Prime membership," she added. "Jet's play will be on price."

2. Get 'discounts for data' right

As well as clever algorithms creating the cheapest prices, Jet.com is also offering further discounts if customers part with their personal data, such as an email address. Nikki Baird managing partner at RSR Research wrote in a blog post that while retailers have been offering rewards for this behaviour for years through loyalty programmes, it has never been offered so explicitly.

"How many times can a consumer sell his or her email address and still collect a discount? Will the offer evolve over time to include the gender of your dog? Your mum’s birthday?" she asked.

Jet.com will have to be careful in how customers respond to this explicit tit-for-tat approach – customers could either be put off the idea preferring to pay more money for anonymity, or happily hand over all their data in exchange for a couple of dollars discount. Either way, ensuring customers are not driven away by such an approach is important. 

3. Scale and launch globally

Jet.com currently has around 2,000 retail partners which conduct two thirds of customer fulfilment, with Jet.com supply and delivering the remaining third.

The marketplace encourages customers to engage with these third party retailers, and many offer further discounts in exchange for personal information. Customers are also rewarded with Jet Cash if they spend money with partners rather than Jet.com directly, implying the direction the marketplace is hoping to move in.

If the marketplace can expand this network of retail partners that will be the way to scale globally, said Santosuosso: "These partners will help them scale and grow as part of the overall marketplace."

4. Keep expanding its value-added proposition

By offering music and video streaming as part of the membership package, Jet.com does look as though it is challenging Amazon Prime. But Jet.com told technology magazine Re/Code that it won't be fighting over Amazon's Prime customers as it admits the eCommerce native beats Jet.com when it comes to next-day delivery.

But offering these additional perks, like media streaming, is a defensive move, managing director at Conlumino, Neil Saunders, told Essential Retail.

"One of the problems is it is very easy for people who want music to enrol in Amazon Prime, so it's quite a defensive move by Jet.com to ensure customers don't have to belong to another community."

He said the annual membership fee calls out for value-added services for customer acquisition and retention purposes.

"It's quite important to keep adding to this," he said. "Because a lot of these membership programmes are about forming an ecosystem you buy into. There's the discounts and delivery, but also there's a lot of incremental benefits and the more you add, the more people you can attract to the ecosystem."

5. Logistics and supply chain

Amazon has had two decades to perfect its supply chain model. And Spencer Izard, head of Europe at IDC Retail Insights, said this is what Jet.com must get right in order to be a serious competitor to the e-tail giant.

"Whilst Jet.com operates akin to a Costco members-only model, which differs from Amazon being open to anyone, for them to be truly competitive they will need to provide the same level of convenience in regards to order fulfilment and customer service in regards to return and other issues. As these are the two areas that differentiate Amazon, at volume of transactions, from many others."

He added: "As Jet.com is essentially a deal aggregator, by sourcing the range of products a consumers wants across retailers to the lowest cost, so to compete with Amazon their ability to fulfil orders and provide excellent customer service must be on par."

Izard questions what Jet.com will be able to offer in the long term that Amazon cannot respond to itself.

If Jet.com intends to compete with Amazon in any shape or form, it needs to ensure it is using the latest technology to tighten up its supply chain as the industry continues to modernise and fast deliveries become more and more the norm.