It might have only opened to the public 10 weeks ago, but Jet is making a major course correction in its business model — membership is now free.
The online marketplace launched under the premise that it would make all of its profits from a $49.99 fee charged to members. Jet founder Marc Lore was very vocal that instead of taking a cut of sales, the company’s value proposition was to pass all savings on to members. Now it plans on keeping a part of the commission paid by merchants.
“We saw people adopting our proprietary platform, the Smart Cart (buying items that go together in the same cart/order), more than we thought and buying bigger baskets,” said Liza Landsman, chief customer officer. “Our beta users got it, but they are typical early adopters [we believed]. We thought, it’s going to take us a while to get to that level of behavior with new folks.”
But it didn’t. Early results show that carts contained double the units expected. Landsman said that of members buying more than one item, 97 percent are taking advantage of some kind of smart saving, including buying products from the same merchant to cut costs.
Landsman told WWD that the change is not a result of business lagging. She contended that the marketplace has seen “great growth” thus far, pointing out that the site saw a gross merchandise volume of about $10 million in August and a little over $20 million in September. At midday today, sales were 27 percent over yesterday.
All members are still in a free trial phase, so the transition wasn’t a result of price resistance for the membership free.
“The places where you can make money is commission or charging a membership fee,” said Landsman. “All along, we have been taking commission from retailers who sell on the marketplace. Typically, we were keeping a little bit of that for operating costs and passing a big chunk of that to consumers in the form of the initial price of the product.”
But if Jet could, instead, keep a larger part of merchant commission and not charge membership fees, this made the most sense. She said the sheer fact that more users were adopting the Smart Cart than originally projected led her to look at the potential implications for the model.
“What if we can deliver all this value through the Smart Cart savings and then make the economics work and not charge the fee?” she said.
Admitting that this change “sounds sort of crazy” for such a young company, Landsman reasoned that it would be better to implement the strategic shift before existing members had to start paying a fee once their free trial was up.