Jet.com, the marketplace that launched in July 2015 and positioned itself as a major competitor to Amazon, has dropped its $50 annual membership fee, making the site available to all shoppers. The e-Commerce retailer’s CEO, Marc Lore, made the announcement in a post on blog publishing platform Medium.
The initial $50 subscription fee was only half of what Amazon charges its Prime customers per year ($99), and was initially touted as the primary revenue generator for the marketplace. With this large portion of sales now out of the picture, Jet.com will have to find other sources of revenue. Making the decision even more confusing, Lore himself predicted that it would take five years for Jet to grow to a point where it is not losing money on every shipment, and that was before the company changed its business model.
Eliminating the upfront fees of a membership model will create a bigger challenge for Jet as it looks to keep down its product prices. After all, much of the company’s hype came from its club pricing model, which aimed to make its products cheaper than those at Amazon, or any other retailer on the web for that matter.
The company plans to keep these prices low by subsidizing them with the sales commissions it collects from partner merchants of the site, according to The Wall Street Journal. Partner retailers give Jet a percentage of each sale on their products sold through Jet.com.
Of course, without the membership fee, Jet can now rely on a larger group of potential customers. The move also appears to broaden the marketplace’s appeal to more retailers and suppliers that don’t want their products heavily discounted. The Wall Street Journal report noted that while Jet’s product prices were lower on 73% of merchandise overlapping with Amazon, Jet only had 31% of the items listed on Amazon.
While the dropping of the membership policy raises questions about Jet’s direction, Lore indicated in his post that the average number of units per order is twice what the company expected upon launch. He also talked up the site’s Smart Cart feature as a reason to eliminate the membership fees; the feature gives consumers further discounts for ordering more products that can be delivered in one trip. Smart Cart is a dynamic pricing model that adjusts pricing depending on which distribution centers the purchased items originate from.
“Our customers are taking every advantage of our dynamic pricing engine to place orders that can be fulfilled at a lower cost — and to have those efficiencies shared with them as savings,” Lore said in his statement. “In turn, our retailers are reaching new customers while capturing more efficient and profitable orders. By enabling even more people to embrace this new way of shopping, we believe we can more fully realize our vision of a reshaped e-Commerce landscape and deliver unprecedented value to consumers and retailers.”
Smart Cart discounts are typically 4% to 5% off the purchase, according to Re/code.
Jet.com initially made its splash throughout retail in April 2015, when the company launched its beta site and invited its top 10,000 “Jet Insider” members to join.
The retailer caught negative attention from potential competitors when it linked to numerous retailers’ e-Commerce sites without permission as part of its affiliate link program. The links offered customers cash back through Jet in exchange for making external purchases on the linked retail sites. Jet.com removed more than 100 links in response to the outcry, with most coming within a week of the marketplace’s launch.