Opting Out of Traditional Discounting: The Jet Model
Research shows that “the savvy shopper” consumer segment is growing. Driven by a continuous shift to mobile sales and the expansion of marketplaces, more customers are researching products and comparing prices prior to making final purchase decisions.
The result? Retailers are constantly undercutting one another to win sales — sacrificing margin for volume.
This retailer “race to the bottom” is compounded by the fact that customers have been conditioned to expect free shipping and free returns. A recent Lab42 study found that 96% of online consumers are more likely to shop on a site if it offers free shipping, and 87% of online consumers are more likely to shop on a site if it offers free returns.
In this environment, retailers are offering static prices to customers while ignoring the extreme variability in underlying costs of each transaction online. Right now, a retailer in California may be winning an order in New Jersey by pricing a single dollar below another retailer located right next to the customer – despite the fact that it may cost the California seller an extra $8 to ship the product.
These underlying costs can vary from representing less than 10% of an order’s value to over 30%. For example, headphones shipped alone across the country will be significantly less profitable for a retailer than those same headphones shipped with three other items in the same box to a customer down the street from the warehouse. However, in today’s environment, most retailers would charge the same for these headphones in both scenarios.
This is where Jet’s dynamic pricing technology comes in – our seller tools expose the inefficiencies in e-commerce today, allowing retailers to target the orders that are most profitable for them. By adjusting prices based on underlying fulfillment costs, Jet’s retail partners can maintain higher profit margins (avoiding the traditional “race to the bottom”) while delivering great value to shoppers.
For Catalyst attendees looking more information on how retailers can use Jet’s dynamic pricing tools to improve e-commerce economics, please join us for a brief presentation in the Catalyst Theater today (Tuesday, April 12) from 3:15-3:30 p.m. PDT.
Blog post by Marc Hostovsky, Manager of Sporting Goods & Outdoors at Jet.com