Amazon vs Jet for Brands - Should Sellers Ditch Amazon?

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Soon after mass e-tailer Jet.com launched, I tested out their system from a consumer’s perspective. Their aggressive pricing promise checked out, and it seems like they could be a viable competitor to Amazon in the online shopping world.

But does Jet offer a viable alternative to Amazon for sellers and brands?

Many Amazon sellers have a love-hate relationship with Amazon: while its access to consumer wallets is unparalleled, Amazon has a reputation for being inflexible and opaque in their policies.

Since we consult with businesses to help increase their revenue on Amazon, I wanted to if Jet might be a real alternative. After comparing the two, I suggest that it’s only suitable larger sellers and brands with their own established, well-oiled fulfillment capability.

Unlike Amazon, Jet does not have its own fulfillment warehouses, instead relying on a network of Sellers (known as Partners in Jet-speak) to fulfill customer orders. So brands which currently utilize the FBA system for order fulfillment will need to set up their own fulfillment process - whether that’s through their own warehouse or a 3rd party logistics provider (3PL).

But if you’re a brand which has this infrastructure in place, it may be worth your while to explore Jet as an additional channel. They seem to value their retail Partners, since unlike Amazon, they do not own any inventory themselves, and so relationships matter. And they address common pain points with Amazon Seller policies and systems.

Here is how Jet is different to Amazon from a Brand/Seller perspective:

Sales tax obligations

Jet: manages state sales tax obligations for Partners.
Amazon: Seller is responsible for sales tax obligations, technically in every State that their inventory is warehoused.

Following the letter of tax law and what constitutes a “Nexus”, Amazon Sellers should be collecting sales tax in every state where their inventory is held. If you have inventory in multiple states (as most FBA sellers do), this is a gargantuan reporting and administration burden.

Jet has set up their system so that they are technically the seller of record - meaning Jet will collect sales tax and remit collected taxes to taxing authorities. This relieves a huge burden on Sellers who currently utilize the FBA network.

Payment frequency

Jet: Weekly payouts
Amazon: Bi-weekly payouts

Frequency of payouts may be significant for businesses with a tight cash flow cycle.

Pricing strategy

Jet: the retailer with the lowest price wins the order.
Amazon: multi-factor algorithm calculates which Seller is awarded the sale (AKA “Buy Box”)

Amazon’s ‘buy box’ is awarded to Sellers based on factors such as Seller rating, relationship with Amazon, and price. This system is meant to distribute sales between Sellers to ensure everyone gets a piece of the pie. But some Sellers complain that this is not the case.

Jet’s model favors price above all else. You can only win on Jet if you own the brand and are the exclusive seller, or have the best pricing (if you’re a reseller).

Relationship with the customer

Amazon: Does not provide buyer email, Sellers cannot direct customers to other websites, strict rules about contacting customers.
Jet: can view customer contact info including email, Partners are allowed to contact the customer directly.

Many online businesses see email lists as their most profitable and effective way of marketing to customers, so this could be a big win for brands.

Jet promotes themselves as giving Partners the ability to “build a direct relationship with the customers you acquire”. In reading their Terms of Service, there is a caveat - you cannot contact customers who have opted out of receiving marketing communications. It’s unclear how many members will start opting out of marketing communications from brands - if I’m getting chased by multiple brands on Jet because I bought an item from them, I will opt out of everything pretty quick.

Above: A handwritten note from the CEO of Jet to one of its first
customers via @plusdoug on Twitter

Fee structure

Amazon: varies by category. Generally includes a variable closing fee (often 15%) plus fulfilment fees, monthly Seller fee ($39)
Jet: varies by category, but generally a 15% fee on retail price. No membership fee.

For any item sold on Jet, the amount of Commission charged = Applicable Commission Rate * Retailer Price + Dollar Based Adjustments.

Like Amazon, Jet assigns standard variable fees (known as commission rates on jet and referral fees on Amazon) depending on the item category. Like Amazon, most categories are set at 15%, but others, like Pet Supplies, are 5%.

Partners can then adjust the commission rate by various factors, including relative shipping zones and/or overall dollar amount of any basket-level order. You can also make fixed price (“dollar-level”) adjustments instead of/in addition to percentage rate adjustments.

Jet’s business model relies on Customer member fees to turn a profit - not seller fees. So you are likely to end up paying less in fees on Jet.

Jet Example:

Retailer Price = $100
Base Commission Rate = 15%
Commission Rate Adjustments = +2%
Applicable Commission Rate = 17%
Applicable Commission = $17 ($100 * 17%)

system Integration

Jet: has an open API which can integrate with your existing inventory management system
Amazon: relies on sellers to upload static inventory & product fees

It boggles my mind that a $200 Billion company like Amazon makes its Sellers use spreadsheets to add new products and manage inventory levels. Sure, there are software solutions that help larger sellers manage this more easily, but that comes at a price and is rarely a clean and simple solution.

The fact that Jet has an open API and integrates with several popular inventory management systems right off the bat, means that companies can hook up easily to their existing internal systems to manage products, sales, and inventory.

Seller Rating system

Jet: qualitative assessments based on operational metrics
Amazon: point-based system for tracking seller performance

Jet seems to place a high value on operational responsiveness and accuracy by its Partners. Not acknowledging an order within 15 minutes, order defects, items not shipped fast enough, all these incursions will reduce your partner rating. Another reason why Jet is suited to larger brands with established and well-oiled fulfilment operations.

The result of not meeting these obligations at this time seems more qualitative than Amazon’s point-based system for tracking seller performance. Jet’s response to Partners who don’t meet their obligations is to develop an action plan and monitor ongoing performance, suspending the partner from the platform until they can demonstrate their capability again.

Above: Screenshot of a forum post from an Amazon seller who claims to have their account shut down by Amazon because of a late shipment.

Owning the product

Jet: Partners must be authorized to sell the products they list
Amazon: Anyone call sell a product in their possession, with some exceptions

Jet states that “All Retail Partners should be authorized to sell the products that they list on the Jet Marketplace.” It’s unclear how or if they will police this rule.

The nature of the Amazon marketplace has spawned an industry of consumers engaging in “retail arbitrage” - buying products cheap and re-selling them on Amazon for a profit.

If you have a brand which wants exclusive rights to sell on Amazon, it is possible - but you must list it in the Amazon Brand Registry and manually seek out and scare off any “squatters”.

Search & Product Ranking

Jet: Jet curates which products show in product searches
Amazon: multi-factor search algorithm based on sales velocity and reviews

Amazon has a semi-secretive search algorithm which determine which products show up under certain search terms. By now, most savvy Amazon sellers know the algorithm favors products with high conversions, high sales velocity, and a high number of reviews.

Jet has a different approach. Jet chooses whether your product even shows in the search results for a product!

“The product list provided by the Retail Partner and the associated Product Content will be evaluated using Jet’s proprietary curation process to determine which products will be included in general search results on the Jet Marketplace. Products that are not included in general search results may still be available for sale on the Jet Marketplace and included in brand-specific search results.”

The Brand has the option to appeal such a decision and have it reconsidered.

This is a big potential drawback/unknown for brands considering selling on Jet. Why spend time integrating with Jet when your product selection may not even show up?

Listing

Jet: Locked product listings
Amazon: Sellers can update listing descriptions, product names/titles, and images

Jet maintains control of the content, appearance, design and other aspects of each product listing. Its unclear to what extent brands can update or optimize element such as product listing copy, product titles and images.

Returns

Jet: strict return rules, rewards customers who do not return items
Amazon: Uber-generous return policy which favors the customer

For many Amazon sellers, returns are an unavoidable cost of doing business. Because Amazon focuses on customer service & satisfaction above all else, some unscrupulous customers return items under the auspices of an item being damaged or defective. Such fraud can be a significant cost burden both in terms of inventory loss as well as time taken to track and dispute claims.

Jet maintains that partners are responsible for Damaged, defective and incorrect items, but Jet also has categories of Non-Returnable Products and Product Categories. There is also an incentive offered to Members to waive their right to return an item. Its possible that brands might see less returns through Jet than Amazon.

Above: Jet employees & distinctive purple mailing boxes. Via @sarabsingh12 on Twitter

In summary

While there are still unknowns, Jet presents a real alternative to Amazon for more established brands. Amazon has progressively grown to be a larger and larger revenue stream for some brands, which can cause a risk of concentration in a single channel. We’ve heard horror stories of Amazon wantonly shutting accounts or product listings down for minor incursions.

It’s early days with this new platform, but it does show signs of promise. We will hear a lot more of Jet in the coming weeks as they officially launch to the public. It could be the perfect time to jump on board with the next new thing.