How to Lose $220 Million Very Quickly
I have definitely learned to love Amazon Prime. The tangible benefits – free two day shipping and free TV/movie/music streaming, not to mention free photo storage and a free Kindle lending library – clearly seem worth the low $99 yearly fee.
But what happens when customers do not perceive the core value proposition of a company as worth the price or their attention?
That may be the case with a new service called Jet.com.
Days after Amazon’s Prime Day this summer, Jet.com released it’s ‘membership club’ price savings model worldwide. Trying to position themselves as an online version of Costco, they claim their algorithm-based pricing model takes the inefficiency out of pricing so that consumers get lower prices with the ability to “opt-out” of non-necessary costs that have been baked into retail prices. For example, if you put a jar of peanut butter into your shopping cart, the cost of a jar of jelly decreases in real time to reflect the savings associated with buying a “bundle” of goods.
As a consumer, it is clearly it is enticing to see your total bill decrease per item as the number of items in the shopping cart increases. The question is whether or not consumers will pay a membership fee based on the promise of future cost savings from an algorithm they can’t see or touch – basically in “a black box.”
Will consumers trade real dollars for something intangible, like a promise? Is the value proposition of a promise valuable and real enough?
What happens if Internet consumers are not as price sensitive as Jet seems to think? What happens if consumers opt to stay with Amazon for the value they add to prime, an excellent customer experience and overall superior customer service? What if Internet consumers are becoming value conscious and not just price conscious?
Definitive answers to these questions will determine if Jet.com’s $220 million in investment to date will quickly become a painful memory or a fortuitous wager.
Now, contrast Jet.com to Telegram, which allows users to encrypt messages sent in the Telegram app. In December 2014, Telegram handled one billion encrypted messages. Seven months later, in July 2015, Telegram handled over 10 billion encrypted messages proving that secure messaging is a ‘need to have’ service and powerful value proposition, even for the masses.
Take a look at your company’s value proposition. Is it a “nice to have’ that may or may not resonate with customers like Jet.com or a ‘need to have’ that solves a perceived need for secure messaging that has rapidly resonated with billions of people per day?