Jet.com plays 'scale game' to take on Amazon

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Start-up e-commerce membership site Jet.com took off less than two weeks ago, but the company's CEO tells CNBC it's already flying with big ambitions.

With a $49.99 annual membership fee and free shipping for orders of more than $35, the site has Amazon Prime, warehouse clubs and online retail sites squarely in its sights. In an interview with CNBC's "On the Money," founder and CEO Marc Lore claims that shoppers get more value the more they buy.

Jet.com differs from its competition because of an algorithm that is able to adjust prices as you shop, he said.

Read More Jet vs. Amazon: Here's the price war winner so far

"We built this technology that actually helps pull supply chain costs out of the system," Lore told CNBC, adding that the more you buy, the less you pay for each item.

"We built this dynamic pricing engine that actually reprices products in real time as consumers shop to reflect the true marginal cost of getting that product to you, based on knowing what's in your basket," he added.

Lore says the savings are mostly on the cost advantage of more efficient shipping.

"The more product you get into the same box," he said, "and the closer the buyer is to the inventory, lowers shipping costs."

According to data from e-commerce intelligence firm Profitero, Jet.com's prices were on average 8 percent lower than Amazon's and 6 percent below Wal-Mart's . Profitero analyzed 16,000 identical items across seven categories at the three retailers in its study last week.

Lore told CNBC that Profitero's analysis was based on the "starting price," and that consumer savings will be even greater over time-perhaps as much as 10 to 15 percent less.

"As you shop in a smarter way and build your basket, the marginal cost to ship additional product comes down so you see that in real time," he said. "The prices are coming down."

Read More Amazon may buy upstart Jet.com: Munster

Jet.com has $225 million in investor funding. Not unlike Amazon-which recently stunned Wall Street by posting a rare profit in its latest quarter-Lore told CNBC he expects the company to lose "hundreds of millions" of dollars until 2020.

"This is really a scale game." Jet's CEO explained. "And we put out there that our goal is to get to $20 billion [in annual sales] in five years, at which point we'll be at scale."

In other words, Lore has no fear of red ink-at least until he gets what he wants. "In the short term, we will incur losses until we get to scale," he said.

CNBC asked Lore about an order placed for a single toothbrush for $2.11. It was part of a larger order, but the toothbrush arrived separately in a shipment from Walmart.com, and the receipt Jet.com sent showed a total cost of $8.10. How can the company afford to absorb those kinds of losses?

"In that particular case, we're simply bridging. We're start-ups still. So it's still the early days," Lore explained. "So the fact we went out and bought it at Walmart.com, in this case, is just a temporary bridge."

Lore said the company has warehouses in New Jersey, Kansas and Nevada, and expects to increase that number. "By the next 12 months we'll have just about every everyday essential product you can imagine in the warehouses."

Lore has had success in this sector before. He was co-founder and CEO of Quidsi, the company behind Diapers.com, Soap.com and pet supply site Wag.com. He sold the company to Amazon in 2010 for $545 million, only to go head-to-head with them five years later.

Yet could history repeat? Would he contemplate selling Jet.com to Amazon.com or someone else?

"We're not thinking about that now," Lore said, "We think there's a really big opportunity to create a large business."

"On the Money" airs on CNBC Sundays at 7:30 p.m., or check listings for airtimes in local markets.

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