You’re probably familiar with the meteoric rise of Casper, the mattress company that went from startup to $750 Million in just 4 years. They did so by bringing a fresh, new brand to a tired, old industry. As Casper took the mattress industry by storm, new competitors started popping up seemingly overnight. As a result, the race to acquire customers began getting extremely competitive with customer acquisition costs (CAC) increasing as much as 80% between 2014 and 2017.
In the face of increasing competition and rising CAC, Casper made a splash with the 2018 announcement that the direct to consumer (DTC) unicorn would be opening 200 brick-and-mortar stores to position their brand as a destination to purchase a variety of sleep products. The move reduced customer acquisition costs and helped Casper expose further products like pillows and covers to their customers, a strategy they hope will cause customers to view them as more than just a mattress company.
Why the move away from being known as just a mattress brand?
For the most iconic mattress brand of the new millennium it may seem odd to outsiders that Casper would want to expand their brand beyond the mattress, but looking at the basic business metrics it makes a lot of sense for Casper, and every retail brand, to do the same thing.
Casper ran into stiff competition and rising customer acquisition costs as all brands do through their growth. However, the real underlying problem is the limited lifetime value (LTV) that a mattress customer brings. Casper was able to introduce a good-better-best product approach which likely boosted average order value (AOV), but even with a slight boost the average consumer might buy a new mattress once every 10 years. This means that CAC is a metric by which the company will live or die.
For today’s performance marketers, breaking even or a slight loss on an initial purchase is typically acceptable as significant efforts are expended in re-engaging customers to drive up AOV and LTV with complementary products outside of the brand’s core offering.
Casper, who runs over 100 active Facebook ad campaigns for their US brand alone, does not have this luxury if it is only known as a mattress company. Combine that with stiff competition and the odds are they will have to win back their customers with each purchase, which means significant costs even with repeat purchasers.
So it makes sense that Casper wanted to move beyond the dynamics of selling only mattresses and become a brand known for sleep products of all varieties. The first stage of this approach was to introduce pillows, sheets, and bedding which makes sense as their production facilities can easily offer most of these products with little additional investment. Additionally, the move into stores means cheap traffic exposed to a novel online brand traditionally known for mattresses will ‘discover’ these new products at approachable price points.
I hesitate to suggest brands should move offline quickly, even though the dynamics of brick-and-mortar retail can be very attractive from a brand exposure and cost per visit standpoint. Caspers next step (one that I would have recommended before moving into B+M) is to rule the sleep lifestyle completely by positioning themselves as the go-to brand for everything sleep related. It may sound aggressive but this is a move that all brands are going to take to dominate retail in the future.
We are on the precipice of the next great land grab and it is in the category ownership space.
To own the sleep category, Casper has two main options;
- Bring more sleep related products in owned inventory
- Increase assortment of sleep related products by inviting third party sellers to offer their inventory of products
For Casper, bringing anything into owned inventory requires time – negotiating bulk purchases from suppliers, gaining expertise in the product, developing a pricing and merchandising strategy, and integrating the product into the supply chain for logistics. Since time to market is critical in a highly competitive industry like this, owned inventory is not a great approach.
With a marketplace powered by vetted, established third party sellers, Casper could have a handpicked collection of sellers offering thousands of sleep related products in a matter of hours, giving their customers the choices they expect from the go-to brand for sleep and creating price competition that ensures the fair prices today’s consumers expect. Ultimately, there is no risk with this strategy; Casper doesn’t pay any upfront sourcing costs and doesn’t need to hold additional owned inventory. All Casper does is please its customers by having available the products they are looking for.
That’s right, they are going to start selling vetted products that compliment their lifestyle brand and cost them little to nothing in upfront production costs. They’ll utilize a dropship fulfillment model to expand their marketplace selection and be able to sell customers products that help them from the moment they step into the bedroom through getting up out of bed in the morning.
Casper can take advantage of sleep trends without having to take risks in an investment that leaves them with warehouses of unsold inventory. And they can find consumables in the space which lead to consistent, ongoing purchases from customers whom they currently frequent once a decade at most.
None of this takes away from the Casper brand, rather it strengthens their hold in the Sleep space. In their perfect world you would go to Casper.com to learn about trends in sleep, find new products that help you attain the perfect night’s rest, and even check in with your sleep influencer. You might even have a subscription to CBD oils and melatonin from Casper that arrive every month.
This is the future of ecommerce and a future that is not just for Casper. Every brand needs to define what category they want to own, for owning a lifestyle category will be the only way to have long term success in retail as costs increase and there is an infinite longtail of upstarts and product disruptors on every horizon. It’s a great time to be a brand and an even better time to make your brand more relevant to consumers by offering them more than the simple selection of products you have sitting in a distribution center.
Who owns your category today?
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