How One Mattress Is Disrupting the Sleep Industry
NEW YORK—How do you get your product noticed in a saturated market? Casper is one of the few successful startups that cut through the noise with a disruptive product in an old industry. Founded in 2014, the New York-based online mattress retailer created a unique message and a business model to get customers to jump on its offer.
“When we first started, there were many companies selling mattresses online. We were not the first ones. However, we made that a conversation,” said Luke Sherwin, Casper’s co-founder and chief creative officer.
The startup revolutionized the industry by offering just one mattress that ships inside a box. In addition, it offers a 100-night trial period with a full refund—something previously unheard of in the industry.
Customers loved the message after Casper’s launch in April 2014, and the company generated $1 million in 28 days. Now Casper is one of the fastest growing consumer brands, grossing $100 million in 2015.
“No one offered just one perfect mattress, one type of firmness, and a 100-night-trial before,” said Sherwin. “We worked very hard on making our message and our customer experience comparable to the ones that already had this kind of online disruptive model in other industries.”
Casper raised $70 million in venture capital funding in less than two years, attracting prominent names like celebrity investor Ashton Kutcher. In its latest funding round, the company reached a valuation of $550 million.
By contrast, Mattress Firm (NASDAQ:MFRM), the industry’s largest specialty mattress retailer by number of stores, has a market capitalization of $1.5 billion and had annual sales of $2.3 billion in 2015.
The lofty valuation means investors believe in Casper’s future as an online mattress retailer. Its long-term potential is hard to estimate, however. Online sales captured less than 10 percent of a $14 billion-a-year retail mattress market in the United States.
Casper invests in both online and traditional ad campaigns to get the word out. In New York, Casper is currently running ad campaigns in taxis and on subways. It is also active in social media.
“When we did our first subway campaign, we took a huge leap of faith. It costs multi-six figures to do one campaign. It turned out that it was working. But the risk was really acute and I think it is one of our biggest wins ever,” Sherwin said.
Casper has a big risk appetite for both marketing and its product line. “Like the subway campaign, we invest in things when we don’t know if they are going to work or not. We try to create concepts that are wacky, that do not talk about a product but an emotion and see if they sell,” said Sherwin. “Whereas, in a typical mattress ad, you will see a huge discount and a message like: ‘Your spine being aligned.’ So I think we make investments in learning. Our risk appetite is high.”
The most effective marketing strategy for Casper so far was sharing stories and videos about customer experiences on YouTube and Facebook. “Even if we advertise on radio, we don’t advertise with a radio host unless he or she is sleeping on a Casper,” Sherwin said.
Casper likes sharing personal reactions, recommendations, and referrals. They are the most effective marketing tools, according to Sherwin. However, the ad campaigns are backed up by the quality of the product.
One Perfect Mattress
Casper offers one single model, which is a medium firm mattress. Casper’s founders spent 9 months visiting 15 factories to test and understand the properties of more than hundreds of foam samples. And they finally came up with an ideal firmness and design, which the company calls “one perfect mattress for everyone.”
“Our research led us to the discovery that a single, well-balanced sleep surface could cater to the vast majority of sleeping positions, body types, and slumber eccentricities,” states the company website.
The secret to the Casper mattress is the patent-pending combination of springy, breathable latex foam over supportive, pressure-relieving memory foam.
“It is a mattress that takes the best of both worlds,” said Sherwin.
The company currently ships to Canada and the U.S. And the mattresses range in price from $500 for a twin to $950 for a king, including shipping.
The mattresses are designed and manufactured in the U.S. They are available in all six standard sizes and backed by a 10-year warranty.
The company is able to compress the mattress using a compression machine. This allows Casper to conveniently ship the mattress in a box that fits in the trunk of a taxi.
Casper employs 13 people in its product design team led by Jeff Chapin, Casper’s co-founder and chief product officer. Before joining Casper, Chapin worked for nine years as a designer at IDEO, a design and innovation consulting firm.
Based in San Francisco, the product design team works on perfecting the existing mattress as well as creating new products.
The Old Competitors
Casper’s mattress is designed to resemble a cappuccino, with a light layer of foam on top. Most features of Casper’s business model, including this cappuccino design, the 100-night trial, and the bed in a box concepts are now being imitated by new competitors, according to Sherwin. He calls them liberal emulators.
“This is why we raised money. We have chosen to invest in the future,” Sherwin said. In order to stand out and differentiate the brand from the competition, Casper continues to invest heavily in product innovation, human resources, and advertisement.
These online mattress startups, however, do not bother the company. The main competitor for Casper is the old industry.
In February, Mattress Firm Holding Corp. acquired its biggest rival, Sleepy’s, for $780 million, consolidating the company’s market share in the fragmented retail bedding market. The company also started to sell its own Dream Bed online with a 180-night trial period.
“For us, the biggest deal is reeducation, that online is the way to buy a mattress. Will we care if we lose sales to an online competitor versus to a store? In theory, we want online to win. We are part of that conversation,” said Sherwin.
There is one thing in the online model that is disturbing, according to Sherwin.
“The whole online model was predicated on removing the sales commissions by offering the product directly to the customer,” he said. “However, the affiliate marketers have become the new commission-based salesman. This is not only affecting the online mattress retailers but the whole industry. This whole environment of online comparisons and reviews is something we need to overcome.”
The brands pay commissions to the affiliate marketers for each visitor brought to their website through reviews. However, there are issues with online reviews that compare products. Some reviews are sold to the highest bidders and hence are biased, according to Sherwin. “This is worrying because it will increase the prices for customers in the long run. And it is not something that is disclosed.”
Casper was founded by Sherwin, Chief Executive Officer Philip Krim, Chief Operating Officer Neil Parikh, Chief Product Officer Jeff Chapin, and Chief Technology Officer Gabriel Flateman. It was founded on the principle of employee freedom and currently staffs 150 people.
“I think Casper has a fantastic culture but it is something we have to work hard on. We have a culture of exploration that exists not just at the senior level but throughout the company. Employees have the ability to voice their ideas and concerns. We have a debate-driven culture,” said Sherwin.
Casper has now expanded into other product categories, including pillow and sheets. This was part of a big vision of Casper to become a “sleep company” by aggregating the fragmented sleep category and offering a one-stop shop for customers.
The company also launched an online publication called Van Winkle’s to perpetuate the concept of a good night’s sleep.
“People see sleep as the great next lifestyle frontier. We would like to do for sleep what Nike did for fitness,” said Sherwin.