Casper, a mattress company, is one of the most visible direct-to-consumer brands. It has raised more than $239 million in venture funding and was bold enough to refuse Target’s $1 billion acquisition offer in 2017. Instead Target lead an investment round and is now selling Casper products in their stores.
Mattresses, pillows, and sheets made by Casper are great products. Casper didn’t reinvent the mattress, but they improved the shopping experience through better packaging and effortless returns. When they launched they only had “one perfect mattress.” They have since expanded their product range, but the focus has remained on keeping it simple. These improvements to the shopping experience have disrupted the otherwise stale sleep category.
But like all direct-to-consumer brands Casper had to acquire their own customers. This has meant that a major part of the capital raised was spent on marketing and brand building. Everyone in New York City has seen their ads on the subway. Assets which are very valuable long-term, but increasingly costly to build as customer acquisition costs are rising online. Daniel Gulati, a partner at Comcast Ventures, has a phrase for this phenomenon: “Customer acquisition cost (CAC) is the new rent.”
A Queen size Casper mattress sells for $995.
On the other side of the market there are mattress companies being built on Amazon. Zinus and Signature Sleep are the best examples. Both of these brands have a few different models available; their best sellers have thousands of reviews on Amazon. The best selling Zinus mattress has more than 21,000 customer reviews.
www.sleeplikethedead.com, one of the most trusted websites for unbiased ratings of sleep products, rates Casper at 79% customer satisfaction. But Zinus and Signature Sleep are not far off with 76% each. Casper does indeed make a better product, even if ever so slightly. But Casper’s presence on Amazon is lackluster.
Both of these brands have been in business for years - Zinus launched first bedding products in 2004. They also run their own websites and sell on other platforms beyond Amazon. But Amazon is clearly their biggest area of focus. Because of that they didn’t have to raise hundreds of millions of $ to support all-or-nothing marketing effort. They are profitable companies too.
A Queen size Zinus mattress sells for $228.99. Signature Sleep can be yours for $245.
Casper is a brand built on years of marketing and a premium product. Despite being a direct-to-consumer brand it is built using the same cycle of brand building as most other brands have used in the past - start with a great product, spend on marketing to build brand, use branding to reach new customers, sell more products, repeat. When it works, as it did for Casper, it becomes the only brand people can name in a category. People have the same relationship with Casper products as if they were luxury goods.
But a mattress is still a commodity. Even when wrapped in a beautiful brand. It doesn’t signal value the same as a watch or jewelry would. A few months after the purchase the attachment to the mattress brand starts to dissipate. That’s why Casper has to continuously push it to new audiences.
Zinus and Signature Sleep, on the other hand, are Amazon native brands. Their moat as a brand comes from a low price and Amazon reviews. They sell good products, but thanks to having to do less marketing they can offer them cheaper than competing brands like Casper. Their customer acquisition journey doesn’t need external push, instead they capitalize on the existing traffic on Amazon. Product ratings communicate trust to possible customers.
“Hey, the same mattress is on Amazon for 1/4th the price, with free two-day Prime shipping, and thousands of reviews.” How many customers would still buy a Casper mattress?
Many customers would still buy a Casper mattress, the value of a brand is still there. But as more consumers join Amazon and as more brands follow the “low price, high Amazon rating” strategy things might change. We call this the Brand Apocalypse - over the next decade the landscape of brands will evolve caused by changing purchasing habits, and the continued dominance of Amazon. An opportunity for businesses with exceptional manufacturing and supply chain economics.
This is not to say that the Casper model won’t work in the future. On the contrary, the opportunity to build great niche brands is as big as ever. But many brands are not that. Despite many brands secretly wishing they were Apple. Most brands are challenged when sold on Amazon - few customers remember the Zinus and Signature Sleep names and yet are happy to buy them. Most products are commodities after all.
Casper is a dream business for every brand builder, but is not the dream product for every customer.