7TH EDITION APA Week 5 Case Study, you will review the Casper case at the end of Chapter 11 (page
319-321). Upon thorough review of the case, you will then answer the (4) questions for discussion
regarding the case. It is not sufficient to state your opinions alone; you must be able to back up your
responses by applying marketing concepts from the text with the case data that supports your findings.
DO NOT write this as a Q&A. It is an essay.
Review the announcement "How to get an A on the Case Study"
Review key terms from Chapter 6. Use them in your paper.
Through writing this case study you will be required to demonstrate a knowledge of how to integrate
marketing concepts with the case data, how to conduct research, and how to properly cite sources
using APA formatting guidelines. You will be responsible for using a minimum of 2
scholarly/peer-reviewed sources. Textbooks are not considered scholarly/peer-reviewed sources;
however, they may still be included as a supplemental reference. You will also be responsible for writing
the case study in an essay format (introduction paragraph, body paragraphs, and conclusion paragraph).
Company Case: Casper: A Pricing Strategy That Flipped the
Mattress Industry
The mood was whimsical at Casper’s New York headquarters—the
online mattress startup had flipped its industry upside down.
Celebrating Casper’s fifth anniversary, the celebration seemed more
like a birthday party for a five-year-old, complete with face painting,
piñatas, and a balloon artist who crafted everything from an intricate
jet pack to a knockoff Chanel bag. “But the magician canceled at the
last minute,” said Casper’s chief technology officer, “which kind of
sucked.” About the only indication that this was gathering of adults was
the free-flowing open bar.
Although the party was unusual for a successful New York firm, young
Casper’s five founders had plenty to celebrate. Against all odds, the
startup had finished the prior year selling $400 million worth of
mattresses and other sleep-related goods. And it accomplished that
feat using an innovative direct-to-consumer (DTC) “bed-in-a-box”
model. Although not exactly reaping market-leading revenue numbers,
Casper had taken a notable slice of the $14 billion U.S. mattress
market—a market dominated by a handful of mattress companies and
specialty retailers. Perhaps more amazing, Casper had just raised an
additional $100 million in funding, bringing its total to $340 million in
venture capital. That huge influx of cash combined with the young
company’s rapid growth gave Casper a valuation of $1.1 billion, nearly
one-third the value of 140-year-old mattress stalwart Tempur Sealy
International.
Casper has succeeded for numerous reasons. But at the core of its
trampoline-like launch is an idea as old as beds themselves—break into
a mature market with a quality product at a fraction of the price
charged by the ruling brands. For good measure, Casper made shopping
and buying simple. Consumer response to this approach demonstrates
the extent of unmet consumer need lurking beneath the sheets—
unmet need that has led to a revolution in the mattress industry.
An Industry Begging for DTC
An Industry Begging for DTC
Casper’s five founders had crossed paths through various other
business ventures and unsuccessful startups. Each was looking to start
something new. As their discussions evolved, one thing became clear.
The modern marketing environment was fueling a direct-to-consumer
(DTC) model in countless industries that were dominated by veteran
companies charging high prices despite little innovation. What Warby
Parker did with eyewear was being repeated over and over again in
other industries by companies such as Dollar Shave Club (razors),
Bonobos (men’s clothing), and The Honest Company (cleaning and baby
products). The entire sharing economy, which propelled the likes of
Airbnb and Uber to upend their industries, was rooted in the same
characteristics—customers were sick of paying high prices for warmed-
over options that gave them little satisfaction.
Casper’s founders set their sights on the mattress industry—one that
was ripe for change. The industry was dominated by two firms—
Tempur Sealy and Serta Simmons—that captured a combined 60
percent of the global mattress market and 75 percent of the U.S.
market. The two firms sold mattresses under the Sealy, Tempur-Pedic,
Serta, Simmons, Stearns & Foster, Beautyrest, and other brands.
Mattress retail sales were also dominated by a small circle of specialty
retailer chains like Mattress Firm and Sleepy’s. Nearly all mattresses
were sold through one of these stores as well as through furniture
stores or department stores where salespeople earning high
commissions used old-school tactics to persuade customers to part
with their money.
From the customer viewpoint, there wasn’t much difference between
shopping for a mattress and shopping for a new car. Conventional
wisdom held that customers simply would not buy a mattress without
lying down on several to find the perfect fit for their slumbers. But the
mattress-shopping process required hours of effort filled with sales
presentations, mattress testing, and transactions riddled with
paperwork. The bed companies further complicated matters by
manufacturing different mattress models for each retailer, making price
comparisons impossible. Moreover, most customers had no idea that
retailers marked up mattress prices by as much as 100 percent over
wholesale price. Mattress prices for the big brands ranged from
hundreds of dollars for a basic twin to more than $5,000 for a top-of-
the-line king. Not surprisingly, many mattress purchases required long-
term financing.
Casper’s idea of “cutting out the middleman” and selling mattresses at
low prices directly to consumers wasn’t exactly new. Nor was the
memory foam bed-in-a-box concept. In fact, BedInABox.com began
selling mattresses online in 2006, and a handful of other companies had
more recently followed suit. But the concept was largely unknown to
most consumers and had yet to take off. Most beds sold at the time
were of coil spring construction, requiring a bulky box spring base. But
various companies—including IKEA with its own mattress brands—were
selling viscoelastic memory foam mattresses of the type perfected by
Tempur-Pedic. These mattresses could be compressed, rolled, and
boxed to make shipping a reasonable option.
An Unexpected Reaction
Casper flipped the switch on its e-commerce platform in April 2014 with
just one foam mattress model in twin, full, queen, and king sizes. Each
mattress was tightly packed in a blue-and-white heavy-duty box.
Watching the mattress unroll and expand when unboxed was magical.
Each mattress came with a 100-day money-back-guarantee and was
delivered for free via UPS. And the price—just $850 for a queen—was
less than the retail markup on many comparable name-brand
mattresses. Targeting millennials, Casper was confident that a nimble,
low-overhead online brand with a cool vibe and an irresistibly low price
could capture a small but profitable slice of the market while avoiding
the attention of the deep-pocket market leaders. It set a modest 18-
month revenue goal of just $1.8 million, a goal that seemed reachable
based on a low-cost promotion plan using social media and influencers.
By the end of the first day, Casper was already rethinking its sales goal.
Orders flooded in so fast that Casper’s initial inventory was quickly
depleted. The fledgling company surpassed its original 18-month sales
goal in only eight weeks. During its first full fiscal year, Casper delivered
$100 million worth of mattresses to customer’s doorsteps. Originally
planning only to nibble at the edges of the mattress market, Casper had
taken a big bite right out of the center.
Early success led Casper’s founders down a path that other DTC
mattress brands had not yet tried—raising venture capital. “At the
beginning, we met with dozens of investors who all said, ‘No one is ever
going to buy a mattress online. This is a dumb idea,’” said Neil Parikh,
one of the original Casper founders. But when Casper mattresses
started flying out of the warehouse, there was no shortage of
interested funders. Through venture capital firms, early investors
included actors Leonardo DiCaprio and Ashton Kutcher and rappers Nas
and 50 Cent, lending celebrity clout as well as funds. And then there
were the influencers. About a year after Casper launched, Kylie Jenner
posted a picture of herself standing next to a Casper box in her new
mansion. “So much work to still be done. IM SO EXCITED. The first thing
I’m gonna open are my new Casper mattresses.” Jenner’s post racked
up an immediate 870,000 likes. “When Kylie Jenner posted about
Casper I think it broke our website,” Parikh said.
Success Draws Competition
321
Perhaps more amazing than its immediate popularity is that Casper’s
sales exploded even as numerous companies with the same idea began
selling mattresses. In fact, some of today’s leading DTC mattress
companies launched the same year that Casper did, including Leesa,
Yogabed, Purple, and Bear Mattress. With a low cost of entry, the early
startups gave way to an explosion of new mattress companies, each
with its own spin on boxable mattresses and nearly all priced much
lower than traditional brands. With all this activity, established
mattress companies took notice. Serta Simmons bought Tuft & Needle,
Sealy launched Cocoon, and Tempur-Pedic launched Tempur-Cloud, a
familiar option for DTC customers given that Tempur-Pedic was already
far and away the number-one memory foam mattress peddler.
Today, there are well over 100 DTC mattress brands. Is that too many?
Experts don’t think so. Not all will survive. But at the rate the DTC
mattress market is growing, there’s plenty of room for numerous
successful DTC bed sellers. And e-commerce mattress purchases still
capture only 5 to 10 percent of all mattress sales, which means it will
be awhile before the dust settles. Making matters even more promising
for DTC mattress sales, the conventional mattress market seems to be
going the wrong direction. After retailer Mattress Firm acquired
Sleepy’s, it promptly rebranded all 1,000 Sleepy’s stores, resulting in
3,500 Mattress Firm outlets. The move didn’t end well. Mattress Firm
filed for bankruptcy, only to be rescued by South African retail giant
Steinhoff in a deal valued at $3.8 billion.
Although Casper began as a one-product company looking to fill a hole
in the market, the company is now embracing the future by shaping a
brand platform that looks at sleep as a consumer category not unlike
travel or cooking. “If I wake up in the morning and say, ‘I want to sleep
a little bit better,’ I have to go and get a mattress from a furniture
store, sheets from Bed Bath & Beyond—you end up having to get things
from all these different places,” says Parikh. “But if you wake up in the
morning and say…‘I want to eat healthier,’ great, go to Whole Foods.
There’s nothing like that for sleep.” Casper aims to change that. With its
“cheaper-than-the-leading-brands” image secure, the company now
sells three mattress lines, sheets, duvets, pillows, and a high-tech sleep
light. It even has a line of dog beds. And with its products now being
sold in the real world through Target stores and in its own growing
chain of Casper Sleep Shops, Casper looks unstoppable.384
Questions for Discussion
11-16. Explain Casper’s product offering in terms of customer value.
11-17. Which new product pricing strategy does Casper employ? Why does it
work?
11-18. Could Casper have achieved the same level of success with a different
pricing strategy? Explain.
11-19. Based on principles of price changes, make some predictions for the
mattress industry.
