A mattress start-up that took experiential purchasing online
Not very long ago, the purchase of a mattress followed a very similar trend throughout the world. You visit several furniture shops and lie awkwardly on various mattresses while a pushy salesperson tries to sell you the “best” option for you. You decide on the type, size, and firmness of the mattress, and negotiate prices. Once you buy it, you hope that it gets delivered to your house safely before you finally fit it onto your bed, and it remains an unassuming part of your household for at least the next 10 years until you have to repeat this entire exercise.
Casper was the product of an accidental meeting between 5 youngsters
When Casper burst into the scene in 2014, consumers were still at the nascent stages of online purchasing, but young adults were increasingly turning to online means to shop. An online mattress startup, Casper was founded by Philip Krim, Neil Parikh, T. Luke Sherwin, Gabriel Flateman, and Jeff Chapin, who were five guys who were randomly assigned to sit together at a New York start-up accelerator.
They started comparing notes, ideas, and business expertise, and this serendipitous connection eventually resulted in them designing the concept of a ‘mattress in a box. Contrary to popular belief, the name Casper was not inspired by the friendly cartoon ghost, but Kasper, Luke Sherwin’s roommate at the time who was a six-foot-six German who had to sleep on twin mattresses as he did not fit on standard ones.
With a vision to build a company that revolutionized sleep, the founders found it tough to sell their ideas to potential investors.
“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, don’t do it,” Neil Parikh, who is now Casper’s chief strategy officer told CNBC.
Eventually, they had to put up their own money to cover the basic start-up costs which also included the manufacturing of mattress samples and shipping them to potential investors.
“We were just, like, racking up debt. We put, like $50,000 to $100,000 on our credit cards, which probably was irresponsible. But, we were all in,” says Parikh.
They finally won over a group of venture capitalists who gave them $1.85 million to get their idea up and running by February 2014.
How customers help Casper with their product development
In the first couple of weeks, their mattresses were so popular that the founders had to struggle to fulfill early orders. They expected to sell $1.8 million worth of mattresses in their first year but hit that figure within two months. To execute their orders on time, they would wait at the New York headquarters for the mattresses to arrive from their manufacturer in Georgia, to immediately take the boxes out to the street, relabel them and ship them back out. This early success of theirs also attracted a lot of Hollywood attention with Leonardo DiCaprio, and Ashton Kutcher pouring money in.
Looking to build long-term relationships with their consumers, Casper recognizes that a mattress is not a frequent purchase for an average consumer. They use the time between purchases to build a consumer database that becomes an integral part of their product development process. They take the feedback they receive into account to constantly innovate their products and come out with new iterations to fit consumer demands.
Casper currently has sheets, pillows, blankets, and bed frames in addition to their mattresses. They track every conversation that a consumer may have regarding a mattress to recognize their pain points, and also keep track of how long they’ve had a mattress, and whether they have kids or pets.
They use this data to periodically send anniversary gifts, baby gifts, or dog beds, with the aim of achieving the holy grail of every company’s goals, which is turning consumers into their biggest advocates. Positioning itself as a tech-first company, Casper’s software tracks the location of raw materials and other mattress components to predict delivery time. To meet the consumers’ sky-high expectations of service, they track the mattress in real-time, and in case of delays, reach out to the consumer first without waiting for them to input their tracking ID and check.
Unboxing a mattress is a trend we didn’t know we needed
The novelty of their ‘mattress in the box’ delivery method is what garnered the most interest. The positive buzz around a queen-sized mattress being squished into a box that is the size of a mini fridge has prompted Casper to transform the mundane activity of unboxing into a memorable, share-worthy experience, a practice Apple has followed for years. To complete the experiential experience for a community obsessed with tracking their sleep, Casper also has their own sleep podcast which is a combination of sounds, meditations, and bedtime stories to help you sleep.
Consumers lead the marketing of Casper through referrals and trials
To avoid the need for an in-store salesperson, Casper turned to referral marketing. Whether it be through existing customers or an influencer, the brand aimed to build credibility through the word of those who had purchased their products. Customers are incentivized to refer Casper through Amazon gift vouchers and discounts on future purchases.
Interestingly, they offer a free 100-day trial on all their mattresses. In case you decide the mattress isn’t fit for you, they either recycle it or donate it to a local charity. The benefits of this approach are multifold. Once a product becomes a part of a consumer’s life, the likelihood of them returning it is minute. It also alleviates the apprehension of large online purchases and builds trust.
Are IPOs the way to go for every company that does well?
By 2019, Casper grew into a billion-dollar mattress company, disrupting existing businesses in the industry and causing online players such as The Mattress Firm to file for bankruptcy. Riding on this high, Casper took the next obvious step that most companies take when things seem to be going well: launch an IPO. The company went public on February 6, 2020, at $12 a share. However, the fact that Casper was still a loss-making company by 2020 (posting a $90 mn loss that year) combined with the large amounts of money Casper was pumping out for sales and marketing, as well as their physical retail stores was cause for their stock’s underperformance.
Described as an “official disaster” by CNN, by 2021, Casper’s shares were trading at $3.55, before it was announced that the company was being taken private again by private equity firm Duration Capital Management who agreed to pay $6.90 per for each Casper share outstanding. On examining the situation, it becomes very clear that this external rescue was prompted by the cash crunch that Casper was facing.
Will Casper stay afloat with an ever-growing list of competitors and rising costs?
An ever-growing list of competitors has been eating up Casper’s market share with similar offerings at a cheaper price. Which prompted Casper to spend more to stand out from the crowd.
“The mattress sector is a litmus test for current investor appetite for ‘growth at any cost’ philosophies and sky-high private valuations of companies with dubious business models that don’t make any money,” says Mark Pacitti, managing director of Woozle Research.
2022 saw a shake-up in leadership with Emilie Arel (who had joined the company in 2019) replacing founder Philip Krim as CEO. With this appointment and their private status, the brand is now focused on cutting costs. There are no future plans for more physical stores, they are cutting back on marketing spends and focusing on their core product.
“Part of the issue at Casper over the last few years has been the shiny penny syndrome. ‘Oh, that’s very interesting. Let’s go do that.’ That is very confusing for people,” Arel said. Now, the brand is focused on being a mattress retailer only.
Keeping profitability as their new goal, their new strategies, and decisions taken in the coming years will decide whether Casper will be able to achieve its disruptive dreams.