Share of Life

A New Model for Bed-in-a-Box: Ruination to Reinvention.

Written by
Sarang Paraskar
A New Model for Bed-in-a-Box: Ruination to Reinvention.

In 2014, Casper disrupted the mattress industry. Within five years of operation, Casper acquired 1.5 million customers that showed strong affinity for the brand’s simple, direct-to-consumer business model. A sleek website, transparent and responsive customer service and quality product translated to strong brand equity, 31% aided awareness, 80% net positive brand sentiment and 60 in net promoter score. In 2018, we at Vertic included them in our group of go-getters, “The Awesome Six,” along with notable startups like Harry’s, DietBet, Tasting Table, Warby Parker and BarkBox. It was no surprise that the company was valued at $1.1 billion in 2019.

However, we saw a different side of the coin when Casper opened its books to the public for the very first time. In February 2020, Casper went public at $12 per share, valued at $476 million. By March 2020 Casper’s stock dropped to $4.12 per share, valuing the company at $163 million. A poor IPO performance and declining revenues – was the 2019-2020 coronavirus pandemic to blame? Not really.

Casper’s SEC filings reveal a fundamental problem with its business model. But before we take a deep dive into Casper’s operations and financials, let’s look at the bed-in-a-box industry that Casper helped define.

Following Casper’s initial success, over 170 bed-in-a-box companies vied for a share of the $16.5 billion mattress industry. Only the top 10 players captured most of the market share but even after narrowing down 170 to 10, a prospective buyer would find it challenging to distinguish one competitor from the other. This is a hyper-competitive and homogeneous market riddled with similar products, branding and marketing strategies.

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According to the Better Sleep Council, the consumer education arm of the International Sleep Products Association, on average people replace their mattress every 8-10 years. It is a long-term purchase decision that will impact a customer’s daily life for years to come – one that I made, after weeks of careful research, consideration, and online comparisons, when I bought my first Casper mattress in 2016. What features matter most in a mattress? What criteria should be used to narrow down choices and make a final decision? How have requirements evolved since the last time a mattress was purchased? There is a lot to consider, but once a decision is made and a customer is satisfied with their purchase, they are locked in for a while.

A long product lifecycle coupled with growing competition set the stage for a market of aggressive customer acquisition. In 2015, when Casper was still new on the market, their COO said, “most of our customers still come from people telling one another…” Five years later, in 2020 Casper’s COO said “We have invested significantly in our sophisticated, integrated marketing strategy, with $422.8 million in total marketing expenditure from 2016 to September 30, 2019.” From word of mouth to over $400 million, Casper disclosed an exponential curve in marketing spend. Did it work for the business? Unfortunately, no.  

Casper’s business model is suffering from a case of extreme marketing spend inefficiency.

The Math: In 2020, Casper generated a revenue of $497 million, of which $363 million was from direct-to-consumer sales and $134 million from retail partnerships. Casper spent $157 million on sales and marketing, of which $146 million was advertising spend, most likely to draw traffic to for direct-to-consumer sales. The average order value for Casper is $750 ($820 from retail partners and $710 from direct-to-consumer.) We can then calculate that Casper sold around 511,372 mattresses to consumers directly and 163,324 mattresses to consumers via retail partnerships in 2020. This left Casper with a cost per customer acquisition of $285 for it’s direct-to-consumer sales. How much does it cost to produce the average order? $360.

TLDR: For a $750 sale, Casper spends $285 on advertising and $360 on making the product. It is left with $109 per order. But we know a business is built on operational and commercial efficiency. Once we subtract the remaining cost of marketing and sales per order, $17, and general administrative expenses per order, $255, Casper is left with a loss of $163 per order! Of course, these are estimations, but we can confidently say Casper is not making a profit on sales and, advertising spend is a major contributor to that loss. Further growth will only increase their expenses and spend. To achieve commercial excellence, Casper needs to achieve operational excellence first.  

Retail and Product Expansion: A Recipe for Waking Up on the Wrong Side of the Bed.

Casper has implemented an aggressive retail partnership expansion to improve their financial standing. Their revenue from retail partnerships has been on a rise from 47 million in 2018 to 134 million in 2020. Retail has a much lower cost per acquisition for Casper.  However, it does not address the elephant in the room – advertising cost – which has only been going up as more competitors bid on digital advertising space. This strategy is a departure from the beloved Casper brand that promised to eliminate the middleman and keep things streamlined for its customers. Furthermore, this strategy does not dovetail the direction of consumer behavior. According to consumer research conducted by the Better Sleep Council, mattress consumers have shown a stronger preference for shopping online last year. Not only because of Covid-19, but also because today’s digitally savvy consumers report on finding better prices online and cite lack of time as a major deterrent for shopping in person. The percentage of mattress customers who shop at physical stores plummeted from 57% to 36% in 2020. Casper’s retail expansion strategy is going against the grain.

Casper is also relying on customer loyalty and repeat customers. However, it is unclear if current Casper customers will buy a second mattress from Casper. For one, Casper’s first class of customers is yet to complete 8-10 years with their first mattress. And when they do, we can’t be certain whether the plethora of new competitors and the customer’s evolved mattress needs will impact their purchase decision or not. What we do know for certain is that customers will have to choose from similar brands targeting them with similar products and lucrative offers.

In its SEC filings Casper made an effort to position itself to serve the “sleep economy.” This is illustrated by product expansions like Casper Glow, a smart bedside lamp, pillows, and sheets. However, Casper is a mattress company and mattresses are their primary source of revenue. If we look at both organic and paid traffic to, it is driven by interest in mattresses.

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The sleep economy is lucrative because it leverages the growing interest in wellness products. If Casper were to penetrate the market for sleep tracking and assistance, it would have to invest heavily to compete with the likes of established players like Calm that generated $150 million in revenue with 100 million app downloads and 40 million subscribers in 2019 alone.

Casper will once again have to be disruptive. But this time to save its business from collapse. They will need to reinvent their relationship with customers so that they can get more entanglement for the cost of customer acquisition and increase their customer lifetime value. They can do this by building an ongoing relationship with the customer – a relationship that isn’t about a mattress but rather about how customers can get better sleep as their needs evolve.

A Case for C.R.E.E.D: Shifting mindset from Customer Acquisition to Customer Lifetime Value.

Casper has an opportunity to better entangle with their customers by applying a framework for a new customer model. What would it mean for the brand and their customers to have a fully intertwined relationship, and increase their Share of Life®. Casper can put into action the guidelines for Share of Life ® C.R.E.E.D and start making the brand a vital part of the mattress owner’s life.

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C.R.E.E.D is a five-part process. Create ongoing Commitment. Create nonstop Reinforcement. Create digital Empowerment. Create renewed Excitement. Create continuous Development.

Commitment: Buying a mattress is a commitment for the consumer. It impacts quality of life and marks the beginning of an 8-10 years-long relationship with a single product. But Casper can redefine that by offering a subscription plan that eliminates the once every 10 years customer touchpoint. Casper already offers “The Casper Upgrade Program” where customers who’ve owned a Casper mattress for more than two years are eligible for $500 off the purchase of their newest Wave Hybrid mattress plus a free Original Casper Pillow. On the very same webpage they describe this program, Casper goes on to educate customers on how ‘while a mattress should last for 10 years, that doesn’t mean it will’ because external factors like moisture and humidity, presence of allergens, changes in needs of their customer’s body due to injuries, hormones, and other factors might warrant a new mattress. Given that they have already articulated a need for a more frequent replacement cycle of mattresses, why not offer a subscription program to authentically insert themselves into their customer’s changing needs. Customers today, especially younger customers, are primed to replace products like smartphones every couple of years. A subscription to Casper’s products, from sheets, pillows to mattresses, would provide Casper an opportunity to generate annual recurring revenue from an acquired customer. Casper will be the customers sleep partner and fulfill their needs within the sleep economy.

Reinforcement: A subscription model would not only help Casper build a long-lasting relationship with customers but also help it stay true to the brand’s original promise and ambition of direct-to-consumer touchpoints. It will reinforce what customers liked about the brand in the first place: quality products that ensure better sleep, no middleman and a sleek customer experience. Ongoing touchpoints with Casper to discuss how to better your sleep and replace your mattress, pillows, and bed sheets with ease for a small subscription fee echo the brand promise. Casper can take reinforcement further with a personalized subscription plan to entangle with each customer and gain what we know as - Zero Degrees of Separation. This direct one-with-one approach between brand and customer will be based on the needs of individual customers thereby reinforcing the brands commitment. Casper was a breath of fresh air compared to legacy players that boasted intimidating mattress stores with 100s of different mattresses. Casper’s current retail partner expansion will only pull the brand further away from its brand identity, value proposition and most importantly, its customer.

Empowerment: Casper can package its offering as one to help customers better utilize the product and empower them as a lifelong sleep companion, leading to a mutually beneficial relationship. The International Sleep Products Association reports that mattress shopping continued to evolve over the coronavirus pandemic. 51% of their survey respondents indicated that they would replace a mattress for home improvement and lifestyle changes such as needing a new mattress for a guest bedroom, a growing family, change in marital status, moving homes and redecorating. Younger mattress buyers, ages 18 to 35, both expect to replace and do replace their mattresses in more condensed cycles than their older peers — perhaps because they are experiencing life changes, such as graduations, marriage, the births of children and first-home ownership — more rapidly than older consumers. 16.5% of Bedroom Furniture Shoppers planned to move into new apartments in 2021, 11% said they will become first-time home buyers, 10% planned to get married and 9% said they would start families. It is empowering for customers to have a brand that can support them along these predictable trigger points and help make all sleep related purchases relevant, reliable, and convenient.

Excitement: A subscription plan also fits within Casper’s organizational goals of serving the “Sleep Economy.” To create a willingness to subscribe, Casper has an opportunity to constantly surprise customers with products and services offered in its subscription plan that target all facets of sleep. Creating content to help customers sleep better, developing brand partnerships with sleep tracking and assistance applications, offer customers opportunities to try new product categories like linen types for various seasons – all bundled up together in a simple subscription to make interactions with Casper frequent and exciting.

Development: Casper has an opportunity to re-invent how it interacts with customers and differentiate itself from the tight competition. An app would be a natural platform for the company to create an easily accessible touchpoint for commitment on an ongoing basis. According to the most recent AudienceSCAN, research 27.2% of bedroom furniture shoppers downloaded apps for a product they're considering in the past 6 months. Currently Casper only offers an app to control their Casper Glow lamp. But the company has described themselves as a tech-company on multiple occasions. While they do have a strong tech-based infrastructure for product development and customer service, they have yet to project that on a customer facing platform. The app would not only allow customers to easily customize their subscriptions but also allow them to interact with the digital products and partnerships that Casper offers. In the digital age, a marketer in any business category can attain truly granular insights about their audiences from digitally empowered customers. Gaining Share-of-Life ® online is about much more than triggering an immediate sale. It can entangle the brand and the customer in a mutually beneficial relationship that is virtually unbreakable. Perhaps a sleep tracking app that also leverages customer sleep data for Casper to leverage in product development or help customers identify ways to better their sleep with Casper products. Casper’s competitors have yet to launch an app that allows for a smart interaction with their brand.

Amazon, who also implements a subscription-based model, is said to spend approximately $160 per new customer acquired, that’s $125 less than what Casper is currently spending. A subscription model will force everyone at Casper to think differently about the customer – from acquisition to a lifelong relationship – becoming your sleep confidant for $15/month. This includes how to R&D, new product introductions, how to communicate with customers, messaging, customer service, finance etc. At this rate their baseline customer lifetime value would be $1800 for 10 years. That’s already $1000 more than their current average order value.

Creating a Share of Life

Casper is just the poster child for bed-in-a-box and offers us public records to analyze. But these insights should give every competitor in the category something to think about. There’s no doubt that Casper is a successful brand with exceptional wealth in brand equity. But to survive, it needs a renewed business model. A retail expansion will not help the brand as it contradicts the very thing that drew customers to the brand in the first place. Spending more an advertising and customer acquisition will not help the bottom-line. The answer is C.R.E.E.D. A subscription model can help them turn things around. Casper can gain Share-of-Life ® by building a lifelong relationship with customers and becoming a part of their digital experience.

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