Casper's Online Direct Delivery Channel

This assignment provides an analysis of Casper's online direct delivery channel, which was a key factor in disrupting the mattress market. It highlights the benefits of this approach, including direct feedback, avoidance of double marginalization, ownership/control, and avoidance of intra-band competition. However, it also notes limitations such as limited showroom experience and asset specificity. The assignment recommends considering a franchise model to expand customer reach while utilizing the existing online delivery channel.

Project Report
Analysis on Distribution of Casper Sleep Inc.
Group- 2
MBAEx 15/14 Badgujar Sunil Govind
MBAEx 18/14 Deepak Verma
MBAEx 21/14 Himanshu Jain
MBAEx 42/14 Sachin Gupta
MBAEx 50/14 Shitij Kakkar
MBAEx 67/14 Visweswara Rao Kolli
1

CASE ANALYSIS
U.S. Mattress Industry (Snapshot)
 USD 14 Billion annual retail sales; 35 million mattresses purchased
 Average retail price: USD 400; frequent promotions is a norm
 Mattress replacement cycle: 7-8 years
Who are the stakeholders in the traditional mattress distribution channel?
 Four major brands (2 companies) are market leaders (Serta, Simmons,
Tempur-pedic, Sealy) and are selling their products for quite some time. (70%
market share of the aforementioned market leaders)
 Distribution happens primarily through specialty mattress stores,
leading furniture stores, departmental stores, and mass merchants
(Traditional channel)
 Mattress Firm Holding Corporation (MFHC) is one of the strongest player,
holding 3 largest specialty mattress retail chains (50% of the retail sales is
done through specialty stores)
 Focus on personal selling through sales merchants at retail shops; hence
customer purchase could be highly influenced by the profitability of the
retailer or commissions of sales merchant
o Basic assumption of retailers that buyer is a high value seeker (hence
no focus on online and more focus on low prices
Consumer Purchase Process for Mattress (Traditional Channel)
 In traditional mattress distribution, the channel choices to fulfill needs at
different stages of purchase were limited and the major task to take a
consumer from consideration to the purchase stage was in hands of
sales merchant working for the retailer
 A narrow view that a mattress consumer could only be a high value
seeker drove mattress retailers to focus on low prices and broad assortment
2
Purchase
Process

 Hence the needs of variety-loving shoppers and high engagement
shoppers (since a mattress can be used for at least 5-7 years, habitual
buyers would be negligible) remains unfulfilled
Why intensive 3rd party retail distribution made sense for traditional
mattress players? (An analysis through Place Strategic Choice Matrix)
Information
/Market
Concentrated Market Fragmented Market
High on
Information
Content
/Customization
VMS Direct
Distribution
(Company Owned)
Q 1
Franchise Operation
Q2
Low on
Information
Content
/Customization
Hybrid Channel -
Direct Order + 3rd Part
Servicing
Q3
Intensive 3rd Party
Distribution
Q4
 Though mattress brands had a huge product line (lot of sub-brands designed
to fulfill different functional needs), mattress as a product still remains
low on information as customers are mostly aware that they will find
different types mattresses with different firmness and build-materials, and
they would have to choose ‘the one’ that fits best to their needs
o Huge advertisement spent by top mattress brands has also been
playing a major role in educating the consumer and in increasing
the awareness of the brand and different product forms
 Also, market for mattresses is highly fragmented as everybody needs a
mattress to sleep; hence, a intensive 3rd party distribution made sense for
the major mattress brands that presently capture a large market share
 Since the traditional mattress distribution channel is open (not captive) but
restrictive in terms of choices of channel selection, consumers face following
challenges while making a purchase:
o Find something which fits the need of the couple, kid, mother
(whole family) from a plethora of brands and mattress make-types
available in the market
 Mattress is an experience product; however, consumers are required to
make a purchase almost as a search product. This is the reason why
manufacturers’ claim and promise to offer a extensively engineered product
for quality night sleep (POP followed who come to buy a bed, could purchase
mattress from the same place
What are the limitations in traditional distribution of mattress?
3

 High Power of Retailers: Top 3 Retailers comes under Mattress Firm
Holding Corporation (MFHC), which has 3,500 stores. They have great power
to influence a Particular Brand. Example- Mattress Firm gives a 10% discount
on the competitor lowest advertised price on all Mattresses and by doing so,
it may harm the reputation of a Particular Brand, which is selling same
mattresses through other stores as well
 Focus on Volumes and not on Customer Satisfaction: Salesperson
commissions are again attached to the sales part (though not particularly
mentioned) and that too of all the Brands combined. Getting short term
benefits by sales can hamper the Brand Image in the long Run. Customer
experience is described as the worst in case of Mattresses
 Double marginalization: Multiple layers of stakeholders are applying
successive markups on the products which is affecting the profitability of the
manufacturer and making consumer pay higher prices
 Conflicts among Channel Partners: Though the Intra-Brand competition is
prevented by attaching sub-brands to specific retailers, specialty retailers
could be in competition with other 3rd party channels like Furniture
shops. There is a still some chances of Intra Brand Competition. This can
harm the brand Image in long run
 Slow information flow: Since brands are not facing the customer and flow
of Information is slow, it’s difficult for the brands to act with agility in case
some strategic changes are required
 Myopic view of the market: Traditional mattress brands tried to portray
that they are selling good night sleep, but the actual distribution strategy
taken up by these companies signal at a sales oriented approach with
mattresses mostly serving a functional need that customer are willing to buy
at lowest prices possible (too much focus on product features)
o A thorough understanding of the changing consumer buying behavior
might have signaled a growing need of an integrated (captive)
retail strategy, and major pain points of choosing the right
mattress and delivering that mattress to home
How Casper approached the Distribution
1. POD in Distribution Channel :
Casper Sleep mattresses is a high on information Product as it has a
story to tell and customer, who is accustomed to a user differentiated
market, must be convinced that a single mattress can serve all needs. Casper
had designed a highly engineered “One Perfect Mattress for everyone”
and was sold only at Casper.com via direct delivery to customers .
2. POD in Logistics
Casper delivers mattress to home by compressing it into a box (20*21*41
Inch). The company conveniently offers it through a third-party service
provider, such as UPS. This approach helped Casper to avoid the problem of
managing logistics for mattress delivery. Thus, Casper has a major advantage
when it moves into new geographies/ cities, they can deliver it within 5 days
anywhere in the USA.
4

3. POD in Product Trial
Since Mattress is an experience Product, people want to try it before
Buying, which was not possible in this case. Hence, Casper gave a 40-night
free trial, which was later extended to 100 nights. If a customer is not
happy, then the customer experience team dispatches a person to retrieve
the mattress .
Initially Casper was delivering mattresses in New York City and nearby areas. It
has presence in a concentrated market, but the company also intends to scale up
operations beyond the New York area. Casper also leveraged showrooming for
enhancing user experience. It had a showroom at New York and opened another
in California in 2015, where consumers can visit and experience the mattress before
buying.
Though there are other Brands (Saatva, Tuft and Needle and Leesa) also delivering
through Online Channel but Casper was the first to successfully implement the
Online Direct Delivery Channel and was able to disrupt the Market in New York
City ,so it was a point of difference (POD) in Distribution.
Benefits of the direct distribution channel for Casper
 Direct feedback:
a. As there are no additional intermediate channel members between the
manufacturer and customer, the customer's flow of qualitative
feedback is quick.
b. The company can gather direct feedback from the customers by
offering a $50 discount to Potential Customers if they register on the
website.
 Avoid double marginalization: As there are no intermediate channel
members between manufacturer and consumer, additional cost has not
added by additional middle layers; thus, it helped to avoid double
marginalization. As a result, Casper can set the product's price at 1/3 of
its competitor’s product, i.e. big mattress, by keeping a sufficient profit
margin , Casper Queen Size Mattress was priced at 850 Dollars whereas
a Queen Temper-pedic Temper cloud was 2499 Dollars
 Ownership/Control: Casper’s direct distribution through online website
gave complete control to manage demand and supply of products
effectively. It helps in better decimation of product information to
customers.
 Avoid intra-band competition: In the case of Casper, as the whole
responsibility of distribution falls onto to company, Casper was able to avoid
conflict of interest that can happen due to different channel Partners.
Casper with its Distribution Model was able to solve two key Customer
Issues , one is of the worst buying experience and second is of high Price , let
us look at the limitations that Casper had.
Limitations of Casper Distribution Model
5