case study

7TH edition APA 

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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.