Indian players have to pickup learning from their counterparts from US. Some of the mattress companies in US are using online platform for reaching out to consumers. At the same time they are also facing the challenges.
The digital natives are knocking on the doors of the traditional $1.4 Billion mattress industry in India. With the online only players making $ 41 mn (INR 290 crore) in an industry which has over 60 percent dominated by unorganized sector, this is a significant portion. It is to be seen how much would the new entrants make up in the estimated 9 percent CAGR. Rising income levels and health consciousness, growth in the real estate and hospitality sector are some of the key factor in this phenomenal growth.
All this action is happening inan Indian mattress market which
is estimated to be dominated by unorganzied sector making up to 70 percent of
the total market share. Contrast this with the $9 billion industry
in the US (IBISWorld) with just three companies – Serta Simmons Bedding, Tempur Sealy and Select Comfort – raking up over 75 percent of the market share. However, there are new entrants changing the rules of the game.
Traditional mattress business
Let’s look at how the traditional mattress business operated in the India. Prior to the new entrants, the mattress industry was defined by well entrenched, decades old group with at least 3 decades of mattress manufacturing history dating back to pre-independence era or early independent India. Over a period of time many foreign brands either have been brought in by incumbents or entered through primary dealerships. Though established brands strived to bring in new ideas revolutionizing the way well-heeled and globe trotting populace slept, logistics, infrastructure and last mile delivery issues plagued this industry. The growth in the sector has been slow and has for years lived with the dominance of unorganized, our friendly neighbourhood mattress maker. Nevertheless, the last five years has seen a sea change in the way the industry does business. Thanks to the digital natives, who leverages the networking power of the Internet to sell directly to the consumer, now characterised by the DTC model (Direct-to-Consumer).
Traditionally, buyer’s experience has been the biggest barriers in the Indian market. Indian sleep market resonates with a survey by Better Sleep Council, which throws some interesting facts. For consumers, the experience of buying a mattress has been pretty poor. Consumers are confused about when to replace a mattress and how much to spend. They’re overwhelmed by the choice of product options and the awkwardness of trying out beds in public. Moreoever, the beds are hardly differentiable to an untrained eye of a consumer. Not surprisingly, few would disagree that the mattress industry is inviting change.
Price mark-up is another feature of the traditional mattress industry. This coupled with lack of transparency made it difficult for consumers to make their buying decision – Often difference between a INR 10,000 mattress and a INR 20,000 one could be a few additional springs or a couple of extra inches of cushioning. Bulk of the pricing would be because of the inherent overheads in the supply chain which includes manufacturer’s profit, C&F agent’s cost, retailer’s profit and overhead, and various sales commissions.
Meanwhile, there has been visible shift in the consumers’ perspective. Informed by the global sleep industry, Indian consumer’s focus is now on the comfort and functionality of the product. To their credit, the traditional players have been striving to be in line with the changing consumer preferences. Both offline and online retailers have adopted a variety of innovative strategies to ensure customer satisfaction.
The mattress industry has seen some aggressive campaigning online. Established players are now taking to social media to run their campaigns. Their primary target is the millennials whose aspirations are inspired by the global sleep trends. So instead of selling mattress products, these players are selling sleeping sound and staying healthy.
Products that “disrupts the market” is also contributing to the change in the traditional model of how things were done (in delivery, marketing, services, etc.). Consumers find such options easier, cheaper, and better when compared to the traditional incumbents.
New Digital Players
Mattress startups aren’t alone in capitalizing on this trend. Consider the success that eyeglasses firm Warby Parker has seen or what’s happened in the razor blade industry. In 2010, Gillette had conquered 70 percent of the American razor blade market with margins as high as 60 percent. However, since new, cheaper, DTC subscriptions services Dollar Shave Club and Harry’s have emerged, Gillette’s market share has fallen to 54 percent. The same story has played out in the Indian market.
Modern businesses aim to offer their customers a royal treatment. And in India as in most developed markets, special discounts and bundlings are the rage. Not surprisingly, players have implemented a number of lucrative offers that include cashback vouchers, large discounts, free trial period, extended warranty, and similar. We see the trend not only in the mattress industry but also the companies operating in other sectors who have started launching special offers to keep their customers hooked.
For the Internet led mattress makers such as Wakefit, Wink and Nod customer experience extends beyond its webstore or a physical store. They claim that the secret is in how it is delivered and what expereince the customer will have. Upon receiving their mattress, customers promptly unbox it. The very act of unboxing, unrolling the mattress is an experience the consumer cherishes, claims a mattress dealer. Even in this age of Amazon where anything can be boxed, shipped and delivered, this provides the customer a unique interaction with the purchase. Mattress companies are leveraging a unique compression technique which was around for a decade and available to everyone, and turn it into a delivery story. Their webstore and digital experience is immensely enabled by this packaging. Imagine the plight of these companies if they had to ship fully formed mattresses – the model would be unprofitable.
Another tectonic change in the way mattresses are sold is in the use of offers. Take for instance, the Wakefit’s “Let’s Sleep Together for 100 Nights” offer. This is a unique return back if not satisfied concept that is making waves in the industry. Apart from offering discounts for online buyers takes the “Return Back” offer to new heights. Byco-opting the consumer into a “sleep experiment”, mattress manufacturers arecreating a huge event around “sleep”. For a ever stressed urban dweller in India, this is a welcome change.
The key to making the economics of DTC companies work is balancing acquisition costs with a customer’s lifetime value–how much the average customer spends on the company’s products over the long term. There are generally two ways DTC companies try to do this. Those that offer expensive products that customers aren’t likely to purchase frequently (a $295 suitcase, a $1,000 mattress) must be profitable on the first sale, and try to keep customers coming back by rolling out accessories or new product lines. Those that sell inexpensive items (razors, toothbrushes, socks) must try to lock in customers for repeat purchases, which many try to do through subscriptions.
“So many businesses are figuring out ways not to have storefronts, but showrooms,” said Mr. John Eaton, aclinical professor of marketing at the W.P. Carey School of Business at Arizona State University. He cited this shift from digital nativism to brick and mortar as a marketing strategy, comparing Tuft & Needle’s showroom to a billboard.
Another important development is the way, the mattress makers are coming up with product differentiation and their ability to communicate the subtle changes they have made in their products which enhances the buyer’s sleeping experience while reducing the cost of ownership. As per a recent survey, backpain is the most prevalent medical problem suffered by Indians. A mattress that addresses this issue square on wins no matter what the price is. Irrespective of what stuffing goes inside the mattress, the mattress manufacturers are researching on the right number of layers and density of foam and coir that gives the best lumbar support. This is also informed by a continuous experimentation and live feedback through experience stores.
The digital natives are not shying away from brick and mortar, rather they are aggressively embracing it. When an automaker can put up a showroom inside a shopping mall why not a mattress experience center? Interestingly, showrooms are for touching, feeling and getting an experience of the product firsthand but when it comes time to make a purchase, the millenial consumer is prompted to order online. This emerging spending power and attitudinal shifts around mattress purchasing, as well as the generation’s familiarity with digital platforms, have encouraged companies to adopt a unique marketing approach to millennials. This quote from a Wall Street Journal article captures the mood which is universal: “The target customers are younger, often going through life changes that spur them to upgrade their just out of college mattress, perhaps a marriage or baby.”