Paralyzed by choice
How DTC pioneers like Casper and Away are abandoning the business model that made them so successful in the first place, and why this move could eventually be their downfall.
Imagine you’re in the process of renovating your apartment. This likely calls for the rite of passage that follows any such event — a trip to IKEA. Perhaps it’s time to finally replace that 15-year-old mattress, so you decide to look for one while you’re there. After all, they have a huge selection of them, so surely you’ll be able to find one you like! As you proceed to lie down on one mattress after another, it starts to sink in — this is going to be a difficult decision. Lying down on the n-th mattress, you hardly notice the difference between them anymore. Is it softer than the first one? Firmer than the third one? You keep going back and forth about which one to get, none of them being the obvious best choice. So which one do you end up buying? None of them. Why? Because mattresses are expensive, and you’ll have them for a long time. Heck, you’ll spend approximately 1/3 of your life on one. It seems like an important decision and a big investment — an investment you don’t want to make unless you’re 100% certain you’ll be satisfied with the outcome.
So you leave IKEA without a mattress in hand, but with bags filled to the brim with scented candles, plants, and meatballs. Mission failed. Marie Kondo would throw a fit.
Give me no choice
Traditional economic theory says that more is better and that higher availability of choices won’t lead to lower utility, however, it fails to take choice overload and decision fatigue into account. Offering customers more options to choose between is not necessarily better than offering them less. In fact, we’re often paralyzed by choice. Choice is a tax on our time, energy, and attention. Instead of being provided with more options, customers want confidence in the options presented. Research shows that reducing the number of alternatives presented can greatly reduce anxiety for shoppers, and people who’re presented with fewer options are more likely to make a purchase than those presented with many. Furthermore, when alternatives are plentiful and virtually indistinguishable from one another, we’re much more likely to doubt our final decision and suffer from post-purchase regret.
So while standing in the mattress section of IKEA, it dawns on you — there’s no obvious choice. There are just choices. Despite what we’ve been led to believe, variety isn’t infinitely valuable.
Choice is a tax on our time, energy, and attention.
Imagine instead, the mattress. The one that’s the obvious choice because it’s presented as the default option that fulfills all your requirements whilst simultaneously minimizing potential post-purchase regret.
This has been the key to Casper’s success. By positioning itself as the ultimate mattress that will satisfy most customers’ needs, it takes away the choice element. In offering only one option, Casper conveys that they’re so confident you’ll be satisfied with your purchase that they don’t need to offer any more. Additionally, their 100-day trial eliminates the worry about any potential post-purchase regret. By attempting to establish the Casper mattress as the default option in its product category, they eliminate the need for consumers to decide between a near-infinite number of options available. And if there’s one thing research on defaults shows, it’s that people tend to stick to them.
There has been a massive influx of direct-to-consumer companies in the last decade, many taking aim at solving the customer pain point of near-infinite choice. What Casper did for mattresses, Away did for luggage, and Dollar Shave Club did for razors. These companies are selling good quality, reasonably priced, well-designed products, but more than anything they’re selling a confidence in those things. They don’t need to offer multiple versions of the same product because they’re confident the one type they do offer is good enough. So when browsing through Casper’s and Away’s websites, you’re not choosing between products. You’re choosing whether to trust the brand or not. Instead of sifting through Amazon’s selection of several thousand different mattresses and suitcases, you’re making a binary choice — to trust or not to trust. And choosing to trust a brand is easy when you have 100 days to decide whether you made the right decision or not, no strings attached. This creates a smooth and frictionless customer experience. What used to seem like an important decision and big investment is now nothing more than a test drive.
Pack this value-proposition neatly into a marketing campaign that manages to make inherently dull items seem cool, and you’ve won commitment-averse Millennials’ trust.
From dream to reality
This has been the holy grail of DTCs — the attempt at bypassing competition by creating their own monopolist-like environments. It’s the same approach used by Apple when first launching the iPhone in 2007. Despite the market soon overflowing with smartphones, Apple managed to create the notion of a monopoly by positioning the iPhone as belonging to a separate category from all other smartphones on the market. This was made possible by the company’s control over its App Store and operating system. DTCs have attempted to emulate this model. Their App Store has been centralizing all purchases to be made through their own websites, and their operating system has been a distribution channel they have sole control over.
The premise of the DTC business model is great for consumers, who get an awesome product at a good price, with minimal cognitive effort required to complete the purchasing process. Venture capital loves this premise too. (Disruption! Hockey-stick growth!). And yet, over the past two years, we’ve seen a steady rise of DTCs imploding, one after the other. Turns out that the same premise isn’t necessarily good for the businesses themselves. Money not spent on retail partners and store rent doesn’t automatically go to the bottom line.
A double-edged sword
The troubles facing the Caspers and Aways in the DTC world stem from the very nature of their products. Mattresses and suitcases have incredibly long life cycles and don’t need to be replaced until 10–15 years after the initial purchase has been made. In this setting, customer retention is largely irrelevant and a high customer acquisition cost is difficult to justify. Casper’s IPO doesn’t sound very convincing when their main product is one that consumers will buy at most once every 10 years. It’s also a product the company is, on average, losing money on for every unit they sell.
While an increasing number of companies are looking for ways to switch to subscription models with recurring revenue streams, companies like Casper and Away are struggling to figure out how to turn a one-off, anonymous purchase into an ongoing customer relationship. The solution they’ve seemingly arrived at is to expand their product line, as well as distribution. There is no longer one Casper mattress, but three different types. Furthermore, Casper can now be bought in Target in the US and in John Lewis in the UK.
But expanding the product offering goes against the precise principle that made their products so attractive to customers in the first place. By introducing additional versions of the mattress, Casper is also introducing more choice. It also weakens their position as the default option, and the illusion of being differentiated from traditional mattress brands crumbles. In the absence of an obvious default option, consumers start comparing Casper’s mattresses to those found elsewhere on the internet and in retail stores.
Expanding their distribution and thus abandoning the App Store model in favor of, presumably, “further reach” isn’t necessarily doing them any good either. Why would you place your product in an environment where it’s surrounded by easily comparable alternatives when the key to your success has been the illusion of a monopolist environment and a differentiated product, rather than sheer superiority of the product itself? Casper mattresses being sold in Target is equivalent to Apple products being sold in AT&T general stores. Steve Jobs understood that if you want people to preach your products like a religion, you need to sell them in a (glass) temple. Having Brian from AT&T struggle to explain the difference between iPhone 12 and 12 Pro just doesn’t cut it.
Steve Jobs understood that if you want people to preach your products like a religion, you need to sell them in a (glass) temple.
Unfortunately, sticking to the single-product model doesn’t guarantee a DTC’s survival, as new entrants into the market threaten to erode their position as the default option. In an environment where there’s only one DTC company per product type, the single-product model can be successful. However, in a world with close to 200 DTCs offering “the one perfect mattress”, a default option no longer exists in the eyes of the consumer. Now you’re faced with a choice between 200 mattresses, and we’re back to perfect competition. The influx of such companies forces the OGs away from the simplified choice model and their monopolist-like environments, and into the marketplace where advertising spend and channel ownership decides who reigns superior.
Casper is no longer “the mattress expert”, but a furniture company. So is IKEA. And that’s the problem.
We think we want choice… Until we’re faced with the options. Paralyzed by the number of options available, it’s easy to put off decision-making for as long as possible. In a world filled with an ever-growing number of options, delaying any noncritical decisions sounds increasingly appealing.
I need to buy a new phone. An unfortunate late-night incident that involved a back-pocket and a toilet has rendered my current one useless. I’m an iOS devotee, so thankfully that limits my options to… eight models that all look identical. A13 or A14 bionic chip? 60fps or 30fps video recording? 460 or 364 ppi? So many decisions.
Perhaps it’s time to try the digital detox trend after all.
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