2018 will be an interesting year in the mattress industry as online direct to consumer companies continue to grab market share at an unprecedented rate.

The direct to consumer business model is very attractive to legacy brands as well as new startup companies.

Reading 2018’s industry forecast one thing remains clear – a tremendous volume of mattress units will be sold.

The question isn’t will logistics be the new segment; i.e., shipped in a box.  The question is which few brands will captivate the masses and convert the most – claiming market dominance.

The potential market is large enough for countless companies to all grow healthy businesses.  Though, this is where natural selection will play a significant role in who can afford the rising costs of customer acquisition.

Google and Facebook combined drive 70% of internet traffic.  So, if a consumer is ‘in-market’ for a mattress, that means the better part of 200 brands are competing for that same prospect.

Both Google and Facebook’s advertising architectures are built on an auction model.  Meaning their platforms use algorithms that adjust prices for impression and clicks in real-time.

This simple economic structure is based on supply and demand.

Every time a new company enters the market, the cost to advertise to a single prospect can increase exponentially.

Exponential costs – as Google and Facebook allow mattress brands to select from different goal objectives for each campaign they have the ability the increased pricing.

Basic Facebook Advertising Model Example

In this example, two competing mattress companies want to target new prospects.  (The below-listed numbers are only example to display the functionality – not recommendations for bidding.)

Company 1 = Bid Maximum, $0.75
Company 2 = Bid Medium, $0.25

Both companies goal objective is to serve impressions.  The cost to purchase impressions is based 1,000 impressions; CPM.  For this example, both companies will bid the exact amount at the auction 1000 times.

An unsuspecting prospect logs onto Facebook, thus entering the auction.  Company 1 wins the auction with the highest bid but also has to pay full price.  Company two doesn’t win the first impression but will win the second impression at 80% of their bid cost.

Company 1 = Wins the impression but pays $0.75.
Company 2 = Wins the second impression but only pays $0.20; saving $0.05 per impression served.

Here are the costs for each company after 1,000 impressions;
Company 1 = $750.00
Company 2 = $200.00

With this logic, it would make sense to always bid position two or lower.  That was until Facebook introduced many different types of objectives at increased costs.  In this example, we will use four objectives to show how dramatically the costs can increase.

  • Impression
  • Engagement
  • Link Click
  • Offsite Conversion

Let’s simulate the bidding auction where Company 1 has a more expensive objective than company two.

Company 1 = Link Click Objective Bid, $1.50
Company 2 = Impression Objective Bid, $0.25

An unsuspecting prospect logs onto Facebook, thus entering the auction.  Company 1 wins the auction with the highest bid but also has to pay full price – but – in this case, the prospect visited the website.  Company two doesn’t win the auction but will display the second impression at 80% of their bid cost.

Company 1 = Wins the impression but pays $1.50
Company 2 = Wins the second impression but only pays $0.20; saving $0.05 per impression served.

Here are the costs for each company after 1,000 impressions;
Company 1 = $1,500.00
Company 2 = $200.00

With additional companies entering the market daily, the cost for all objectives increases.  Most companies are paying a premium to target the same prospect.  So to hypothesis market cost per acquisitions, you would have to multiply that the converted companies spend by five additional companies that were simultaneously spending the same advertising dollars yet never achieving conversion.

Mattress Companies – This Is Your Conundrum

Regarding your bidding strategy – how much do you spend at which definable segment of the funnel?  Do you chance risk knowing that your competition is driving your prospect to their website two times more than you are – yet – don’t structure your bid to follow the appropriate social sequence? 

Option 1 – remain ahead of the bidding strategy.
Option 2 – burn through a lot of your advertising budget.
What about Facebook’s account managers?  With all due respect, they are trained to deploy the same strategy for all clients.  If everyone is deploying the same strategy – who is winning?  

So, Who Is The Unlikely Player That Can Disrupt The Industry?

Enter Simon.  Simon Malls.

Yes, you’ve read that correctly.  The nation’s largest shopping center property owner has a new proposition for e-commerce startups.

Simon currently owns properties in 37 States and Puerto Rico.

There is still one statistic that Amazon hasn’t destroyed; yet.  Nine out of every ten dollars is spent in a brick and mortar store.

As staple brands such as Macy’s, Saks, and Kohl’s continue to close stores and leave massive retail footprint vacant – Simon devised a genius solution called ‘The Edit’.

The Edit

Simon is creating a “scaleable retail platform” called The Edit that essentially functions as a pop-up space where e-commerce startups can get their products in front of customers.

Of course, if you picture affordable and flexible pop-up spaces for young e-commerce brands, malls are probably the last place you’d imagine. Mall spaces almost exclusively require long and expensive leases that are impossible for e-commerce startups to justify. It’s also nearly impossible to scale up or down if you need more or less room over time, since mall spaces are usually pre-divided into separate stores. – Source; TechCrunch.

This Could Be Game-Changing

In 2018 there is no question that in order to evolve brands must self-segment to appropriate affinities.  One of those could be as simple as a geographic footprint.  With the ability to launch a pop-up space the cost per impression could reach the same as increasing digital pricing.

The difference is, mattress companies will have the ability to establish a genuine connection with prospects while showcasing their product.  Brand culture and value explained in person is much more meaningful and will resonate longer than the limited space in the top of a competitor’s branded google PPC search.

Who could this impact?  One could argue that Mattress Firm could feel the competition at a local level.  Though, do not count them out as they are at the helm of a seasoned CMO who understands the market and is making massive strides.

Let’s be clear.  Brick And Mortar Business Isn’t Dying.  The Consumer Journey Is Changing.

Yes, I’m aware of the 800-pound gorilla known as Amazon.  But, having studied their model it’s clear they are most interested in their physical brick and mortar locations.

Amazon doesn’t want to destroy brick and mortar.  They simply want to put all competition out of business regardless of where they serve their customers; online or in stores.

Whole Food ensured Amazon now has 1,200+ physical grocery stores.  Additionally, they are rolling out bookstores.  Which, is ironic, as they have destroyed all competition by revolutionizing how to buy books online.

Amazon

Final thought – self-segmentation and the ability to diversity quality impressions will lead to higher conversion rates.

Media Outreach

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