Most of the hot direct-to-consumer(D2C) brands of the last five years built their brands around a clever or creative take on familiar necessities, be it eyeglasses, toothbrushes or mattresses. But as we have explored extensively in our own D2C Brand Insider events, a sustainable model requires new product development and brand extension beyond that first sexy release.
Of all the many D2Cs I have covered, Nectar Mattress parent company Resident Home may have expanded its portfolio quickest and most aggressively. Since 2017, it not only has created multiple mattress brands and bedding products, but its Cloverlane home store has branched into wall décor, furniture, rugs and more. So when we sat down recently with co-founder Eric Hutchinson, it wasn’t surprising to find that diversification was his mantra: not only in variety of product but in a radically omnichannel marketing and sales channel approach. But while diversification may be the mantra, the secret words are “supply chain.” Listen to the entire podcast at this link.
MediaPost: So as your brand portfolio expanded beyond that original mattress line, how has the marketing plan changed beyond your roots in performance marketing?
Eric Hutchinson: I'll start with just the mattress and how we think about it in marketing and really the development of the brands. Within mattresses, we have multiple brands all very targeted at specific aspects of that category. Diversification is key. The Google and Facebook ecosystems are still the largest, but also OTT, podcast, direct mail.
We have the most diversified channel mix of any company I know, and we’re really looking every year to add additional channels and really get them to scale. We try to find out what are those channels on the horizon where you can create a differentiated capability. The marketing mix starts to morph depending on that category.
With mattresses, there's a very high volume of search. People will ask what's the best mattress for side sleepers. But when you move to other categories, you have a more aesthetic drive. Channels that really lean into video and lifestyle type imagery can be really powerful. So as we move from one category to the next, [we are] really trying to align that channel mix with some of the key attribute to that category that would give us the right balance to bring the brand to like consumers.
MP: A lot of the channels that you mentioned have experienced tremendous price inflation over the last year and a half. So how has pricing changed your marketing mix?
Hutchinson: I think we’re experiencing inflation not only across marketing and ad spend but across product raw materials as well. And diversification helps. If you're in one channel, you can find yourself in that channel trapped, where, as you said, the inflated cost of that media makes the cost of acquisition untenable. Diversification allows you to move those dollars around.
MP: At the same time, data deprecation is the other part of this. You're so CPA-focused, the metrics and that feedback loop are important to you. iOS15, cookie-less browsing, how do you counter that?
Hutchinson: There's a continued push for first-party data as much as possible. Going back multiple years, we have run what we call an MTA model, which stands for multitouch attribution and an MM model, which is that media mix model. And then we kind of cross-reference that, and what it really allows us to do is have more data points, understand that interaction so we're constantly trying to have a look around the corner. Our marketing team is extremely technical in nature, and so we do a lot of technical integrations to the platform. So we're sharing back transaction data so that we can get kind of full handshake and have a better view of what what's actually going on.
But there are headwinds, so you’re having to find other ways to make sure that you can quantify the dollar spent and kind of find the other way. So we kind of do the hard work on a day in, day out basis. But those different attribution models really do help us.
MP: What is your growth strategy? How much of it is dependent on simply increasing the lifetime value (LTV) of your existing customer with a wider product mix, or customer acquisition?
Hutchinson: I look at that through the lens of an AOV (average order value) world and an LTV world. The beautiful thing about the mattress space is its very high AOV. A growth strategy we've had there is expanding the different categories within mattresses and then adding additional products that are relevant to that purchase.
Through a great user experience and great product experience, we establish and earn the trust of that consumer so that we can now sell them other products and categories. When you look at these other categories, what are the categories that you can use to do actual first purchase acquisition, and then what are those categories that make a lot of sense for expanding the relationship that you already have with consumers?
We started with the mattress. Then we went to top of bed. And now we're looking at the bedroom and then, as you mentioned, through rugs and some other products, starting to look more broadly into the home.
MP: The bedding and the home goods category is notoriously cluttered. What have been the keys to differentiation, especially as you expand to new products?
Hutchinson: It's the most cluttered and competitive industry I have ever been a part of. But there's also through that clutter where real opportunity comes -- through clarity of message and unique value proposition.
If you look at our mattress brands, each stands for something very specific. We do a lot of work around supply chain and what the consumer really cares about. If you ask consumers, they'll tell you.
And so we overinvest in those aspects of the product and the category that we know the consumer is focused on and how they make their decision. And then we spend a lot of time in our UX and UI of delivering that information in a way that's digestible.
Users want to solve a problem and feel confident in their decision, so we can understand what they care about and then present that information in a concise, clear way. You can stand out in the crowd. It sounds simple, because it really is but you have to get to that simplicity through the complexity.
MP: Well, what are those qualities you think distinguish your line of mattresses from others that you think are resonating with your consumer?
Hutchinson: If you think about the memory foam category it's cooling technology, it’s support, it's contouring. And then consumer shopping online, they want to know that's a risk-free transaction, so we have the best warranty and the longest home trial in the industry.
We also have the lowest return rate, and so what we found was leaning into really articulating, this is what you need to care about when you're shopping for the product and oh, by the way, we're going to make this a risk-free transaction for you. That's a very strong value proposition to the consumer. And then we focus a lot on our supply chain, to make sure that we have the best costs associated with that product, so we can pass savings along to consumer.
MP: Your palette of brands and products is about as wide and fast a diversification as I've seen among D2Cs. What have you learned about the pitfalls in such an aggressive diversification?
Hutchinson: It's very hard. You have to understand your supply chain. Today I joke, I run a supply chain company, not a consumer brand. And every product, every category has a unique supply chain. Where is the value in that supply chain, what did scaled economics look like?
And then you have to have a USP (unique selling proposition). What does the consumer care about in that category, and how do you make sure that you can deliver that? And a great example of this is when we looked at rugs and here we have a brand and that space, you need a very, very deep portfolio of products. And you need to have real good gross margins.
So you've got to really understand and have a good merchandising team. With other brands it’s more about the aesthetic, so again understanding what the consumer cares about and then making sure that you build a supply chain to deliver against that.
I think the other thing is structure and process. We have a very formulaic approach to how we identify opportunities, develop the brand, take it live, and then look to scale it efficiently without just throwing a lot of capital at it. That playbook has really been born out of doing it multiple times.
MP: Is there inevitable consolidation in this category? Are you guys all on the verge of marrying each other at some point? Because there are so many brands.
Hutchinson: Absolutely. You're starting to see it. And we’ve referred to this category as the low barrier to entry, high barrier to scale. And the companies that have been able to reach the scale, we've been in the same cohort for the last three to five years, and so you are starting to see companies come together.
It's an interesting industry where it's very competitive, but we have great relationships with most of the brands. We compete during the day, but we share war stories in the evening. And so I definitely think there's going to be continued consolidation and probably an acceleration of that as people look to other brands that are really complementary to one another, and they can join forces and deliver in many ways more value to the consumer and get more leverage over the infrastructure investments that we've all made.
MP: We ought to get you to some of our events, because a lot of your competitors like Helix, Mattress Firm, Purple are sort of regular attendees of our events. And one of the things that I do at almost all of our events, in my marching orders for most of our speakers is, tell us the biggest mistakes you made that you learn the most from, because that's what I know most other marketers learn the most from. So what's the biggest mistake you’ve learned the most from?
Hutchinson: In some of the early days, we probably grew too fast. We grew faster than our supply chain could handle. And that creates other stress within the organization. As we started to look at other categories, we probably ran into them a little too fast, again before we really understood the supply chain.
Now we're much more mature. We have a much more articulate, concise formula on how do we identify opportunities and what do we need to have in place to feel confident about being successful as we ramp into that. Scaling fast is fine, but make sure you have the infrastructure to support it.