Coercing customers or creating true value

Sleep tight

The choice of a mattress is fraught with implications, given how much of life is spent asleep and the infrequency of their purchase, not to mention the high price tag. Manufacturers are keenly aware of this and do their best to stoke the wallet-opening concerns of customers, using florid language to highlight coil counts or the latest in cushioning technology. Models receive names that evoke cruise ships or luxury sedans or vaguely European locales, and are further tagged with inscrutable indicators somehow related to quality.

Buyers are at a natural disadvantage as the innards of the product are invisible, leaving them to trust that the features advertised are present in the product and actually meaningful.1 Mattresses are difficult to transport and even harder to return, so the category does not lend itself to comparison shopping.

Behind the scenes, manufacturers have quietly consolidated and gained scale, rolling up the industry into a handful of mega-players, each with numerous offerings across the price spectrum. As the market matured these were increasingly sold in standalone shops dedicated solely to mattresses, featuring spartan décor, opaque pricing and a haggling experience not unlike that of a car dealership.

To top it off manufacturers adopted an especially cunning tactic to obscure costs and keep prices high. They created unique names for identical products and distributed them to exclusive sales outlets, ensuring that consumers would be unable to check prices at a competing store. Imagine if a Honda Accord was called by a different name at every dealership and you get the idea.2 Maximizing bewilderment and confusion led to a highly profitable business model for many years, such that mattress stores sprouted up across the United States, jammed into often marginal real estate.

Fortunately for the consumer, the status quo built on obfuscation wouldn’t last. A crop of startups with on-trend branding and savvy social media presences have collectively been working to upend it. They began with transparent fixed pricing, radically streamlined product ranges, and consumer-friendly trial and return policies that were unthinkable for the established giants. Enabling it all is the technical innovation of products that can be compressed and rolled into boxes for easy delivery.

Instead of intimidating customers with a complicated purchase process and pocketing huge margins along the way, these new brands are working to present information more clearly and foreground the functional aspects of their products. So far it seems to be working, with a slew of bedding startups in the U.S. and Europe establishing a presence and battling each other for share. The old players are belatedly getting into the game, developing their own versions of the bed-in-a-box and putting them up against the flashy newcomers.

Smoke and mirrors

Some products try to woo customers with functional superiority, or a seamless buying experience, or compelling presentation. Others maintain their profitability through complication and confusion. Instead of making the price obvious, which might lead to some unfavorable cost-benefit analyses, why not break it up into multiple payments that are hard to quickly sum, and throw in some odd handling charges as an afterthought? Even better, use price units in a dimension that few people understand, or have nuanced terms that play out over longer time horizons than buyers normally consider.

Such practices are common throughout all kinds of commerce. That monthly gym membership seems attractively priced—if you ignore the contract that buries an annual maintenance fee, an access card fee, maybe a renewal fee, definitely a cancellation fee, plus surcharges for classes and training and other services that can together double that initial rate.3 True value is hard to assess unless the prospective member is willing to build a spreadsheet accounting for each variable, and the gym owners bank on the fact that few do.

In public utilities, deregulation by some governments allows new suppliers the chance to compete for residential electricity or natural gas provision.4 On the surface this seems like a reasonable expansion of options, except the average person has little comprehension of a kilowatt-hour or the market dynamics of fracking, and so must be induced to switch with the giveaway of freebies in a currency they understand better, like frequent flyer points.

A preferred method of acquiring customers is to promise a reward after a specified time period, potentially even guaranteeing price parity with the incumbent utility for a time, and then socking the customer with rates well above market levels once they’re locked in and less likely to scrutinize their monthly bills. It’s hard to evaluate the reasonableness of energy prices, and alternative suppliers assume most people won’t go through the hassle of switching back.

For pharmaceutical manufacturers fearful of having their branded products replaced by cheaper generics, convoluted incentive schemes and roadblocks are thrown up to keep doctors prescribing, and patients receiving, the much more expensive version even though it’s indistinguishable from the alternative. Payers attempt to curtail these tactics, which leads to even more energy expended in developing new ones in a constant cat-and-mouse game, none of which is focused on healing patients more efficiently.

In the field of eyewear, one company has steadily swallowed up major brands as well as their primary retail outlets, eventually merging with the primary manufacturer of lenses in a vertically-integrated behemoth that sells products at astonishing tenfold markups, which customers continue to pay. Most people don’t realize that the various high-end brands on offer in popular eyeglass shops are merely labels applied to the products of a single company, which also happens to own the shop and maybe even the insurance program facilitating the transaction.

Caveat venditor

The combination of opacity and stratospheric margins is sure to draw the attention of others angling to gain a foothold in the market. For eyeglasses, brands like Warby Parker are working to upend the established power structure of their industry. Mattress brands like Casper or Purple and even Amazon’s in-house line are forcing changes in traditional sales behavior.

Too much corporate activity is focused on figuring out to how to hide true cost or relies on psychological gimmickry to keep purchasers ignorant of how much money is siphoned from them. While usually legal, and good for the immediate bottom line, these practices end up building a hollow foundation based on illusions of value over fully-informed customer relationships chosen freely. Keep doing this long enough and the cracks will appear. Plus focusing on coercing customers drains energy from the work of actually meeting their needs in better ways.

With authenticity as a core value for a generation of rising millennials, it may soon be more effective to eliminate chicanery in favor of more direct presentations of value. Although the temptation remains to take advantage where possible, resisting the short-term lure might just make for better business. As a consumer, choose to reward those organizations that treat you with respect and let the quality of their offerings speak for itself.

If your role involves devising ever more baroque ways of confounding customers, or leveraging asymmetrical power or information to nudge them reluctantly down certain paths, consider how vulnerable that ultimately leaves your organization, and maybe if there’s a higher use for your efforts.5 As with overpriced mattresses or eyeglasses, a hungry upstart can undermine you by adding transparency where it’s deliberately missing.

Manipulative business models work, which is why they persist in so many industries, and appealing to the better angels of corporations won’t magically transform them. Yet while investing more in engaging openly and meeting real needs may not boost profits right away, it could build more meaningful relationships with those you serve, ultimately creating more durable organizations.

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References

Vox looked at the practices of traditional mattress stores in 2015, while the bed-in-a-box model was starting to gain traction. In 2019 it explored the eye-popping margins of the eyeglass business.

The Financial Times covered the disruption of the mattress market in Europe.

CityLab wrote about the history of mattress stores in America.

The Financial Times discussed the millennial emphasis on authenticity and its impact on consumer brands.