Friendly Ghosts Don’t Scare Away Competitors

Yesterday mattress-in-a-box company Casper IPOed. One of the great things about an IPO process is that companies are forced to open the kimono. This gives financial journalists and people on Twitter a lot to analyze. For a time, you’ll see an uptick in the press about that company. On occasion, these articles contain gems like this from CNBC: “there are an estimated 175 mattress-in-a-box companies.”

One. Hundred. And. Seventy. Five.

How can that be?

Competitive Strategy by Michael Porter provides a good framework for answering this question. Barriers to entry are one of Porter’s five forces that ultimately determine a industries return profile.

With 175 competitors, barriers to entry in the mattress-in-a-box industry must be pretty low, but let’s take a closer look.

Product Differentiation

According to Porter:

“product differentiation means that established firms have brand identification and customer loyalties, which stem from past advertising, customer service, product differences, or simply being the first to industry.”

Casper certainly ticks the box when it comes to advertising. The company has spent heavily on acquisition and brand marketing. However, Porter’s advice is to tread…