Launching a business in a space with many established players is not always a profitable endeavor. But that’s just what friends Marc Lore and Vinit Bharara did in 2005. Despite the number of retailers selling parenting supplies online, the pair felt there was room for a site that sold diapers that were cheap and arrived quickly. Over the next five years, Diapers.com raised $59 million from outside investors, hired 300 employees and now brings in over $180 million a year. In 2010 alone, the site is set to bring in $300 million. Today their company Quidsi is launching a new site in a similarly crowded field. Soap.com will sell household goods online.
I spoke with Quidsi cofounder Marc Lore to talk about the importance of free shipping and why his company likes going after the business of large e-tailers.
Soap.com started off as a side project for you. How long before you started doing it full-time and investing in marketing?
When we knew that the business model was working and the lifetime value of a customer had been solidified. We’d been in business long enough to know how much we could afford to spend to get a new buyer in. So that’s when we started, you know to invest in, in marketing. We did a round of financing at the end of 2006 which kind of helped build the infrastructure and then did a sizable round at the end of 2007 to really market the business.
You’ve said you spend 10% of your marketing budget on customer service. What else are you spending on?
starts with word of mouth, so we invest in our best customers because
we recognize that our best customers are the best way to spread word of
mouth and so that’s the primary method. Next would be the referral
module that we built, which makes it easy for people to refer their
friends and receive credits for doing so. That’s been pretty popular.
We’ve done some traditional online marketing, but we’ve had a lot of
success also with offline marketing, with print and TV and offline
partnerships, in hospitals and in maternity stores and things like that.
About 15% of our marketing is online, and 15% of our customers come from traditional online marketing.
When you started Diapers.com there were plenty of established players in the space. How did you make room for your brand?
There were a lot of people selling baby products online, but they were focused on higher margin baby gear — strollers, car seats, toys, clothes, and those sorts of items. There was really no one focused on building a building a relationship with mom, and we thought the best way to do that would be to sell them the basic necessities — the diapers, wipes, and formula — on a monthly basis and deliver an outstanding overall service experience. That way we could build a relationship on multiple touch points with the consumer. From that relationship we eventually evolved the business into selling everything for baby — including all the high import goods.
How important is free shipping to your business model?
We started with the simple promise that we want to the best customer
service proposition on the internet, and that means fast shipping and the best customer service available. We want to build a service brand.
Everything on the site is free shipping over $49.00. Always. And it’s not only free shipping, but it’s free, fast shipping. We guarantee one to two day delivery for free.
Our demographic is busy looking for ways to make their lives easier and we just felt it aligned with the demographic we’re serving — just focusing on more on service.
You’ve said the company aims to “satisfy every customer” and “reward the valued ones at all cost.” How does that work?
It’s pretty simple. We don’t have a big, thick manual of what customer service representatives can and can’t do. They can do whatever’s necessary to make sure that customer leaves the call happy. Some people require more to make them happy than others. It depends on the situation, it depends on the circumstance, it depends on the person. But that’s our goal with every call, to make them happy and leave the call saying, “wow.”
How does that change with frequent customers?
We definitely have a philosophy here that we want to reward our best customers for shopping with us. Sometimes we hear talk from marketers that that’s subsidization: “These people are already shopping with you all the time, you don’t need to spend more money on them.” But we feel completely the opposite.
It’s our best customers that have really helped build our business. We want to reward those customers, and so we do a lot of things to delight people that have shopped with us many times. We feel that it builds a stronger bond between us and the consumer. It gets people passionate about our brand and wanting to share their experience with other people.
What about your new site, Soap.com. There are already many sites that sell household products. Why did you decide to launch a new one now?
It is consistent with making life easier, which is one of our core missions with Diapers.com. There were a lot of people on the site asking us for something like this. Saying, “Wow. I really wish this level of service existed, not only for my baby products but also for all my everyday stuff.” And that’s where the idea originated from, really from our own customers asking for it. We saw a really unique opportunity to take our service model and apply it to a much broader market. Everything from toothpaste and toilet paper to your higher end specialty items.
If we can deliver those products, overnight them with free shipping, then there’s probably a pretty big opportunity there. And so we set it up so that you could actually share a shopping cart across the two websites, which I think is pretty interesting.
How will the site differentiate itself?
We will carry the same selection out of the gate of a site like drugstore.com, and considerably more products than some of the other players in the category. Our goal is to be really aggressive about adding new products. By the end of the year we’ll have 40,000 products on the website. We’re launching with 25,000 on Wednesday, but 40,000 by the end of this year and then 100,000 by the end of 2011, so we’re going to be just very aggressive about increasing assortment.