Why We Shut Down Our Viral Growth Campaign

About one month ago, the Tuft & Needle family assembled for our weekly team rally. Once a week, everyone in the company meets to discuss customer pain points, team updates, questions, and blockers.

As we moved through the meeting, a few issues related to our referral program began to appear. We started the program as a way to reward our customers who were helping us spread the word about Tuft & Needle. Both you and your friend would receive $50 if they purchased a mattress as a result of you telling them about it.

The program had been running for a few months with tremendous results. Our new customer growth through referral had nearly doubled. Celebrations were surely in order.

But as the meeting progressed, more and more issues with the program presented themselves. Soon the conversation snowballed into a passionate debate over our values and our mission. Was this rapid growth coming at an unforeseen cost? Had we started to lose our way?

For those of you not familiar, Tuft & Needle was started a couple years by two friends. One of our co-founders JT had just spent $3,000 on a memory foam mattress and found himself wanting to take a shower after leaving the store. The sales person had convinced him that he needed to spend all of that money to get a better night’s sleep.

There had to be a better way.

As Tuft & Needle formed, the founders began to discover some shocking truths about the mattress industry. Most mattresses cost only a few hundred dollars to make. But with all of the middlemen, salespeople and greed within the industry, your product may have been marked up as much as 1,500% by the time you got to the store.

These facts drove one of the most important Tuft & Needle values we have today: to provide a high-quality product at an honest, fair and transparent price. No marketing gimmicks or unfair markups.

Fast forward two years later to that weekly team meeting. The debate was passionate and had been brewing for some time. Since launching our referral program, our company’s growth had become exponential. Our year over year sales growth had passed 1,000%. We had discovered an incredible marketing channel that could help us ascend in the marketplace.

At the same time, we were receiving a lot of complaints from customers who didn’t receive discounts on their first order. Other customers asked us why a company that pointed the finger at the mattress industry for using marketing gimmicks would launch a discount program themselves.

After much deliberation, the team decided that even if our growth suffered in the short term, we needed to stay true to our values and mission as a company.

Although more of our new customers appeared to be coming to us from referrals, it was unclear if these acquired customers were truly incremental.

Now I’m sure a lot of people are rolling their eyes. They may be thinking the only reason we ended the program was that it was unprofitable and grew untenable.

But that wasn’t the case at all. Not only was a sale through the referral program still profitable, it was the most effective marketing strategy we had ever devised.

Before we launched an incentivized referral program, we calculated that 23% of new customers came to us via a referral. During the peak of the program, that number doubled to 45%.

So why would we end such a successful program that was helping our company to grow faster than it ever had before?

Values Trump All

The first reason we ended the program was also the most important. As I explained earlier, one of the core values of our company is to provide a quality product for a fair price. We never want customers to buy a mattress and then wonder if they could have gotten a better price.

We believe that consumers should pay a fair markup, nothing more. That profit should be enough so we at Tuft & Needle can pay our employees a healthy wage, grow over time and most importantly, reinvest that money into product innovations that benefit our customers.

We’ve made over 30 changes to our mattress in the last year alone. Most of which a customer wouldn’t notice during a side by side comparison. But over time, these changes add up to a far superior product.

The rest of the mattress industry reinvests their profit into more marketing and distortion. There are hundreds of mattress models sold by the same few manufacturers that have nearly all the same properties. They have different names across retail stores, making it impossible to comparison shop.

Values are very powerful tools for companies. They serve as a framework for making decisions when a team can’t arrive at an answer on their own. Johnson & Johnson provides one of the best case studies in the history of business.

In 1982, a few bottles of Tylenol were laced with cyanide. As a result, a small number of customers in Chicago died. Even though the incident appeared to be isolated to a small region of the country, the company issued a recall for $100 million dollars of product across the United States.

Why did they take such a decisive course of action? Their number one value as outlined in their Credo, is their responsibility to the customer. Their fourth and last responsibility is to their shareholders. When deciding what to do, they weren’t concerned about the potential loss in market share, only the safety of their customers.

More recently, CVS provides another great example. They realized after some time that selling cigarettes were at odds with their mission as a healthcare company. The cost of their decision? Over two billion dollars in sales every year.

In the end, the decision over what to do with our referral program was an easy one. Our values told us that ending the referral program was the right thing to do.

We all joined Tuft & Needle because of the values and mission of the company. We believe in what the company believes in. In the end, everyone celebrated the decision. We even popped a bottle of champagne.

Shopping for a Mattress Shouldn’t Feel Like Shopping For A Mattress

At first glance, getting your mattress for free seems like a great deal. Who wouldn’t want a free bed?

Funny you should ask. A lot of our customers wrote in during the referral program and raised their hand. They came to our brand in search of a mattress that didn’t require them to jump through hoops to get the best deal. They came in search of peace of mind.

Promotions suck. They’re like an addictive drug in the business world. You start by selling your product at $100. You grow impatient and want to see sales increase, so you offer 20% off. Woah that worked! Sales are up! A few customers who paid $100 write in and complain. You offer them the discount after the fact, and all is right in the world again.

Next season, you launch a new product at $100. Crickets. A few customers bite but not as many as the last time. You lower the price to $80, and the customers return to your website and buy. But this time, you sold a lot more $80 products than $100 products.

The problem with promotions is that you begin to train your customers. You are training them to think that there’s no need to pay $100 for your product. You’ve trained them to believe that you’ve included an unfair markup in your price.

Imagine if consumers and brands could shake hands and agree up front to pay a fair price with a reasonable markup. No customer would have to worry that they were being ripped off. Companies could sit back and let the product sell itself.

Idealistic? Yes. Impossible? No.

There’s a revolution brewing. Companies like Dollar Shave Club and Warby Parker are challenging the goliaths and their monopolies. Think of how many Lens Crafters, Sleepy’s or Gillette commercials you’ve seen in your life. Why do those companies charge more for their products than the new entrants?You’re not paying for a better product. You’re paying to help those companies protect their market share.

Too much energy is expended by both consumers and companies when the price of products change. Both physical and emotional.

At Tuft & Needle, we want to reward our early adopters. Why would we make our customers who believed in us first, pay more than everyone else?

Money Can’t Buy Love

At Tuft & Needle, our mission is to be the most loved bed company in the world. We measure that using NPS. We ask our customers “On a scale of 0 to 10, how likely are you to recommend Tuft & Needle to a friend?”

Before we ever incentivized customers to tell their friends about Tuft & Needle, 80% of them answered that question with a nine or ten.

We didn’t ask them how likely they were to tell their friends if we paid them $50. If you truly love our product, you’ll want to tell your friends so they can benefit from the experience as well. This type of unsolicited recommendation is significantly more powerful.

So how do we explain the percentage of referrals doubling during existence of the program? It was a lot of people who didn’t love us that used it most.

Customers who received an extra $50 off their first order actually said they were less likely to recommend us to their friends even though they knew they could earn $50 for doing so.

My former boss once said that a customer’s willingness to pay full price for your product is an indicator of how much they respect your brand.

The people who didn’t love our brand had no problem cheating our system. They would create fake accounts and refer themselves. One customer went as far to buy google ads to get his referral link in front of complete strangers. He sold over thirty beds to people he didn’t know.

We still plan to reward our customers for spreading the word to their friends and family. We’re currently working on plans that surprise and delight our customers who recommend us most frequently. We are also working on new products that will further improve their experience.

Our margins aren’t that large to begin with. What profit we do make is invested in our employees and back into our customers. Happy customers and happy employees lead to the most healthy growth there is.

See. Happy employees (and dogs).

When in Doubt, Listen To Your Customers

One of our core values as a company is transparency. After the decision had been to made end our referral program, there was no debate on what to do next.

A lot of companies would have made the change quietly and hoped no one would have noticed. If a customer had complained, they might have offered them some form of compensation in the hopes they keep their dissatisfaction to themselves.

We took a different approach. We crafted a letter explaining all of the changes and why we made them. We sent that email to everyone who had ever bought a mattress from us.

What happened next was amazing. We received hundreds of responses from our customers. Almost all of these were words of support and encouragement for the decision we made.

Our founders took the time to write back to every customer. Positive or negative, thanking them for their feedback and support.

Some customers were upset about the changes. We opened a dialogue with them and took their feedback to heart. We offered to grandfather them into the program and do whatever they felt was fair.

At first, we were worried about the changes and how our customers would react. We’ve since realized a different truth.

As long as the decisions we make are core to our values; our customers will support us. And those who don’t support us, shouldn’t have been our customers in the first place.

You can’t be everything to everyone. If you attempt a strategy of acquiring any and all customers, you will end up with ones you can’t satisfy.

My mom sent me the picture on the left during a recent shopping trip. 60% off a $9,000 mattress set with an additional 10% off after that.

Wow! That deal sounds too good to pass up… until you realize, there’s no deal at all.

At Tuft & Needle, we see value in a shopping experience where you never have to wonder if you’re getting the best deal or a fair price.

It’s an unfortunate truth that most of the time, you need to watch your back. There are a lot of companies waiting to take advantage of consumers. Here at Tuft & Needle, we’re changing that.

Since ending the program, our new customer acquisition growth has slowed a little bit. We’re actually ok with this.

Our NPS score has been steadily increasing. This is telling us that the referrals we’re getting are from people who truly love our product. They’re inviting friends to the Tuft & Needle family that share our values.

The energy around the office has improved as well. Our customer experience teams are dealing with less angry customers. Our engineers aren’t trying to create solutions that prevent customers from gaming our website.

What are we doing with all this spare time? Making our products better and investing time and energy into solving new problems for our customers. In the end, isn’t that what we all want?

All of us here at Tuft & Needle are creating a new type of American company. Be on the look out for more stories like the one above.
If we can inspire more entrepreneurs who share our values to bring quality products to market at a fair price, we believe we can make our country a better place.
We’d love to hear from you. Whether it’s a question, something you’d like to see us write about or wanting to chat over some coffee, shoot us a note at friends@tuftandneedle.com.