Warby Parker, as hipsters and others know, is disrupting the “luxury” eyewear market. While “disruption” is a buzzword indiscriminately applied to many things these days, that’s not the case here.
Coming into an industry that enjoyed near-monopoly concentration of market power (translation: consumers were paying a lot!), Warby Parker is taking on Luxxotica (proprietary brands here + licensed brands here = pretty much a who’s who in this industry) successfully, but still in a small way.
A very interesting article from Knowledge@Wharton describes various aspects of the Warby Parker story. Students of business will find it especially appealing, because it touches on various elements of marketing, pricing and strategy.
Two excerpts (if you are in a rush) that I really liked from the piece.
1. Before founding the company
Before co-founding Warby Parker, Blumenthal directed VisionSpring, a group that trains women in developing countries to sell affordable glasses in their communities. The job left an impression. “It helped me recognize the power of a pair of glasses to change someone’s life,” he notes. Research conducted by the University of Michigan demonstrated that users of VisionSpring eyeglasses experienced a 35% increase in productivity and a 20% increase in monthly income, Blumenthal points out. “In international development terms, that is a miracle.”
2. Why $95 and not $45
The decision to price glasses at $95 comes with a back story. Wharton marketing professor Jagmohan Raju recalls that when the founders broached their idea to him, they originally planned to sell their glasses at half that price. “I really liked the idea overall … but after examining their analysis, I told them it’s not going to fly. [At $45 a pair], there’s no money [left over] for brand building; there will be no money in it for you and no money for investors.”
In addition to squeezing the business, a price tag of $45 was “too low” to be seen as credible to customers, according to Raju. “It would have put [Warby Parker] in a category I believed they did not want to be in. There are many companies selling cheap eyeglasses. Anyone can go on the Internet and buy two pairs for $99. But there is a perception among customers that the quality is not as good.”
The goal was to create a new price point that was still reasonable, but not low-end.
David Bell, professor of marketing at Wharton, served as an advisor to the founders in an independent study about pricing models and demand analysis. He recalls conversations around the social-psychological reasons for staying under $100. “There was a bit of discussion about what happens [psychologically to the customer] when you get to three digits,” he says. “[At the same time], $99 gets you a little bit of extra margin — $4 — but it doesn’t feel quite as classy. A price tag of $93 sounds more like a Walmart price: There’s too much exactitude there.”
The price had to be right for another important reason: For every pair of glasses Warby Parker sells, it gives a pair to someone in need. (According to the company, almost one billion people worldwide — 15% of the global population — lack access to glasses.) TOMS, the shoe manufacturer known for its simple cloth espadrilles made with recycled vegan materials, is perhaps the best known company that employs a buy one/give one business model.