Tempur-Pedic Shows Its Softer Side

Tempur-Pedic Shows Its Softer Side

Attention to consumer desires and focus on innovation fuels growth in otherwise sluggish market.

It's been said that a person should never underestimate the value of a good night's sleep. For Lexington, Ky.-based Tempur-Pedic International Inc., the adage couldn't be more apt. The pillow and mattress manufacturer continues to post strong growth figures, even as the furniture and bedding industries have struggled during and after the recession.

Aggressive advertising campaigns, a vertically integrated manufacturing philosophy and continued investment in new products has helped Tempur-Pedic boost profit margins and market share.

The company's revenue grew 33% in 2010 to $1.1 billion. Between 2008 and 2010, Tempur-Pedic's profit margin has grown nearly 8 percentage points to 14.2%. In addition, the company appeared to weather the recession better than other major players, posting a $58.9 million profit in 2008 while top competitors either reported losses or lower earnings, notes market research firm IBIS World in its June 2011 U.S. mattress manufacturing report. The company's mattress market share in the United States is 11%, ranking fourth behind competitors Sealy Corp., Serta international and Simmons Bedding Co., respectively, according to IBIS.

But the company is catching up to the leading manufacturers by playing to its strength of providing a unique product in a market dominated by standard innerspring mattresses. Prior to the recession, many consumers purchased alternatives to traditional mattresses, which boosted sales for companies like Tempur-Pedic, IBIS says in its report. The economic downturn put a dent in demand for nontraditional mattresses, but IBIS expects alternative mattress sales to pick up again during the recovery.

Part of Tempur-Pedic's success comes from the company's focus on continuous innovation since its founding in 1992, says company Treasurer and Chief Financial Officer Dale Williams. Tempur-Pedic is known by many consumers for its classic "wineglass test" commercials that show a person jumping on the mattress without spilling a nearby glass of wine. This "no motion transfer" technology stems from a viscoelastic memory foam originally developed by NASA.

Tempur-Pedic's founders invested a significant amount of time and money reinventing the foam to make it commercially viable. Since then, the company has enhanced the technology with new products that reflect consumer demand, including investments made during the recession. "We realized we needed to maintain a healthy level of investment in the future, even though it was a tough business climate," says Williams, who led Tempur-Pedic through its IPO in 2003.

Customer Influence

One of the company's more recent advancements was the 2009 introduction of its Tempur-Cloud mattress. The development of the Cloud collection was driven by consumers who said they wanted a softer mattress than the traditionally firm Tempur material, Williams says. Part of the company's overall market strategy involves developing products that appeal to all consumers. That was a significant change for the company. Tempur-Pedic had previously operated under the assumption it could gain acceptance from customers by pushing high-quality products to them, Williams says. But then came the recession.

"Pretty early in the recession we said, 'Maybe we need to get off our high horse and innovate our product in such a way that it still delivers on brand promise but meets consumers where they're at based on their preferences,'" Williams says. Through consumer research, the company developed the softer Cloud line that provides a less-firm feel but maintains the support and benefits of the Tempur material. Tempur-Cloud was a major contributor to North American mattress sales rising 47% to $539.2 million in 2010. The company began introducing Cloud to international markets this year.

Consumers play a critical role in Tempur-Pedic's research and development process. The company has two R&D centers, one in the United States and another in Europe. It also has a third facility at an undisclosed location in the United States that acts as a consumer research lab. At the testing location, customers blind test competitors' products along with Tempur-Pedic prototypes. "It's a very integrated process between the development teams, our research people and our external research people who are constantly getting consumer feedback about our products, products that are under development, as well as just core feedback from consumers about what they liked and what they don't like about our products," Williams says. "That way we can continue to innovate and provide product lines that appeal to everyone because different people have different tastes."

Tempur-Pedic also tries to engage consumers through aggressive marketing efforts. In 2009, the company launched its "Ask Me" advertising campaign that challenged consumers to compare Tempur-Pedic's reviews to competitors. The company has continued "Ask Me" through 2011 and launched a new marketing blitz in its international markets called "Weightless."

"We know consumers don't believe what advertisers say, so the whole concept of 'Ask Me' was 'don't listen to us; talk to your friends and neighbors. Ask them about Tempur-Pedic,'" Williams says. The company encourages consumers to investigate Tempur-Pedic on social networking sites, such as Twitter and Facebook.

Vertically Integrated Approach

A rendering of Tempur-Pedic's expanded headquarters in Lexington, Ky. The 125,000-square-foot facility is expected to create 65 new jobs.
While Tempur-Pedic wants consumers involved in the R&D process, the company takes a cautious approach to protecting proprietary information. This includes a vertically integrated manufacturing practice of producing its own viscoelastic foam material to protect the formulation from reaching the competition.

Being vertically integrated also provides the company with cost advantages. Tempur-Pedic has three large manufacturing plants -- two in the United States and one in Europe -- that produce all the material and mattresses. "The scale we have is very important to not only providing good, high-quality Tempur mattresses but also very important in cost effectiveness," Williams says.

Despite the company's efforts to guard its formula, Tempur-Pedic operates under the philosophy that one day someone might develop a similar material, Williams says. "We're not sitting still from a material standpoint," he says. "We continue to innovate our material and improve our Tempur material. In fact, Tempur material is not one thing anymore. There are about five different Tempur materials today."

See also:

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