Marc Lore and Vinit Bharara launched Montclair, NJ –based Diapers.com in 2005 as a national online department store for newborn necessities. Formerly known as 1-800-Diapers, the business evolved into what is now a one-stop-shop for all things baby: food, toys, clothes, accessories, mommy-to-be gifts, safety devices, nursing and skin-care products, and of course, diapers. Lore and Bharara started the online shopping venture after selling their previous business, an online sports-card-trading marketplace, ThePit.com, for $5.7 million in 2001.
The business plan was bold. Lore and Bharara were going to compete with big box retailers and supermarkets to supply a commodity—diapers. Not only would the pair have to compete on price, an impossibility considering the volume of an Internet startup vs. the volume of Walmart, but they would also have to convince consumers that waiting for a delivery, instead of stopping at the local store, was worth it. So why are customers ordering products online that can be conveniently picked up at the corner store? Diapers.com built its success on branding, customer service, and a unique infrastructure.
First Steps
Lore and Bharara employed an unconventional method to compete with big box pricing; they didn’t mind losing money until they could scale the business up. They knew they could hook their customers with their over-the-top customer service. “We started by offering the value proposition that we knew would get us to meet our long term goals, even if it meant losing money. And we did lose quite a bit of money,” says Lore. “It wasn’t about what we could afford to offer, because you couldn’t compete with businesses that had been around longer and had more scale.”
Lore and Bharara also built a proprietary infrastructure that would meet their needs as the business grew. Instead of waiting for the demand to arise, the partners anticipated their needs in advance of growth, making the business scalable from day one. “The foundation for the business was our own proprietary technology,” says Lore. “We knew that in order to have a great service proposition and good prices, we’d have to have the best-in-class back-end logistics, and there was nothing off the shelf that would give us the capabilities that we were looking for.” They purchased custom software that calculates logistics, such as the optimum number of boxes needed to carry deliveries to the warehouse and reducing oversized corrugated box charges.
Branding Is Everything
The revenue-losing strategy eventually proved profitable for Diapers.com, who extended this “all or nothing” attitude to build the brand. “We said ‘no’ to the idea that it’s difficult for a small business to build a strong brand,” says Lore. “Early on, we knew that we wanted our brand to be centered around the service proposition of incredibly fast shipping and over-the-top customer service.” Diapers.com has a policy of free overnight or two-day shipping for all purchases, as well as a no-questions-asked return policy with free return shipping. The goal was to build a retail brand, not just an Internet retail brand. This year, the company has doubled their marketing budget from last year and established a partnership with BabyCenter.com, the largest online content site for new moms.
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