Warby Parker Case

Warby Parker Case Introduction Founded in 2010 by four Wharton MBA graduates, Warby Parker is as an e-commerce startup endeavoring to disrupt the prescription eyewear industry. The company’s purpose is to create vintage, boutique-quality eyewear at a revolutionary price point while fulfilling its social mission of giving away a pair of glasses for each one sold. Opportunity Space/Innovation Process An Opportunity Space is an industry, market segment, or area where an entrepreneur can create new value by filling in a void caused by a market imperfection. The Innovation Process is how the entrepreneur creates a new solution to the market imperfection. Warby Parker’s co-founders were disenchanted with their corporate work environments, which were replete with politics, red tape, and bureaucracy. Seeking inspiration, they resolved to travel the world together and contemplate ideal industries in which they could make a direct and sizable impact. Particularly, the team was baffled by how the eyewear industry was able to charge such preposterous amounts for high-quality prescription glasses. This question was the impetus behind the team’s strate- gic decision to enter and innovate within the eyewear industry. At the time, the eyewear industry was ripe for disruption given that a global Italian eyewear company Luxottica had largely monopolized the industry. Most consumers have never heard of the company; however, almost everyone recognizes the brands and retailers it owns, which include Ray Ban, Oakley, LensCrafters, Sunglass Hut, and Pearle Vision. Furthermore, the company owns licensing rights to manufacture on behalf of luxury fashion giants like Gucci, Versace, and Ralph Lauren. Luxottica is vertically integrated, meaning it controls every aspect of its supply chain from manufacturing to distribution, which collectively decreases its costs while consequentially increasing total profit. Fully vertically integrated companies like Luxottica oftentimes become monopolies (companies that own most of or all of a market). Monopolies are traditionally devoid of formidable competitors, resulting in societal value destruction. Monopolized industries, like eyewear, intrinsically are imperfect and inefficient due to the fact that product prices are higher while quality remains the same. Because Luxottica owned the market, customers who desired fashionable, high-quality prescription glasses were resigned to pay upwards of $400-600. The team leveraged its founders’ industry knowledge and social capital (person’s social network) to identify the key problems fueling the market imperfection. One of the founding team members had garnered extensive industry experience after running a non-profit organization called VisionSpring whose mission is to improve the vision of almost one billion people who lack adequate eyewear. Eventually, VisionSpring became the startup’s main strategic social partner that distributes the donated Warby Parker glasses. After thoroughly performing industry analysis, the team resolutely determined to create an opportunity space within this industry where they could deliver superior value with a unique solution. Like other incumbents who are disrupted, Luxottica overlooked this opportunity space because it was seemingly both 1) inferior to their own products, and 2) would not result in enough profit to divert its resources away from its current products. Armed with an armamentarium of human capital (an individual or group’s valuable skills, knowledge, and experience) and $120,000 of financial capital contributed by the co-founders, the team began its disruptive quest. Warby Parker started by designing a unique collection of frames that were inspired by stylistic elements prevalent in the 40’s and 50’s and used the same quality materials and manufacturing facilities as its high-end competitors. Unlike its purely capitalistic competitors, the startup inte- grated into its business model a social impact initiative to donate a pair of glasses for each pair sold. And because Warby Parker cut out the unnecessary costs (i.e. licensing fees and optical retailer profits), it was able to offer price points (the majority of which are $95) that were substantially lower than competitors who justified selling individual frames for $300+. Moreover, the company delivered highly superior value by including free-of-cost, prescription polycarbonate, anti-reflective lenses—other high-end optical boutiques traditionally charge hundreds of dollars for comparable lenses. Within just three weeks of Warby Parkers e-commerce debut, it sold out of its entire collection and had a waiting list that was 20,000 orders deep. Early adopters of the company’s glasses were extremely satisfied with the design, purchasing experience, and the overall value. These customers were also devoutly loyal, incessantly evangelizing the brand to their friends and family. Indicative of customers’ zealousness is the fact that more than half of Warby Parker’s new orders come from word-of-mouth referrals. Luxottica, however, dismissed the company, believing that the online experience could not compare to the personal attention found at its retail locations. Soon thereafter and to Luxottica’s misfortune, Warby Parker evolved upmarket and began rolling out brick-and-mortar showrooms in US urban centers like New York, San Francisco, and Los Angeles. Like Apple store openings, customers lined up for these showroom openings in droves. Warby Parker’s co-founders are not complacent with their remarkable success over these past seven years. They are fundamentally changing the value proposition found in the eyewear industry while simultaneously providing vision relief to millions of people. Five Types of Value An organization’s performance is largely attributed to its effectiveness in managing resources. The Five Types of Value framework provides a useful indication of organizational performance and will be extensively used throughout the course: 1. Value in Use The effectiveness of a product, service, or experience in fulfilling customer needs. This is measured by the customers’ overall satisfaction. The eyewear company has innovated several unique ecommerce applications that have been very positively received by its customers. An evident concern for online eyewear buyers is their fear of purchasing a pair of glasses that either doesn’t fit their faces or match their tastes. In response to this customer pain, Warby Parker introduced the “Home Try-On,” which allows customers to select up to five pairs of glasses from the website and have samples of them shipped for free to their home where they can then “take them for a spin” and seek the opinions of friends and family over the course of five days. Once they decide which is the right frame for them, they can order the pair online, or mail back all 5 pairs with the return shipping already paid. Additionally, the startup has an online application where a customer can upload a photo of his/her face and virtually try on multiple pairs of glasses. Indecisive customers can even share the images via Facebook in order to receive feedback on which pair to purchase. Through these innovative, complementary services, Warby Parker has integrated one of the most critical value propositions of traditional brick-and-mortar eyewear retailers: the experience of trying on multiple styles before purchasing. Customers praise these innovative services, which is why more than 50% of new purchasers come from word-of-mouth marketing. 2. Value in Exchange The efficiency of a product, service, or experience in fulfilling customers’ needs. This equates to the benefits re- ceived from the purchase (and the overall satisfaction) minus the costs of money, time, and energy spent. Customers are just as passionate about Warby Parker’s eyewear as the company is about designing and delivering a beautiful product at a fraction of its competitor’s price. The average pair of prescription glasses costs approximately $260 while high-end glasses can cost more than double that price. Warby Parker frames with prescription lenses cost only $95 and irrefutably deliver equal or superior value—the company even uses the same manufacturing lines as its Italian fashion rivals like Gucci and Versace. 3. Value in Distribution Measured by the availability, accessibility, and convenience of a product, service, or experience. Value in Distribution paves the road for growth as it allows more customers to use the product more easily. After successfully launching and growing the company’s online presence, Warby Parker began to fuse its online business with brick-and-mortar showrooms, fashioning itself after the lucrative, hybrid commerce platform pioneered by Apple. The startup recently opened its flagship store in Soho, New York City, where over 4,000 customers waited in long lines and entered within the first three weeks. Warby Parker, like Apple, understands the value of having an integrated and consistent presence through both e-commerce and brick-and-mortar channels. In the imminent future, the company plans to scale this hybrid platform internationally. 4. Value in Finance The financial performance of the organization. This is measured by examining the numbers, for example: revenue, cost structure, growth, cash balance, stock price, asset efficiency. Value in Finance demonstrates past growth. Since the eyewear company launched, it has experienced prolific growth and has benefited from economies of scale, meaning that the cost to produce a unit decreases as order volume increases. Warby Parker reconfigured the typical cost structure found within the eyewear industry, thereby eliminating the unnecessary middleman costs incurred due to licensing fees required by end-market retailers. This eyewear startup has achieved remarkable financial success in a short period of time. Analysts estimate that the eyewear industry is expected to reach $142 billion by 2020. Although the startup does not publish its earnings, insiders have divulged that it has grown exponentially by several hundred percent each year. Recently, the company secured $42 million in financing from investors like J.Crew’s CEO Millar Drexler. 5. Value in Fitness Measures organization’s ability to grow, adapt, evolve and continue to generate resources from its environment. Value in Fitness promises future growth. Warby Parker understands consumer behavior and trends. The company’s social mission has strategically positioned itself for growth among its Millennial Generation customer base. A recent global Nielsen study indicated that over 46% of consumers are willing to pay a premium for products or services that have some form of social impact. Consumers are increasingly shifting purchases away from traditionally capitalistic companies that focus solely on profit and stock price maximization. They are favoring more socially conscious companies that focus on providing value to all stakeholders, not just shareholders, including humanity and the environment. Because they have been so successful and popular, they have been able to continue to release new styles both in prescription glasses and sunglasses without any lag in sales, drawing attention of many celebrities and even collaborating with Karlie Kloss in launching a new sunglass line. What do you predict they will do next? Governance Organizations create value through strategically establishing a cohesive set of governance mechanisms, consisting of rules by which the organization operates, structures, and directs its resources. One way that Warby Parker is currently improving their governance structure is through the hire of an Inventory Cost Accountant. In the interest of efficiency, this individual “will primarily be responsible for ensuring that all costs make sense and are accurately reflected by our financial statements.” The Inventory Cost Accountant will implement new systems that will facilitate the collection and analysis of data for this purpose. Warby Parker is enhancing their governance by using this new hire to tighten the belt. How do you think Warby Parker will balance their fun loving, flexible culture with this new strict accountability measure? Resources The means of production that are governed to generate performance and value creation. Among all the resources a startup might need, capital is among the most important. Warby Parker has been very successful at obtaining and managing the capital required to launch and expand the business at such a rapid rate. What other resources do you think Warby Parker manages well? What resources do you lack for your next project?