Diapers.com: an America's Hottest Brands Case Study

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Blink and you'll miss Diapers.com's name on the side of a nondescript office building in suburban Montclair, N.J. But in a case of form failing content, inside the door hums a business that recently scored $30 million in funding as it continues its astounding growth. Inc. just named it the fastest-growing retailer in the U.S.; the company reported $89.4 million net revenue in 2008 and expects to far surpass that figure this year and next.

Inside its headquarters, Snoogles, Medela Pump In Styles, Huggies, Pampers and other maternity and baby supplies crowd hallways and top desks in an open, converted warehouse-like space reminiscent of late-90s New York-based dot-coms.

But this is 2009, and CEO Marc Lore and Chief Operating Officer Vinit Bharara are noticeably amped about a recent funding announcement. It's one more coup for the co-founders, who in 2005 started the private company as a diaper-delivery service going by the name 1800Diapers. With a few hundred thousand dollars of their own, they bought diapers from BJ's and Costco and lost money on every sale; their gross margin was 4%.

Renamed Diapers.com in 2007, its brand is grounded in what Mssrs. Lore and Bharara consider unmatched customer service, made possible by heavy investment in back-end logistics. Boasting low prices, an ad-free and personalized shopping environment, a no-questions-asked return policy and a 99% in-stock rate, the company can reach two-thirds of the U.S. through overnight delivery, with a 6 p.m. local time cut-off. All 35 customer-service representatives are in-house, available 24 hours a day, seven days a week. "We empower them to take care of the customer at all costs," Mr. Lore said. "We're incredibly metrics-focused, except in the area of customer call times."

The company is also cued into its customers' unique needs. "It's a period of time for folks where it can be mayhem; our whole mission is to provide help during this time in your life," Mr. Bharara said.

Marc Lore
Marc Lore, CEO, Diapers.com
"We have a connection and closeness with the customer that no one else can rival," Mr. Bharara added. "We can never breach that trust."

Diapers.com's marketing budget is currently upwards of $10 million; it'll more than double in 2010. An "incredibly lean" marketing team of three handles all initiatives, Lore said. The Ad Store is Diapers.com's agency of record.

Word-of-mouth, which yields 35% of Diapers.com's customers, is the foundation of its brand-building, but it also leverages digital as well as traditional media. "Most internet retailers spend a majority of their marketing budget on traditional forms of internet marketing," Lore said. "We're unique in that only 20% of our buyers come from those forms. The 80% come from partnerships, word-of-mouth and a referral program, and we also do a significant amount of print advertising."

Growth, while fast, has required sacrifice and patience. "We don't make money on the first order. In the beginning, we pay the whole cost," Bharara said. "It's a long-term strategy based on trust that they'll pay you back."

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