BirchBox: A BEAUTY-FULL monthly gift
BirchBox provides a smart, fast and fun way to shop for beauty products through its innovative subscription payment and delivery model and supporting online offerings.
The beauty industry has been giving away free small samples to promote their products for decades. HBS alumni Katia Beauchamp and Hayley Barna have successfully convinced over 800,000 subscribers across the globe to pay $10 a month for a small box of these otherwise free products. At its core, the BirchBox business model enables the woman who is “too busy to (or not interested in)” sifting through the cluttered and crowded retail space a convenient and personalized way to discover new beauty products without leaving her home.
The beauty industry has no shortage of information about brands or products in fashion magazines, blogs and online forums. Many spend hours poring over these resources and testing new products to add to their beauty repertoire. Hayley explained to a small group of women at a fireside chat on campus earlier this year that before starting BirtchBox, she wasn’t one of these people. Hayley relied on her best friend Molly, who worked as an editor at Vogue, to carefully follow trends and recommend new products. When starting BirtchBox, Hayley hoped to create that same trusted relationship with her customers.
As HBS students entering their EC year, Hayley and Katia thoughtfully designed their innovative operating model to not only align with, but reinforce their core business model and value proposition. The operating model includes three components, a subscription model for payment, a delivery system, and an online presence through BirchBox.com.
Subscription payment model and delivery system
BirtchBox employs a subscription model through which, after one simple subscription sign-up and a predictable, fixed payment, Birchbox sends to the customer’s home 4-6 samples of new products or brands without the customer having to step foot outside, read a single review or ever pull out their wallets. Adding to that the excitement of discovery, the products come in a nicely packed box resembling a present. Birchbox’s subscription model was one of the first of its kind in the CPG space and was designed to deliver on the promise of convenience while maximizing opportunities for their customers to discover new products.
The fixed and predicable nature of the subscription model leaves the customer facing a value proposition only once. And, it makes revenue for BirchBox predictable, simplifying modeling and projections.
BirchBox.com
BirchBox.com compliments the monthly beauty box delivery by providing short descriptions of each product, tutorials on how to use the products, and a marketplace for purchasing full size versions.
Tutorials play a critical role in extending the “place of discovery” promise beyond just providing new products on a monthly basis. Through easy to access videos and tips, BirchBox provides simple explanations of how to use each new product and often suggests new ways to use familiar beauty and grooming products. This additional, concierge-like service model enhances the personalized value proposition and helps deepen BirtchBox’s relationship with its customer base.
Additionally, online customer behavior such as page views, product reviews and purchases provides rich data that the BirchBox team can use to better match individuals with products each month as well as provide additional insight to retailers on how to improve their product offerings or better target “the right” customers. This iterative process and continuous feedback from customers is critical to the curation and personalization of each box and only improves a customer’s experience over time as BirchBox’s product matching algorithms learn an individual’s specific preferences.
At the fireside chat earlier this year, Hayley shared that she and Katia had many moments where they questioned both their business and operating model early on as they experienced natural growing pains as well as when they started to see great success. As their business grew, the business community and entrepreneurs took notice and a plethora of “copycat” models emerged both within and outside of the beauty space (e.g., NatureBox and PawPack). While the founders were tempted to leverage their scale, experience and brand to compete in these areas, they honed in on their mission and continued to focus their efforts and operating model on creating “the smartest and fastest way to shop for beauty and grooming products.”
http://mashable.com/2014/06/16/unique-business-models/#iDm42tG59Sqm
http://www.cbsnews.com/news/birchbox-success-in-small-packages/
Great post! I’m wondering if large companies such as MAC or Sephora should take a lesson here and start doing sample boxes themselves. By going direct-to-consumer, could companies build loyalty and give them more control over the consumer? Thinking about our Khiel’s case and the free samples.
Interesting idea, Anthony. I would see that almost as more of a retention play for a company rather than a customer acquisition play, which I think is more of what BirchBox offers to its cosmetics partners.
I went to this Fireside Chat too, and I loved how open, honest, and modest Hayley was, and how the idea for BirchBox came about very organically for her & Katia.
Really enjoyed reading this, and thought you highlighted some great points about how BirchBox changed our traditional view of beauty retail!
Would love to hear your views about how two recent strategic initiatives play into their original core strategy – I’m not sure whether I think they’re additive or not. The first is the move into bricks and mortar, which while potentially complementary, certainly signifies a shift from the mailed box format. And second, what do you think about their recent expansion into a proprietary color line? I think this second one is particularly interesting while they manage relationships with existing suppliers. Though Sephora has a very significant private label presence (so it’s certainly manageable), they also have the power of LVMH behind them and I wonder if that positions them differently with regard to this potential conflict.
Fascinating company! Does Birchbox receive the samples free from the companies that are trying to promote awareness and distribution? If so, I wonder if there is a risk of companies no longer supplying the products for free (or at a discounted price) if they don’t see desired returns. Does Birchbox track conversion rates from the boxes and share those with the beauty products? I’m also curious to learn more about the company culture and staffing model. Are staff passionate and well versed on makeup and beauty products? Finally, I also wonder if they could add a “premier” Birchbox subscription package with the highest end products. This could help improve margins and be a way to price discriminate.
Agree with AWang and wonder if there is really a competitive moat for Birchbox given the recent entrance of Sephora into the market? Seems to me an easy win for Sephora given its 1,900 stores and existing rewards program.
http://fashionista.com/2015/08/sephora-subscription-box