Birchbox: opening new paths for beauty & e-commerce

Birchbox: a success in redefining beauty

• Since its founding in 2010, Birchbox has experienced significant success innovating consumers’ behaviors with beauty  and e-commerce.
  • Birchbox is estimated to serve over a million customers, earning $170 million annually. The ‘discovery commerce’ beauty company has raised $70 million+ in venture funding, boasting an estimated valuation of $485 million.[1]
  • Organizationally, the company has grown to 150 employees, while maintaining a positive reputation as an ambitious, ‘work hard, play hard’ culture that is attracting top talent such as ex-Sephora (Philippe Pinatel) and Apple (Ben Fay) execs for recent retail expansion.[2][3]
  • The two co-founders (HBS MBAs ’10) Katia Beauchamp and Hayley Barna have impressed investors (e.g., Viking Global) as well as young female entrepreneurs.[4]

• Birchbox is poised for greater growth – largely due to constantly assessing its business/operating models’ alignment with its vision – even amidst increasing competition. It boldly aspires to reach more of the 44 million US consumers in a $465 billion dollar global beauty industry.[5]

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The idea – enabling ‘beauty discovery’ via redefined ‘sampling’

• It was an image women were used to: Sephora, a beauty retail powerhouse, and their ‘free samples’ with purchase; reps pushing perfume samples. Samples were relatively low cost ways retailers attempted to convert consumers. However, there was limited ‘customization’ of samples, resulting in greater ‘waste’ (i.e., ROI estimates show over $100 million lost on unused samples)[6]
• Enter Birchbox. The business model turned the previously tired ‘samples’ business on its head. The company centers on a subscription-based service that delivers a ‘box’ monthly (i.e., $10/month for women; $20/month for men), with samples curated for the subscribers’ ‘Beauty Profile.’[7] The belief is that with unique, customized samples, consumers are delighted with ‘discovery’ and trial of products, with relatively low commitment, and thus more likely to convert to full-sized purchases (which they can buy on Birchbox’s site).
  • The vision: to serve those who ‘enjoy using the best products’ but ‘don’t want to work too hard to find them,’
  • For whom: young woman/man 25-39 who loves beauty but ‘isn’t the MAC girl’ (i.e., not someone well-versed in the universe of products out there, right for her/him).[8]^,[9]

• Revenue & distribution channels: Initially, Birchbox relied on subscription fees and e-commerce to drive revenue. However, Birchbox has entered brick & mortar retailing – with its flagship store in NYC to better serve its mission and establish competitive advantage.
• Data & high quality service: both online and offline activity ultimately drive data and comparative advantage via network effects (i.e., more subscribers, more brands, more data)

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How it works – aligning vision with business/operating models

• The business model hinges on three key operating model elements: a) solid infrastructure of beauty product suppliers (e.g., both ‘indie and customer-favorite’ brands) & hooks to keep demand, b) content to encourage product trial-ability, and c) supporting organization.
  • The brands/products: partners are required to provide samples and sell full-sized products via Birchbox. Though this was a difficult term to ‘sell’ to partners initially, the founders’ commitment to this has paid off (e.g., 50% of subscription consumers purchase full-sized product on Birchbox, where credit card info is already stored, and represents 30% of company’s revenue). [10]
    • Partners are willing to collaborate given evidence of increased awareness/sales after being featured (e.g., for niche luxury brands –custom-perfume company Harvey Prince has grown 400% since partnering in 2010). [10]
    • Birchbox exclusives (e.g., partners co-brand products that are exclusively distributed on Birchbox’s site)
    • Subscribers earn 10% on every purchase made on Birchbox’s site (e.g., via Birchbox Points and Aces loyalty program)
  • The content: there is heavy attention given to ‘media’ – i.e., contextualized selling of products via YouTube clips, Pinterest of more than 1 million followers. Birchbox’s site also features:
    • 3 million+ customer reviews help in decision making process and customer satisfaction
    • Expert articles and videos for featured products

• The organization: the founders first focused on only two things – directly tied to business model and how they structured the org:
  • Get the brands to feature (i.e., Partnerships)
  • Get consumers the products and make sure every customer gets a response (i.e., Customer Service/Fulfillment)
• As typical of start-ups of Birchbox’s tenure, there have been shifts in operating model recently to better support the growing vision
  • Opening of retail stores (trial and immediate gratification). In addition to its NYC flagship, it has a shop in D.C. where visitors can “BYOB” (Build Your Own Birchbox) and receive makeup services [11]

• Change in top team: In August 2015, Barna stepped down as co-CEO when it became clear that long-term success (and ability to keep a clear vision and message) required a single CEO.
• Category expansion (e.g., men. food) – Birchbox Man launched in 2012; there are rumors that more categories may be on horizon, similar to Gilt’s expansion (e.g., Gilt Home).[12]
• Global operations (e.g., operations in the UK, France, Spain, Canada, and Belgium)

Brands spend money to connect with consumers, and consumers want the best product. We were asking both sides to change their behavior and it has really amazed us how willing they were.  — Katia Beauchamp

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[1] http://mashable.com/2014/04/21/birchbox-raises-60-million/#KO3iPEEtysqd

[2] http://www.fastcompany.com/3044266/innovation-agents/opening-the-box

[3] http://www.bizjournals.com/newyork/news/2015/12/01/birchbox-hires-ex-sephora-apple-execs-retail-grow.html

[4] http://www.huffingtonpost.com/laura-dunn/women-in-business-qa-with_b_5811374.html

[5] http://fortune.com/2015/08/11/birchbox-ceo-hayley-barna/

[6] Interview panel with Katia Beauchamp (November 9, 2015)

[7] http://www.forbes.com/sites/hollieslade/2014/06/02/the-pitch-that-launched-birchbox-the-485m-stuff-in-a-box-business/

[8] http://www.slideshare.net/Yelenastarikova/birchbox-the-future-business-model-of-ecommerce

[9] Interview panel with Katia Beauchamp (November 9, 2015)

[10] http://www.fastcompany.com/3044266/innovation-agents/opening-the-box

[11] https://www.birchbox.com/

[12] Fireside chat with Hayley Barna (November 17, 2015)