Birchbox: Suffering From An Identity Crisis?

What will Birchbox's competitive edge be as it looks towards a hybrid box and retail identity?

Subscription box retail has been one of the fastest growing parts of e-commerce and Birchbox began riding this wave in 2010. To summarize its business model, Birchbox is on the “curation” end of the spectrum, with the firm delivering a box of five personalized samples across categories such as hair, makeup, skincare, etc. each month for a fixed fee. The personalization occurs based on the subscriber’s beauty profile and stated preferences.1

The value proposition for the subscriber is two-fold: (i) ability to sample a variety of beauty products with relatively low monetary commitment, especially if you are not already savvy about the beauty space, and (ii) convenience of having someone pull together and deliver a box of recommended beauty products to your door. Birchbox on the other hand aims to derive value from (i) a stream of subscription revenue and more importantly (ii) revenue from subscribers who return to its site to buy full-sized versions of the samples they like. In fact, as of last year, this segment represented ~35% of Birchbox’s revenues with co-founder Katia Beauchamp stating “we didn’t start Birchbox to sell samples”.

The megatrend of supply chain digitalization offers an opportunity to match consumer demand and product supply, as well as tailor products to the precise needs of customers. This is especially important for subscription box retailers like Birchbox as customer satisfaction depends on the accuracy of customization and more importantly the sustainability of this customization. This in turn affects the churn rate of customers which, given the subscription-based model, is important for such businesses. Data analytics and the ability to learn from customer reactions to products becomes crucial for accurately predicting what customers like and will like in the future.3 For Birchbox, it is key to leverage data analytics to: (i) minimize the probability of cancelations, (ii) find a way to direct these customers to its retail platform (iii) optimize inventory for both the monthly boxes and its retail platform and (iv) optimize relationships and cost arrangements with manufacturers4.

For subscription box retailers like Stitch Fix (online personal stylist), the data analytics piece on customer preferences stems from the way a customer chooses to spend his or her money. That is, the customer indicates how much she liked or disliked the box by choosing to purchase or return the articles of clothing delivered. With a provider like Netflix, the tracking of customer preferences can happen overtime even after the product has been delivered and paid for through his or her viewing history. In the case of Birchbox, the consumers need to be incentivized to provide product feedback directly to the company. Until June 2016, Birchbox did this by allowing subscribers to review as many items in their boxes as they wanted to every month. In return, they received points for each item reviewed and ultimately earned discounts that could be applied to Birchbox’s e-commerce platform for full-sized products5.

A major problem with this loyalty program was the quality of the product reviews as Birchbox found that customers were incentivized to leave reviews without having tried the samples to just receive the loyalty points. To address this, starting in July 2016, Birchbox limited its loyalty program and customers are now able to only receive credits for a total of five reviews in the lifetime of their subscription.6 However, this change came amid an increasingly packed subscription-based beauty space with growing competition for subscribers increasing the pressures for achieving profitability. According to co-founder Beauchamp their “generosity wasn’t sustainable…it’s like letting people move into an apartment and never raising the rent.” In 2016, Birchbox also slashed 30% of its U.S. staff and cut tens of millions of dollars in costs, including overhead, marketing spend, and logistics.7

This big move away from a source of data analytics and the ability to capture consumer preferences although lowers the customer acquisition cost and boosts profitability, will be detrimental for the business model in the long-run. This is especially true as it looks to increase its presence in the offline world by opening more brick-and-mortar stores (opening one in Paris soon; first one opened in New York in 2014) and confront traditional beauty retailers through a hybrid online box and retail store identity. The biggest question for Birchbox as it looks to grow revenues from the sales of full-sized products both online and offline is what is its competitive edge going to be? Especially as beauty retailers like Sephora become new challengers and start their own monthly box service for the same price, how will it continue to provide consumers what they want better than others who have been in this space longer with more transaction history?8

[777 words]


  1. Birchbox, “A Birchbox Subscriber’s User Guide”,, accessed November 2017
  2. Clare O’Connor, “Pioneering Beauty Startup Birchbox Turns Profit After Tough 2016,” Forbes, April 12, 2017,, accessed November 2017
  3. Jay I. Sinha, Thomas Foscht, and Thomas T. Fung, “How Analytics and AI Are Driving the Subscription E-Commerce Phenomenon,” MIT Sloan Management Review, December 6, 2016,, accessed November 2017
  4. Karl Siebrecht, “Subscription Box Retail: Match Supply with Growing Demand,” Flexe (blog), March 16, 2017,, accessed November 2017
  5. Khadeeja Safdar, “Birchbox, a Pioneer in Subscription Beauty Sales, Scales Back”, Wall Street Journal, June 15, 2016,, accessed November 2017
  6. Laura Northrup, “Birchbox Subscribers Are Upset About Changes To Review Points Program”, Consumerist, June 15, 2016,, accessed November 2017
  7. Clare O’Connor, “Pioneering Beauty Startup Birchbox Turns Profit After Tough 2016,” Forbes, April 12, 2017,, accessed November 2017
  8. Kim Bhasin and Polly Mosendz, “Birchbox Finds Cute Boxes Filled With Makeup Aren’t Enough,” Bloomberg News, June 3, 2016,, accessed November 2017





Ford Motor Company Faces Steel & Aluminum Supply Price Headwinds


Clear Eyes. Full Hearts. Digital Education.

Student comments on Birchbox: Suffering From An Identity Crisis?

  1. I agree that one of Birchbox’s primary challenges moving forward will be to determine its competitive edge as other companies begin to replicate this model and how to stay profitable in the long run. One major component of this that I see is that while selling items on its website can be more profitable than the subscription based model of sending boxes of product, it can also be riskier. An e-commerce site requires the company to hold inventory, provide customer service and returns, and can be expensive the company cannot properly predict demand for products [1].

    However, in order to be profitable and cover its shipping costs, which I would imagine would be one of the most significant costs for the company, Birchbox should continue to build out its online presence. To me, this is the main reason that digital analytics will be so vital for the company – to mitigate the inherent risk in expanding the online presence.

    [1] Key To Success: Beauty Box Company Birchbox Says It’s Not Just About The Box. Forbes, 23 Sept. 2015,

  2. In terms of the analysis you provided of the various ways that Birchbox could leverage data analytics, I was most intrigued by your point (iv), optimizing relationships with manufacturers. Long term, I am skeptical about the sustainability of Birchbox’s business model, particularly given the proliferation of free sampling in the Beauty industry, the entrance of power players like Sephora (as you referenced), and the increasing cost of acquiring new customers to the Birchbox business. It seems that one of the only competitive edges that Birchbox has available is to be the preferred partner of beauty manufacturers, by offering unique, data-driven products for the brands themselves. Birchbox has been a compelling way for brands to launch new SKUs, as the model encourages trialability and incentivizes consumers to review the new product. If Birchbox could bundle these behaviors with additional data on the consumers who were receiving the product, thus allowing the brands to later directly remarket to those who had received the sample, they might be able to differentiate themselves as a partner.

  3. This is fascinating – I had no idea how much curation through data science went into these subscription box products. We’ve discussed the various issues associated with predicting customer demand, but Birchbox has built a business in which they control customer demand for each individual sample product. As you mention, when done well, this offers Birchbox the opportunity to optimize relationships and cost arrangements with manufacturers.

    I wonder if such data analytics could instead be applied at a much broader level. Rather than competing directly with Sephora and other beauty retailers, Birtchbox could sell analytics insights to other retailers to help them predict demand based on past purchase history.

    The biggest concern I have for subscription box retailers, especially in a market like beauty products, is the customer lifetime. If a customer uses your tool purely for discovery, at what point will they leave after having “discovered enough.” A customer may return to your site to make the first full-size purchase of a product she enjoyed, but will she make all future purchases through your 3rd party site, or will she visit another retailer or the manufacturer themselves? I wonder if Birchbox should offer a supplementary subscription offering bundling full-size versions of products that customers enjoyed, and shipping them on a frequency based on how long each product should last. This would offer another revenue channel for the company, would maintain customers for longer, offers predictable demand, and may offer another means of collecting feedback about which products customers love.

  4. I was interested in your point that Birchbox should use analytics to drive customers to their retail channel – I think of the relationship inversely. Given their brick-and-mortar current/future footprint and lack of expertise in the space (despite attempts to beef up their staff in this arena), their core competency is in the online channel. As of last year, half of their revenues and 70% of total traffic came from the mobile channel alone [1] which is significantly higher than industry averages. I view the stores as marketing vehicles, used to build awareness and drive traffic to the site, but I do think that a customer who shops across online, mobile, and in-store will be more valuable long-term.

    Another way that Birchbox can provide differentiation is through monetizing or sharing the data with their vendor community. From customer customization patterns to conversion rates to full-size products, Birchbox has visibility to information that their partners don’t. In the beauty space, it is very difficult for brands to find out competitive information from traditional retailers, so Birchbox has the opportunity to use this information to drive value. But, like you mentioned with the customization aspect, this is a complementary strategy to what I hope they would discover is their competitive edge.

    1. Here is the citation:

      [1] “Birchbox Turns 6, Overhauls Mobile Experience,” Women’s Wear Daily, September 2016,

  5. I found your piece very interesting, especially because it covers a space that we hear little about – subscription box retail. Whenever I read about e-commerce, the first question I think about is how is this differentiated from Amazon, how quickly will Amazon be able to take over this space? Based on your analysis of the company and the industry, I see little competitive advantage Birchbox has. Customer knowledge, supplier relations, delivery infrastructure are all better managed by Amazon due to its scale. I believe that the only differentiating factor Birchbox can have on the long-term is if they try to position themselves as the experts of the space. If they become the beauty blog and newspaper where people go to learn about new products, and on the side sell boxes / full products to customers who already trust them, they could build a stronger relationship then Amazon has now.

  6. Thank you for your article, SJ! Prior to reading your article, I hadn’t thought about the challenges facing Birchbox in regard to using data analytics for consumer goods, particularly the challenges of tracking reviews. Perhaps Birchbox could leverage a conjoint analysis as discussed in MKT. To be more specific, a conjoint analysis is a conjoint analysis is a specialized survey design, which determines consumers’ preferences for individual features of a product. Conjoint analysis asks respondents to rank different bundles of features, and uses responses to assign a numerical value (called a “part-worth”) to each feature. Firms can then use these numerical values to predict consumer reactions to a product, and to decide what product features to offer. This could be a helpful tool to evaluate products rather than having customers provide feedback on an individual basis for all / none of the products included in a Birchbox.

  7. Interesting piece! To echo some of the points made above, I am also very skeptical about the future of a service like Birchbox as a standalone business.

    Based on your analysis, they seem to have strong data analytics capabilities, which they use to (1) put together customized beauty boxes and (2) drive their full-size product sales. Nevertheless, they do not seem to have any advantage in point (2) compared to other retailers with an online presence. Once a customer has tried out a sample and wants to buy it again, there is nothing that stops him/her from searching for the best price online. Players like Sephora have the option to provide more competitive pricing and extensive product offering combined with a strong offline presence due to scale.

    Also, as players like Sephora are moving towards offering their own sample box services, the best way forward for a service like Birchbox is to indeed build the right partnerships with manufacturers and retailers or even serve as the promotional arm of a company like Sephora by operating under the LVMH roof. This will allow LVMH to integrate the data analytics capabilities of Birchbox (e.g. customer feedback on new samples) with the product offering decisions of Sephora.

  8. I am a bit skeptical of subscription based retailers. None have demonstrated an ability to scale and compete with incumbent retailers for a variety of reasons. To do so, they would need to differentiate on the basis of assortment, experience, convenience, or branding, but this is near impossible to do because so often their value proposition is “style” at an affordable price. In serving their consumers on a low cost basis, Birch Box and other subscription based retailers hamstring themselves in their ability to generate sufficient awareness and brand loyalty. Birch Box is trying to do this through this loyalty programs, but few retailers have demonstrated an ability to do this effectively. Where Birch Box has an opportunity to differentiate is through the use of its data and analytics capabilities to anticipate trends, but to capitalize on that data it will need to either deliver high quality (perhaps exclusive) assortments, or differentiate itself through collaborations with high profile designers as other retailers such as Nordstrom has done. While they will likely stick around for the foreseeable future, it feels that no amount of supply chain digitalization will be able to drive a sufficient level of differentiation or competitive advantage in relation to traditional retailers such as department stores, or compared to online pureplays like Amazon that deliver extreme convenience and quality at low low prices.

Leave a comment