Founded in 2010, Birchbox is a discovery commerce platform that offers consumers a personalized way to discover, sample, shop, and learn about the best beauty products and brands out there. Katia Beauchamp and Hayley Barna (HBS graduates) founded the company as a subscription service that would curate makeup boxes with sample assortments each month. The company has since added a full e-commerce platform where customers can buy full sizes of their products they sample, and opened its first brick and mortar store in New York City.
To date, Birchbox has raised over $70M in funding, operates in six countries, has nearly 300 employees, over 800 brand partners, and more than one million subscribers. Annual revenues are estimated to be around $100M.
Birchbox creates tremendous value for both sides of its platform: brands and customers. On the brands side, sampling has been used as a marketing tactic for decades, but with lackluster results. Generally speaking, non-directed sampling results in samples that are the wrong color or for the wrong skin tone/type. In addition, brands are unable to evaluate sampling campaigns because they don’t have data to do so. Birchbox fixes this problem by sending samples to customers with the correct profile (e.g. if you are a teen, you won’t receive anti-aging cream). Birchbox is able to extract ratings data from its platform to understand user preferences, and even see if the user proceeded to buy the full-size item from the e-commerce store. The subscription service creates a new channel for these brands, and funnels new customers their way.
On the customer side, each subscriber fills out a detailed profile before receiving her first box (e.g., hair type/texture, skin tone, style preferences). Through Birchbox, customers have the opportunity to try high end beauty products that are tailored to their individual features, personality, and style, without having to commit to the expensive, full-sized version.
Value creation using data analytics
Birchbox has a robust data science team that drives value creation. For brand partners, Birchbox provides valuable insights, data, analytics, and consumer research.
For customers, Birchbox’s data science team sees each monthly box delivery as an optimization problem with the following parameters: profile preferences, limited supply of samples Birchbox can send, policy to never send the same sample twice, etc.
The company also understands the high cost of sending samples that the customer does not like, and has processes in place to involve the customer as much as possible. For example, Birchbox gives customers the choice to choose one item per month they can include in the box. This serves as one of Birchbox’s highest engagement points with the customer, and allows customers to know what to expect.
Birchbox also uses data for personalized discovery. Through its online platform and mobile app, Birchbox will make personalized recommendations based on customer ratings and order history, using key words like “discover,” “based on your profile,” and “the latest.” At the same time, Birchbox’s data science team takes care of the customer through the many touchpoints the company has: web, offline, brick and mortar, mobile app, and social media. The data science team has developed specific tracking systems to follow customers’ interactions with the company and show the right messages at the right time, thereby enhancing engagement and conversion.
More recently, Birchbox has launched its own makeup brand called LOC. The products in this collection focus on bright colors that are on-trend and seasonal. Birchbox undoubtedly used its vast warehouse of customer data in product development.
Birchbox has three major revenue streams:
- Subscription revenue: $10/month for women and $20/month for men per box (represents ~75% of sales)
- E-commerce market: users can buy full-size products directly on the Birchbox website without a subscription
- Affiliate model: Birchbox charges brands some fee for introducing their products
Going forward, Birchbox will continue to meet growing copycat competition in the subscription beauty product space. Smaller competitors such as Glossybox, Goodebox, and Ipsy’s Boxes have emerged, while larger players like Sephora have also been entering the market using a similar business model. The Birchbox founders believe they have a competitive advantage over smaller competitors because Birchbox has its full e-commerce store while competitors do not. The e-commerce store creates more value for brands as it helps deliver on Birchbox’s promise to deliver new, long-term customers. An e-commerce store is much harder to develop because it requires inventory, customer service, and more complex logistics relative to the simple subscription business. At the same time, Birchbox has also been acquiring smaller competition (JolieBox) to gain scale and entry into new markets.