It’s targeted to those who “enjoy using the best products” but who “don’t want to have to work too hard to find them” and promises to “sort through the clutter to send you what works.”
2. “Discovery Commerce”
It isn’t subscription commerce because it doesn’t live and die by the box. It isn’t media because it makes money through the old fashioned selling of actual goods. It is really good marketing with a seamless transition to buy. And bonus — it’s got all the analytics to prove it and can provide increasingly strong targeting for the brands it sells.
3. Business Model
Major revenue streams:
Subscription revenue. For $10/month, a user receives a Box with product samples. This subscription fee needs to at minimum cover the marginal cost of shipping each box (the shipping cost), and also help to cover some of the other major expenses (marketing, overhead, etc.) "Affiliate" fee. When a customer purchases a sample at full price from one of Birchbox's suppliers, Birchbox shares revenue on the total amount of product purchased. Over time, I think this will become a more and more important source of revenue for Birchbox as they understand their users' tastes better and increase the available supply of product samples that they can provide to users. Birchbox was making a bet that some percentage of the company’s customers would leap to pay for full-size products after trying out the samples. There are also full-size e-commerce orders that come from non-subscribers. About 15 percent of the company’s orders come from customers who don’t get the monthly box of sample products now.
Suppliers have been providing samples to Birchbox as a way to reach potential, long-term customers. Suppliers offer the samples as a marketing expense. Birchbox is “both a marketing partner and a retail partner”.
When you are ready for more of the products you sampled, you can purchase full-size versions directly from the Birchbox Shop. The shop has a generous loyalty program that rewards you every time you shop, refer friends, and give feedback on your monthly samples. You can redeem Birchbox Points and save on any full-size or gift purchase.
4. The win-win-win situation is:
- customers get to test premium products with reduced prices - companies make eficient promotional campaigns with a good target audience that will multiply the strength by recommending it to friends (word of mouth) and becoming customers when they are satisfied with the samples. - Birchbox earns revenues: from customers through the monthly fee, from the companies to promote their products and through lots of other ways by also creating on the website a store section and a beauty section with tips, editorials and articles talking about the products. Beauty brands needs
Non-directed sampling can be ineffective since the samples don’t reach the right people. (i.e. You walked into a department store and received a sample that was the wrong for your skin type.) Brands cannot track whether a person went home and tried it, or whether they bought the full-size product after trying the sample. Birchbox sovled:
They only send samples to subscribers with the correct profile (e.g. If you have straight hair, you won't receive a curly hair mousse, and if you are a teenager, you won't receive an anti-wrinkle cream). As an online service with their own shop, they have the ability to track metrics about whether customers tried the product, how they felt about it (ratings) and whether they converted to full size.
Birchbox actually buys inventory wholesale and operates its own shipping department. The company started out working eight brands. To date, it has brought more than 800 beauty brands – including Elizabeth Arden, Inc. (RDEN), Estee Lauder Companies Inc (EL), Smashbox and Unilever plc’s (UL) Tony & Guy– on board, and is selling over 6,500 products through its online...
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