How two young women transformed the selling of beauty products with their ‘discovery retail’ model.
This business model had to exist. It was so obvious to us,” says Katia Beauchamp, co-founder and joint-CEO of beauty platform Birchbox. “There needed to be a way for consumers to touch, try and experience beauty products before buying them online.”
Consumers clearly agree with her and her business partner, Hayley Barna. Each month their NYC-based business ships a bespoke ‘Birchbox’ of five targeted samples of beauty, grooming and lifestyle products for just US$10 for the women’s Birchbox (US$20 for the men’s) to 800,000 global subscribers. If the recipient likes an item, they can order full-sized versions from Birchbox’s e-shop, which sells more than 6,500 products from 800 brands.
“I like the way [Birchbox] does the editing for me and gives me a non-noisy environment to shop in,” said one time-pressed customer. Beauchamp and Barna founded Birchbox just months after receiving their MBAs from Harvard Business School, where they met and first conceived their business idea. “We thought: ‘Who wouldn’t want someone to cut through the clutter and help them find the best beauty products?’” says Beauchamp. With that simple question, Birchbox was born.
One of Barna’s friends, a beauty editor, shared her expert knowledge and spare samples with the pair. The first boxes shipped to subscribers in September 2010; four years later, the fledgling startup has grown into a global success story.
“Consumers understood right away that Birchbox was a valuable service to them,” says Beauchamp. Yet even its founders were taken aback by how quickly Birchbox’s discovery retail model took off.
“We had realistic expectations, that it would take some time to explain the value proposition to brands and customers alike,” says Beauchamp. “But our customers embraced it, and started sharing their experiences online through social channels such as YouTube. Growth was truly viral.” The popularity of Birchbox – and the rise of competitors in the US and abroad – spurred Beachamp and Barna to work harder. “We knew we’d go global at some point, but while similar discovery retail companies were springing up, we had to focus on running our own business.”
Expansion came swiftly. Having moved into men’s products in April 2012, that September they acquired Joliebox, which operated in the UK, Spain and France. “It allowed us to extend our service from the US to three other markets, overnight,” says Beauchamp. “Because beauty is regulated in the same way as pharmaceuticals, overseas growth couldn’t be as simple as shipping from the US to other destinations. We had to wait for the right opportunity.”
One of the key reasons for Birchbox’s rapid success was its founders’ careful targeting of what Beauchamp describes affectionately as “the average, everyday beauty consumer”. “That choice is a critical element of what we want our brand to be,” she says. “We knew that die-hard beauty experts would love to be exposed to lots of new brands that aren’t easily accessible. But we also designed Birchbox for people like ourselves – the more casual beauty consumer.
No other retailer was really focusing on her.” Now the brand sees a “reawakening of her [the average consumer’s] love for beauty”. Subscribers – who also have access to ‘how to’ videos, insider knowledge and loyalty points – post thousands of product reviews on Birchbox’s site, and many regularly share ‘unboxing’ videos through social media channels when their boxes arrive through the mail. It’s this close connection with a community of consumers that beauty manufacturers are keen to tap into. The stakes are high; in 2013 Euromonitor forecast the US beauty and personal care industry would be worth US$81.7billion by 2017.
The relationship between Birchbox and its partner brands is mutually beneficial. Beauchamp acknowledges that the company’s fast track to success wouldn’t have been possible without establishing and nurturing links with manufacturers.
When launching the subscription service, Beauchamp and Barna recognized that getting the right representation of brands in the first Birchboxes was vital to “signaling to customers what we were, and what the quality level would be”.
Beauchamp cites US premium brand Kiehl’s, Australian ‘indie’ firm Lipstick Queen and San Francisco beauty powerhouse Benefit as some of the first to lend their credibility to the initial boxes. Now, with so many subscribers sampling and trading up to more expensive products, brands are vying to join the Birchbox portfolio so they can tap into the reams of data and feedback freely shared.
Birchbox’s ability to capture and analyze complex data about its customers is far beyond what manufacturers can achieve on their own. “It’s a really exciting proposition for our partners,” says Beauchamp. “Before we came along, a company would hand out samples to consumers without knowing what their needs were, what products they were currently using, and what opportunity there was to turn a potential consumer into a loyal customer.”
Detailed subscriber profiles and product reviews mean Birchbox can understand which customers respond most positively to samples and why, and track if they go on to buy full-sized products. “Our relationships with our brands are getting deeper and deeper,” says Beauchamp. “We’re now talking with them about how we can help with product development, packaging and sharing feedback from consumers on how they think products could be improved.”
The company’s growth plans don’t currently include its own line of cosmetics but, Beauchamp says, “it’s definitely not out of the question that Birchbox could have more of an ownership and stake in brands.”
This year has also seen Birchbox take the first steps towards using its e-commerce knowledge in the physical world. The brand’s first bricks-and-mortar outlet opened in Soho, New York City, in July 2014. Its aim is to offer the best of Birchbox in a single experience: the opportunity to purchase full-size products via editorialized displays; to choose samples; to attend events and beauty demonstrations; and review tailored recommendations via touchscreens.
“As an online-first beauty retailer, we felt that we were best positioned to understand and leverage our e-commerce experiences into creating a unique store,” explains Beauchamp. “It wasn’t part of our original business plan. We did a few events and pop-up stores, and realized this was a great way to connect with our consumers. We knew they appreciated the value the Birchbox model brought to online shopping, and that they didn’t feel they were being served by the current options for shopping for beauty in person.” The store is a one-off experiment, but further openings are “not off the table”.
Where Birchbox – or its business model – will be in another four years is anyone’s guess. Companies such as Amazon already send out recommendations based on customers’ past purchases, but only food seems to lend itself readily to the Birchbox model of fast reaction to consumer data. Graze delivers customized boxes of healthy snacks in the UK for US$6 a month and passed the 150,000 subscription mark only three months after launching in the US in January. This has not gone unnoticed by General Mills, which has now entered that market. Selectivity could be the key.