{"id":5306,"date":"2017-04-05T23:17:52","date_gmt":"2017-04-06T03:17:52","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/birchbox-the-beauty-of-data\/"},"modified":"2017-04-05T23:17:52","modified_gmt":"2017-04-06T03:17:52","slug":"birchbox-the-beauty-of-data","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/birchbox-the-beauty-of-data\/","title":{"rendered":"Birchbox: the beauty of data"},"content":{"rendered":"

\"\"<\/a>\u00a0\u00a0<\/u><\/p>\n

Birchbox was founded in 2010 by HBS graduates Katia Beauchamp and Hayley Barna as a subscription service for discovering new beauty products. For $10 per month, subscribers received a cute box filled with 5-6 samples of hair, skin, fragrance, and makeup products. Full-size versions of all sample products were merchandised in Birchbox\u2019s online store. In the early years, subscribers could submit product reviews for the samples they received, thereby accumulating points to put toward the cost of full-size products.<\/p>\n

Birchbox\u2019s unique product offering attracted both consumer and investor attention. By 2014, the company was valued at $485m, and as of late 2016, Birchbox had raised $86.9m in venture financing. With a subscriber base easily topping one million, Birchbox had definitely made it big.<\/p>\n

\"\"<\/a>*Image shows Birchbox website visitor growth from Feb 2013 to Feb 2014. Note this is not the same as subscriber growth, but does reflect the dramatic year-over-year increases in website traffic.<\/em>
\n<\/u><\/p>\n

Value Creation:<\/p>\n

Birchbox\u2019s core value proposition hinged on leveraging data to please two parties simultaneously: consumers of beauty products and the beauty brands themselves.<\/p>\n

On the consumer side, Birchbox created value by delighting subscribers with an inexpensive way to discover new beauty products. Every month, the box arrived with a secret assortment of covetable mini products for users to try out and enjoy. The box itself felt like a treat; as an early adopter, I can honestly say it was genuinely fun to receive something pretty and self-indulgent in the mail alongside my utility bill. Many consumers encountered off-the-beaten-path brands through Birchbox, and tried products they ended up enjoying, but never would have purchased in a store, off the shelf.<\/p>\n

The $10 per month fee translated to approximately $2 per sample, which paralleled the price consumers could expect to pay for drugstore travel size products. The Birchbox samples were far more luxurious and unique. Further, consumers were heavily incentivized to write reviews of these products, and could use points earned by leaving reviews to purchase full-size products at a discount.<\/p>\n

\"\"<\/a><\/p>\n

On the beauty brand side, Birchbox created value by giving brands a unique point of entry into the lives of target consumers. Many brands already ran sampling programs to acquire new customers, and Birchbox simply delivered those samples much more effectively. Birchbox also \u2018stocked\u2019 full-size products in their online shop, driving higher sales volume for affiliated brands as Birchbox subscribers found products they loved.<\/p>\n

Both sides of this value creation engine depended on data. Birchbox leveraged data from subscriber profiles to customize which samples to feature in each subscriber\u2019s box. For example, a curly-haired customer would not receive sample products designed for straight hair. As Birchbox\u2019s subscriber base ballooned, this personalization challenge grew \u2013 requiring increasingly complex analytics support.<\/p>\n

Birchbox also leveraged subscriber review and full-size purchase conversion data to provide valuable information to beauty brands. The vast subscriber base generated a high volume of product reviews, giving brands large, cross-sectional data sets on consumer preferences. Additionally, Birchbox could identify which products resonated with specific customer segments and thus help brands refine their target customer profile.<\/p>\n

 <\/p>\n

\"\"<\/a><\/p>\n

Value Capture<\/u><\/p>\n

Birchbox was able to capture value through three key elements: box subscription fees, sales of full-priced products on Birchbox.com, and affiliate fees from brand partners. Their largest driver of value capture was, of course, subscription fees.<\/p>\n

With most brands providing samples for free (initially), COGS were limited to packaging and shipping costs, leaving much of the $10\/month fee as contribution. Therefore, while Birchbox has not yet attained profitability, its core business of subscription boxes was contribution-positive after reaching a minimum efficient scale.<\/p>\n

As with any subscription business, Birchbox must keep a close eye on its life time value\/customer acquisition cost (LTV\/CAC) ratio. LTV is dependent on contribution margin and churn rate \u2013 the % of customers who cancel their subscriptions each month (or quarter, or year). How does Birchbox keep customer churn low? By using data to personalize its boxes, ensuring consumer expectations are met or exceeded by what they receive, and that they retain a curiosity about what they\u2019ll receive next month. Profile data and review data play a significant role in managing one of Birchbox\u2019s most critical metrics. Estimates of Birchbox\u2019s churn rate indicated that it was likely less than 10% in the first three years post-launch.<\/p>\n

Birchbox has also leveraged sophisticated data analytics programs to optimize its website and app conversion – and thus drive topline revenue. For example, after implementing\u00a0Custora, a predictive analytics platform for digital marketing, Birchbox increased its\u00a0profit per customer over 70% – a dramatic jump for any company.<\/p>\n

\"\"<\/a>Looking Forward: Growth Opportunities and Threats<\/u><\/p>\n

Birchbox has struggled to maintain its competitive edge in the market for beauty subscription boxes. Although it was a revolutionary offering in this space, many other boxes emerged subsequently. Birchbox tackled competition in the European market (and the desire to expand internationally) by acquiring Paris-based JolieBox, but has faced competition domestically from companies such as Ipsy, and most recently, Sephora\u2019s launch of the Play! box. Sephora\u2019s launch appears to be the greatest threat, as Sephora has a massive customer base and is already leveraging new technologies and big data to drive its own business. Sephora\u2019s Play! box does not use subscriber data to customize the product offerings featured; if one could compare Birchbox\u2019s churn to Play!\u2019s churn, it would be simple to deduce the impact of data-driven personalization on customer lifetime value.<\/p>\n

\"\"<\/p>\n

A series of consumer-facing tests revealed potential demand for a Birchbox product offering for men. After a broad-based survey of subscribers with positive results, Birchbox launched a Limited Edition men\u2019s box to test conversion rates. When these, too, revealed positive consumer demand, the company launched Birchbox Man in 2012. Driven less by product sampling and more by curation, the Birchbox Man subscription is $20\/month for an assortment of personal care products and accessories. Birchbox intends to take this data-driven approach to testing new product offerings before launching them full-scale. However, the product categories they seem to be considering \u2013 food, crafts, party kits \u2013 have already been flooded with competitor subscription boxes. Will Birchbox\u2019s data on its subscriber base provide enough information about target customers to give the company a competitive edge?<\/p>\n

\"\"<\/a><\/p>\n

Finally \u2013 is the market for subscription boxes robust? With investor sentiment toward consumer subscriptions cooling, Birchbox struggled to raise its Series C round in 2016, finally settling for a $15m convertible note (after raising a $60m Series B). Birchbox remains unprofitable, and went through a series of layoffs last year. Data has lent precision and elegance to Birchbox\u2019s personalization and brand value creation strategies so far. But in an increasingly crowded market, is data enough to truly differentiate this company from its competitors?<\/p>\n

 <\/p>\n

Sources:<\/u><\/p>\n

www.birchbox.com<\/a><\/p>\n

https:\/\/venturebeat.com\/2015\/05\/12\/birchbox-shows-how-it-continues-to-reinvent-its-brand-at-growthbeat-summit\/<\/a><\/p>\n

http:\/\/colinhaas.blogspot.com\/2014\/12\/how-birchbox-uses-data-to-find-online.html<\/a><\/p>\n

http:\/\/mashable.com\/2013\/05\/06\/cmo-data\/#KfZhbkPmzPqQ<\/a><\/p>\n

https:\/\/econsultancy.com\/blog\/67095-how-birchbox-engages-customers-with-personalisation-that-disappears\/<\/a><\/p>\n

http:\/\/info.localytics.com\/blog\/how-birchbox-uses-their-mobile-app-to-provide-personalized-experiences-for-customers<\/a><\/p>\n

http:\/\/insidebigdata.com\/2015\/11\/05\/data-science-analytics-at-birchbox\/<\/a><\/p>\n

https:\/\/www.crunchbase.com\/organization\/birchbox#\/entity<\/a><\/p>\n

https:\/\/www.forbes.com\/sites\/eshachhabra\/2015\/09\/23\/key-to-success-beauty-box-company-birchbox-says-its-not-just-about-the-box\/#52ebecb36511<\/a><\/p>\n

https:\/\/pando.com\/2012\/10\/19\/the-beauty-of-birchbox-its-not-subscription-commerce-its-marketing-that-women-actually-pay-for\/<\/a><\/p>\n

https:\/\/www.cratejoy.com\/sell\/blog\/what-is-birchboxs-monthly-churn-rate\/<\/a><\/p>\n

http:\/\/fortune.com\/2016\/08\/02\/birchbox-15-million\/<\/a><\/p>\n

http:\/\/www.racked.com\/2016\/7\/13\/12122758\/birchbox-subscription-box-decline<\/a><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Birchbox\u2019s core value proposition hinged on leveraging data to delight consumers and beauty brands, but as the market for subscription boxes cools, can Birchbox hold onto its competitive edge?<\/p>\n","protected":false},"author":786,"featured_media":5344,"comment_status":"open","ping_status":"closed","template":"","categories":[134,209,29,1408,1411,294,150,1412,1413,655,1415,1410,1409,1323,1414,1347],"class_list":["post-5306","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-analytics","category-beauty","category-big-data","category-birchbox","category-churn","category-competition","category-consumer","category-conversion-rate-optimization","category-custora","category-data","category-joliebox","category-lifetime-value","category-ltv","category-product-reviews","category-subscription","category-subscription-based-business-models"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/data-and-analytics-as-digital-assets\/","yoast_head":"\nBirchbox: the beauty of data - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/birchbox-the-beauty-of-data\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Birchbox: the beauty of data - Digital Innovation and Transformation\" \/>\n<meta property=\"og:description\" content=\"Birchbox\u2019s core value proposition hinged on leveraging data to delight consumers and beauty brands, but as the market for subscription boxes cools, can Birchbox hold onto its competitive edge?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/birchbox-the-beauty-of-data\/\" \/>\n<meta property=\"og:site_name\" content=\"Digital Innovation and Transformation\" \/>\n<meta property=\"og:image\" content=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2017\/04\/gettyimages-484030398-birchbox-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1100\" \/>\n\t<meta property=\"og:image:height\" content=\"733\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"6 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/submission\\\/birchbox-the-beauty-of-data\\\/\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/submission\\\/birchbox-the-beauty-of-data\\\/\",\"name\":\"Birchbox: the beauty of data - Digital Innovation and Transformation\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/submission\\\/birchbox-the-beauty-of-data\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/submission\\\/birchbox-the-beauty-of-data\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/wp-content\\\/uploads\\\/sites\\\/2\\\/2017\\\/04\\\/gettyimages-484030398-birchbox-1.jpg\",\"datePublished\":\"2017-04-06T03:17:52+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/submission\\\/birchbox-the-beauty-of-data\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/submission\\\/birchbox-the-beauty-of-data\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/submission\\\/birchbox-the-beauty-of-data\\\/#primaryimage\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/wp-content\\\/uploads\\\/sites\\\/2\\\/2017\\\/04\\\/gettyimages-484030398-birchbox-1.jpg\",\"contentUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-digit\\\/wp-content\\\/uploads\\\/sites\\\/2\\\/2017\\\/04\\\/gettyimages-484030398-birchbox-1.jpg\",\"width\":1100,\"height\":733,\"caption\":\"CHICAGO, IL - AUGUST 14: A general view of atmosphere at Birchbox Road Trip Chicago - Day 1 at Pioneer Court on August 14, 2015 in Chicago, Illinois. 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