{"id":199,"date":"2015-11-28T15:54:34","date_gmt":"2015-11-28T20:54:34","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/birchbox-using-customer-data-to-set-itself-apart\/"},"modified":"2015-12-08T15:41:05","modified_gmt":"2015-12-08T20:41:05","slug":"birchbox-using-customer-data-to-set-itself-apart","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/birchbox-using-customer-data-to-set-itself-apart\/","title":{"rendered":"Birchbox: Using Customer Data to Set Itself Apart"},"content":{"rendered":"

Company Overview<\/b><\/span><\/p>\n

Birchbox is an online monthly subscription service that sends its subscribers a box of four to five samples of high-end cosmetics, fragrance, or skincare products. Founded in September 2010, the company has over a million subscribers and more than 800 brand partners. It has seen tremendous growth\u2014the company has attracted $71.9 million in venture funding and draws revenues of an estimated $170 million a year. [1]<\/p>\n

 <\/p>\n

\"box-women-december\"<\/a><\/p>\n

Business Model <\/b><\/span><\/p>\n

A discovery commerce platform: how Birchbox gets people to pay to receive marketing material<\/i><\/b><\/p>\n

Birchbox has championed an innovative business model of serving as a \u201cdiscovery commerce platform,\u201d which consists of three interwoven businesses that work together to fuel the company\u2019s growth: (1) its subscription service, (2) its online and offline retail operations, and (3) its media operations.<\/p>\n

Birchbox generates revenue from subscribers while sourcing its samples for free from more than 800 beauty company partners. Due to network effects, brands are happy to give away company samples of their product in return for having their latest products discovered by a subscriber base of more than a million people. The strategy seems to be working: Currently, 50 percent of subscribers convert to buying full-sized products and 35 percent of the company\u2019s revenues comes from e-commerce sales of full-size products. [2] [3] Essentially, Birchbox has figured out a way to get customers to pay to get marketed to. Its\u00a0goal is to\u00a0convert subscribers to purchase full-sized products of the samples they like from the Birchbox website<\/a>.<\/span><\/p>\n

This business model works particularly well for the beauty industry, which faces challenges in e-commerce since most women want to be able to touch, smell, and try on cosmetics before purchasing them. [4] Birchbox closes the loop between trial and purchase by allowing customers to try samples of products before committing to making larger purchases on the Birchbox website.<\/span><\/p>\n

\"Birchbox<\/p>\n

One downside of Birchbox\u2019s business model is that it is easily replicable. Dozens of imitators have popped up with their own subscription-model approach. To combat its competition, Birchbox invests heavily in curating highly customized product offerings and producing editorial content to drive brand\u00a0loyalty, such as engaging media content to facilitate a community of followers on social media platforms like\u00a0YouTube<\/a>, Instagram<\/a>, and Pinterest<\/a>.<\/span><\/p>\n

 <\/p>\n

Operating Model<\/span><\/strong><\/p>\n

How Birchbox uses its scale to offer brand partners data driven insights and analytics<\/i><\/b><\/p>\n

As Birchbox scales, its operating model allows it to offer valuable services in experimentation and learning for its brand partners, such as customer data insights, demand forecasting, and A\/B test opportunities. Subscribers fill out a detailed questionnaire, providing information on\u00a0their hair type, skin type, and median household income. They also provide detailed reviews for sampled products on the Birchbox website.<\/span><\/p>\n

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

For niche luxury brands, this targeting precision is extremely valuable, as it provides comprehensive\u00a0demographic and psychographic data about who\u2019s buying their products, as well as sales analytics and qualitative feedback to help them decide what products to keep and what products to drop. \u201cIt\u2019s this sort of feedback that can really help vendors grow alongside Birchbox,\u201d says Eric Neher, senior lead merchant of brand partnerships. “We can select data… and help them pick things like packaging, colors, or shades.” For example, custom-perfume company Harvey Prince<\/a>\u00a0has grown 400% since partnering with the company in 2010. [5]<\/span><\/p>\n

\u201cWe have an obscene amount of data about our customers,\u201d Katia Beauchamp, Birchbox co-founder, says. \u201cThere\u2019s never been a platform that allows you to be a subscription service, have a content CMS, and also have a full e-commerce service, all blended into that with a backend that knows who you are.\u201d [6] <\/span><\/p>\n

 <\/p>\n

Integrating data into physical retail to enhance customer experience and personalization<\/b><\/p>\n

\"birchbox-store\"<\/a>In 2014, Birchbox opened a new kind of\u00a0brick-and-mortar retail store in Manhattan. The physical storefront doesn\u2019t only drive up incremental sales; it combines real time data-driven customization with an offline tactile experience to build customer loyalty. Unlike other beauty stores, the store layout mirrors the company’s website layout: items are organized not by brand but by product category, such as skincare or hair. iPads scattered throughout the store allow customers to provide information about themselves for personalized recommendations. [7] The store’s sales staff are able to pull up user profile data on existing Birchbox subscribers, including the samples they’ve received in past boxes and items they’ve favorited, to help make targeted sales, such as: \u201cI noticed you received this in your box; do you want to see what the full size looks like?\u201d So far, the synergistic strategy seems to be working: Birchbox notes that physical store visits are correlated with a tripling in customer lifetime value. [8]<\/span><\/p>\n

 <\/p>\n

Looking forward<\/b><\/span><\/p>\n

Birchbox has set up an impressive operating model aligned with three promising businesses that drive each other\u2019s growth. As Birchbox scales\u00a0and collects more data on its subscriber base, we can only expect it to\u00a0continue to increase its value to both suppliers and customers via not just network effects but also enhanced supply chain management, demand forecasting, feedback on product experimentation, and analytics insight into consumer purchase behavior.<\/p>\n

 <\/p>\n

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

[1] CrunchBase: \u201cBirchbox.\u201d https:\/\/www.crunchbase.com\/organization\/birchbox#\/entity<\/a><\/span><\/p>\n

[2] [5] Fast Company: \u201cOpening the (Birch)box\u201d. <\/span>http:\/\/www.fastcompany.com\/3044266\/innovation-agents\/opening-the-box<\/span><\/a><\/p>\n

[3] TechCrunch: “Beauty Product Subscription Service Birchbox Is Opening More Brick-And-Mortar Retail Stores”.\u00a0http:\/\/techcrunch.com\/2015\/07\/13\/beauty-product-subscription-service-birchbox-is-opening-more-brick-and-mortar-retail-stores<\/a><\/p>\n

[4] PandoDaily: \u201cThe beauty of Birchbox: it’s not subscription commerce, it’s marketing that women actually pay for\u201d. https:\/\/pando.com\/2012\/10\/19\/the-beauty-of-birchbox-its-not-subscription-commerce-its-marketing-that-women-actually-pay-for<\/a><\/span><\/p>\n

[6] TechCrunch: \u201cBirchbox Co-Founder Katia Beauchamp: We\u2019re Poised to Grow Way Beyond Beauty\u201d. http:\/\/techcrunch.com\/2012\/04\/24\/birchbox-katia-beauchamp-interview-video-tctv\/<\/a><\/span><\/p>\n

[7] The New York Times. \u201cBirchbox, Seller of Beauty Products, Steps Out From Web With a Store\u201d. <\/span>http:\/\/www.nytimes.com\/2014\/03\/24\/business\/birchbox-seller-of-beauty-products-steps-out-from-web-with-a-store.html?_r=0<\/span><\/a><\/p>\n

[8] Entrepreneur: \u201cConceived Online, Birchbox Embraces the Beauty of Brick and Mortar\u201d. <\/span>http:\/\/www.entrepreneur.com\/article\/248230<\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Despite an oft-copied business model, Birchbox continues to distinguish itself from its competitors by using data-driven customer insights to create value for both its subscribers and brand partners.<\/p>\n","protected":false},"author":817,"featured_media":200,"comment_status":"open","ping_status":"closed","template":"","categories":[43,48,49,45,47,46,44,7],"class_list":["post-199","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-analytics","category-customer-insights","category-e-commerce","category-information-sharing","category-learning","category-subscription-model","category-supply-chain-management","category-winner"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nBirchbox: Using Customer Data to Set Itself Apart - Technology and Operations Management<\/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-rctom\/submission\/birchbox-using-customer-data-to-set-itself-apart\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Birchbox: Using Customer Data to Set Itself Apart - 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