{"id":26336,"date":"2017-11-15T22:29:19","date_gmt":"2017-11-16T03:29:19","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/birchbox-suffering-from-an-identity-crisis\/"},"modified":"2017-11-15T22:29:19","modified_gmt":"2017-11-16T03:29:19","slug":"birchbox-suffering-from-an-identity-crisis","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/birchbox-suffering-from-an-identity-crisis\/","title":{"rendered":"Birchbox: Suffering From An Identity Crisis?"},"content":{"rendered":"

Subscription box retail has been one of the fastest growing parts of e-commerce and Birchbox began riding this wave in 2010. To summarize its business model, Birchbox is on the \u201ccuration\u201d end of the spectrum, with the firm delivering a box of five personalized samples across categories such as hair, makeup, skincare, etc. each month for a fixed fee. The personalization occurs based on the subscriber\u2019s beauty profile and stated preferences.1 <\/sup><\/p>\n

The value proposition for the subscriber is two-fold: (i) ability to sample a variety of beauty products with relatively low monetary commitment, especially if you are not already savvy about the beauty space, and (ii) convenience of having someone pull together and deliver a box of recommended beauty products to your door. Birchbox on the other hand aims to derive value from (i) a stream of subscription revenue and more importantly (ii) revenue from subscribers who return to its site to buy full-sized versions of the samples they like. In fact, as of last year, this segment represented ~35% of Birchbox\u2019s revenues with co-founder Katia Beauchamp stating \u201cwe didn\u2019t start Birchbox to sell samples\u201d.2\u00a0 <\/sup><\/p>\n

The megatrend of supply chain digitalization offers an opportunity to match consumer demand and product supply, as well as tailor products to the precise needs of customers. This is especially important for subscription box retailers like Birchbox as customer satisfaction depends on the accuracy of customization and more importantly the sustainability of this customization. This in turn affects the churn rate of customers which, given the subscription-based model, is important for such businesses. Data analytics and the ability to learn from customer reactions to products becomes crucial for accurately predicting what customers like and will like in the future.3 <\/sup>For Birchbox, it is key to leverage data analytics to: (i) minimize the probability of cancelations, (ii) find a way to direct these customers to its retail platform (iii) optimize inventory for both the monthly boxes and its retail platform and (iv) optimize relationships and cost arrangements with manufacturers4<\/sup>.<\/p>\n

For subscription box retailers like Stitch Fix (online personal stylist), the data analytics piece on customer preferences stems from the way a customer chooses to spend his or her money. That is, the customer indicates how much she liked or disliked the box by choosing to purchase or return the articles of clothing delivered. With a provider like Netflix, the tracking of customer preferences can happen overtime even after the product has been delivered and paid for through his or her viewing history. In the case of Birchbox, the consumers need to be incentivized to provide product feedback directly to the company. Until June 2016, Birchbox did this by allowing subscribers to review as many items in their boxes as they wanted to every month. In return, they received points for each item reviewed and ultimately earned discounts that could be applied to Birchbox\u2019s e-commerce platform for full-sized products5<\/sup>.<\/p>\n

A major problem with this loyalty program was the quality of the product reviews as Birchbox found that customers were incentivized to leave reviews without having tried the samples to just receive the loyalty points. To address this, starting in July 2016, Birchbox limited its loyalty program and customers are now able to only receive credits for a total of five reviews in the lifetime of their subscription.6<\/sup> However, this change came amid an increasingly packed subscription-based beauty space with growing competition for subscribers increasing the pressures for achieving profitability. According to co-founder Beauchamp their \u201cgenerosity wasn’t sustainable\u2026it\u2019s like letting people move into an apartment and never raising the rent.” In 2016, Birchbox also slashed 30% of its U.S. staff and cut tens of millions of dollars in costs, including overhead, marketing spend, and logistics.7<\/sup><\/p>\n

This big move away from a source of data analytics and the ability to capture consumer preferences although lowers the customer acquisition cost and boosts profitability, will be detrimental for the business model in the long-run. This is especially true as it looks to increase its presence in the offline world by opening more brick-and-mortar stores (opening one in Paris soon; first one opened in New York in 2014) and confront traditional beauty retailers through a hybrid online box and retail store identity. The biggest question for Birchbox as it looks to grow revenues from the sales of full-sized products both online and offline is what is its competitive edge going to be? Especially as beauty retailers like Sephora become new challengers and start their own monthly box service for the same price, how will it continue to provide consumers what they want better than others who have been in this space longer with more transaction history?8<\/sup><\/p>\n

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  1. Birchbox, \u201cA Birchbox Subscriber’s User Guide”, https:\/\/www.birchbox.com\/guide\/article\/everything-you-need-to-know-about-the-birchbox-cycle<\/a>, accessed November 2017<\/li>\n
  2. Clare O’Connor, \u201cPioneering Beauty Startup Birchbox Turns Profit After Tough 2016,\u201d Forbes, April 12, 2017, https:\/\/www.forbes.com\/sites\/clareoconnor\/2017\/04\/12\/pioneering-beauty-startup-birchbox-turns-profit-after-tough-2016\/#163190486fd5<\/a>, accessed November 2017<\/li>\n
  3. Jay I. Sinha, Thomas Foscht, and Thomas T. Fung, \u201cHow Analytics and AI Are Driving the Subscription E-Commerce Phenomenon,\u201d MIT Sloan Management Review, December 6, 2016, http:\/\/sloanreview.mit.edu\/article\/using-analytics-and-ai-subscription-e-commerce-has-personalized-marketing-all-boxed-up\/<\/a>, accessed November 2017<\/li>\n
  4. Karl Siebrecht, \u201cSubscription Box Retail: Match Supply with Growing Demand,\u201d Flexe (blog), March 16, 2017, https:\/\/www.flexe.com\/blog\/subscription-commerce-match-supply-with-growing-demand\/<\/a>, accessed November 2017<\/li>\n
  5. Khadeeja Safdar, \u201cBirchbox, a Pioneer in Subscription Beauty Sales, Scales Back\u201d, Wall Street Journal, June 15, 2016, https:\/\/www.wsj.com\/articles\/birchbox-retrenches-amid-rapid-rise-in-competition-cash-squeeze-1465983002<\/a>, accessed November 2017<\/li>\n
  6. Laura Northrup, \u201cBirchbox Subscribers Are Upset About Changes To Review Points Program\u201d, Consumerist, June 15, 2016, https:\/\/consumerist.com\/2016\/06\/15\/birchbox-subscribers-are-upset-about-changes-to-review-points-program\/<\/a>, accessed November 2017<\/li>\n
  7. Clare O’Connor, \u201cPioneering Beauty Startup Birchbox Turns Profit After Tough 2016,\u201d Forbes, April 12, 2017, https:\/\/www.forbes.com\/sites\/clareoconnor\/2017\/04\/12\/pioneering-beauty-startup-birchbox-turns-profit-after-tough-2016\/#163190486fd5<\/a>, accessed November 2017<\/li>\n
  8. Kim Bhasin and Polly Mosendz, \u201cBirchbox Finds Cute Boxes Filled With Makeup Aren’t Enough,\u201d Bloomberg News, June 3, 2016, https:\/\/www.bloomberg.com\/news\/articles\/2016-06-03\/birchbox-finds-cute-boxes-filled-with-makeup-aren-t-enough<\/a>, accessed November 2017<\/li>\n<\/ol>\n

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