Birchbox, Ipsy, Play … beauty subscription boxes are a great example of how new business models disrupt an industry

July 6, 2017

There was a time when beauty companies used to build brands, based on aspirational ideas and celebrity endorsements, which they hoped consumers would buy and buy again.

Beauty counters clustered around the entrances of every department stores, offering free make-overs and life-changing serums. The beauty companies built, or licensed, these brands at huge cost, witnessed by the volume of beauty advertising on televisions or in magazines. And companies like L’Oreal, Unilever, and more recently Coty, became hugely profitable and admired.

And then came digital.

Initially, this seemed to be simply a way to sell the same products cheaply. Without all of those instore fixtures, discount beauty .coms could undercut RRPs by around 50%. This is easy when the margins on such brands are often closer to 90%.

But then came millennials. You might say, perfect for such digital channels. But they didn’t want the same things. We all know the defining characteristics of millennials

  • they’re individual, but more significantly they are collaborate, they care about and trust each other (and so they want to share beauty ideas, to take the beauty counter experience to their phones in their bedrooms, and influence each other more than any advertising or celebrity)
  • they’re experimental, they like to try new things experientially (in particular, not what their mother’s use!), they like variety, playfulness, choice (and frequent change) – look at how they shop at Asos or Zara for fast fashion, share messages with a Snap, images by Instagram
  • they’re digital, they grew up with the medium not as a substitute store experience, but as a completely different way of working – they subscribe to Netflix without even knowing how scheduled TV used to be, or listen to music on Spotify in a completely new way – they embrace new ways.

And therefore digital is much more than an online store. It is a different experience.

New generation of beauty

A new generation of disruptive innovators have harnessed these insights to engage millennials in more relevant and inspiring ways. They embrace digital, but with completely new business models, demanding new products and services. Sometimes embracing existing brands, and sometimes blasting them out of the way.

Birchbox to BeautyPie, Glamsquad to Glossier, Scentbird and ScentTrunk, are examples of new brands who have embraced the power of subscription, on demand services, content and community, personalisation and replenishment –  to do things differently. Existing brands have been slow to repond, L’Oreal for example creating apps like MakeUpGenius and intelligent devices, like their smart brush.

But its’s beauty boxes that I think are most interesting.

Birchbox was one of the first to offer a monthly box of beauty goodies for a subscription of $9.99 per month. Ipsy then soon followed, developed by Michelle Phan, who herself had become a millennial folk hero for YouTube weekly blogs about beauty treatments and product recommendations. More recently, Amazon jumped on the train, with its own-branded collections of brands. And retailer Sephora ventured into the same world, with its Play concept.

Some of these concepts have huge funding (Birchbox has received $87m investment to date), and are quickly now starting to turn a profit alongside their growth. Whilst interesting, I still think these propositions are confused. Birchbox, for example, promises a box of samples every month, getting the samples free from the large brands, and then making a huge profit on both the boxes, and also taking a cut of any follow on sales. The big brands take part in the hope of upselling to full size products, and ultimately  converting consumers to their brand. But millennials don’t think like this, they just enjoy the frequent variety. Far better, would be to just offer a curated box of “play size” beauty products each month.

Birchbox vs Ipsy vs Play

We asked a group of millennials to give us their comparison on the three subscription boxes. All proved successful, although they liked Ipsy best:

Birchbox

Birchbox allows you to pick one of your samples or the curated box for each month, so if you want to have a little more control over your box, this is a good choice. They also have a ton of great high-end brands. If you are concerned about the value of your boxes, I recommend going for the curated box each month – the values with those boxes seem to be consistently good.

  • Number of items: 5
  • Full-size items: 0
  • Deluxe size items: 0
  • Brands featured: Murad, Mellow, Benefit, Davroe, Davines
  • Categories featured: Skincare (1) Makeup (2) Haircare (2)
  • Total Value: $40
  • Favorite item in the box: Davroe Ends Repair

Ipsy

This will likely be the highest value out of all 3 boxes every month. It’s also the best of the 3 if you are looking for full-size items. The one thing to keep in mind is that Ipsy samples both high-end, mid-tier, and drugstore brands, so you’re going to get a mix of price point brands.

  • Number of items: 5
  • Full-size items: 3
  • Deluxe size items: 0
  • Brands featured: NYX, Trust Fund Beauty, TheBalm, City Color, Delectable
  • Categories featured: Makeup (3) Nailpolish (1) Skincare (1)
  • Total Value: $26.50
  • Favorite item in the box: City Color Shimmer Shadow in Cheers to Life

Play by Sephora

Great for brands – if Sephora carries the brand, it may appear in the box, which means they have a ton of inventory to pick from, and you’re going to get great brands across the board. Sample sizes may be small for some products, but you get 5 beauty samples plus a fragrance sample

  • Number of items: 6
  • Full-size items: 0
  • Deluxe size items: 0
  • Brands featured: Tarte, Thierry Mugler, Bumble and Bumble, Briogeo, Murad
  • Categories featured: Makeup (2) Skincare (1) Haircare (2) Fragrance (1)
  • Total Value: $37
  • Favorite item in the box: Tarte Tarteguard Tinted Moisturizer in Medium

Verdict: Even though it has the lowest value, their favourite is Ipsy. The eyeshadow plus the bright orange nail polish are two standout products for me. (Otherwise it would have been difficult to pick a winner this month).

Subscription in every industry

Whilst we have all become familiar with subscription models like Netflix, they have become common in almost every industry. Graze is a great example in the food snacking market.

JustFab which first attracted investment in 2011 with its women’s apparel and accessories subscription boxes, achieved unicorn valuation by mid-2014. Dollar Shave Club which investors first funded in 2012, was acquired earlier this year by Unilever at a $1B valuation.

As the subscription landscape has become increasingly crowded, research data shows that entrepreneurs and investors have been increasingly willing to apply the subscription model to new product categories. While early subscription startups mainly focused on apparel and cosmetics, newer startups are increasingly likely to offer leisure products or snacks and beverages. Furthermore, the subscription category is set to grow, as 2016 is on track for a record high in startup first fundings.

This year, in fact, 12 snack & beverage subscription startups have already raised first funding rounds, at least twice the number of any other segment. We also see growth in the leisure segment, which saw more first fundings in the first ten months of 2016 than it did in any full year before. Beyond LootCrate mentioned above, the first fundings to Leisure subscriptions in 2016 encompass everything from Cairn, a curated box of snacks and gear for outdoor enthusiasts, to Robb Vices, which ships curated luxury items such as luxury drinks and chocolates or high-end headphones.

 

Join the discussion

Your email address will not be published. Required fields are marked *