BIRCHBOX BUSINESS

PLAN YMA Fashion Scholarship Fund

Caitlin Bailot

Textile and Apparel Management

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Part One

1) Birchbox vs. Ipsy and Glossybox: Competitive SWOT Analysis

Birchbox Ipsy Glossybox

Strengths Beauty box subscription pioneer

Subscription price of $10

Over 800,000 subscribers

Brick-and-mortar location

E-commerce platform

Points system in place to buy full-sized product

Has growing subscriber base of over 1 million

Includes full-sized and “delux” product

Over 100,000 new Glam Bag users every month

New production facility

Makeup bag every month

High-end products

Seen as more exclusive service

Located in over 10 countries

Brand loyalty program.

Offer 6 month subscription package

Weaknesses Mostly sample-sized products

Repetitive product

Doesn’t use some big-name brands that other companies include

Seen as imitation of Birchbox by some

No comparable brick-and-mortar location

No comparable online shop

More expensive than other beauty box subscriptions

Seen as a copycat startup

About 200 brands

Opportunities One of the largest subscriber bases – creates loyalty

Recently received $60 million in funding for expansion plan

Has offices located in other countries

Received $1 million in funding

Works with over 500 YouTubers and Instagrammers

Annual “Generation Beauty” convention

International nature of the company allows wider brand expansion

“Glossydots” program increases customer retention and aids in expansion

Threats Other companies include full-sized product

Consumers also subscribing to competition

Other companies use contests or giveaways to retain subscribers

Ipsy uses personal stylists

Birchbox has e-commerce platform that draws customers away from Ipsy

People get tired of makeup bags and drop subscription or switch to a different box company

Loses customers to cheaper subscription services

Lose customers due to the fact that there is less brand variety

Birchbox e-commerce platform

2) Customer Analysis

Out of all segments of the beauty market, beauty box subscriptions only make up 5% of

beauty purchases, making it a competitive sector (Beauty Retailing, 2015, pg. 1). Of that 5%,

over 90% of subscribers will buy product from their subscription, so it is crucial that Birchbox

can make itself stand out among its competitors to retain the most customers (Cyk, 2014, pg. 1).

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Birchbox has one of the largest consumer bases of over 800,000 subscribers worldwide, but with

Ipsy attracting a younger subscriber base of over 1 million, the competition has become more

intense (Birchbox Press Room, pg. 1). Glossybox, despite its lower customer base, draws in

customers with its elite “Luxe” products, which heightens competition as well. The average

Birchbox customer’s median age is 30, who is living in an urban area with a higher household

income. The customer also has high social media usage (Cyk, 2015, pg. 3). According to Cyk

2015, Birchbox’s online shop is something that 50% of Birchbox subscribers make use of, and

this gives Birchbox a look into consumer shopping trends and habits. Knowing this, Birchbox

has a better grasp on who is utilizing the subscription and can narrow in on those consumers, and

has opportunities to broaden the beauty subscription segment to something larger than 5%.

Based on my research:

Figure 1 – Graph based on research

After using a survey to conduct research, which was completed by women aged 18-32 years

old, the findings show that 18% of them either currently use or have previously used a

subscription service. The biggest portion of the graph represents the 44% that aren’t currently

subscribed to a beauty box, but have expressed interest, and displays the large potential new

customer base. Most of the responses were from women residing in the Mid-West. When asked

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what aspects of a beauty subscription would influence their buying decisions, the top three

answers were: specific products that fit their wants and needs, full-sized products, and new

products to expand their collection. Keeping those preferences in mind, the main thing that

Birchbox lacks is the fact that full-sized products are not regularly offered, compared to Ipsy,

which has more consistent full-sized product appearances. Ipsy has the same monthly rate, with

seemingly better product options, which is an aspect that makes it Birchbox’s top competitor.

3) Creative Approach: Unlock the Box

A new idea to convert casual

shoppers into loyal customers is to create the

“Unlock the Box” program. Subscribers

would spend a minimum amount of money to

unlock these new boxes, and after they reach the

specific amount, a new themed box will be

revealed and unlocked. This new program would

work as follows:

1. Subscribers can reach a

minimum spending amount of

$150 by spending money on

their monthly subscription fee and by buying products from the online Birchbox Shop.

2. Once subscribers reach the $150 minimum, a new page will be available for them to open

and unlock their first new box.

3. An example of a box would be “Berried Treasure” and this would include a variety of

“berry” themed items (figure 3).

Figure 2 – “Unlock the Box” Logo

$0 $150

$38 spent

Figure 4 –“Unlock the Box” spending progression bar

BERRIED

TREASURE

Figure 3 – “Berried Treasure” Logo

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4. After they have unlocked this new box, their spending progression will be updated and their

new spending goal will be revealed (figure 4).

5. Each time a new box is unlocked, their new spending goal will decrease slightly, which will

make them feel like their extra spending is being noted and appreciated.

6. 10 unlocking opportunities would be available, and after the new boxes have been unlocked,

each month subscribers can choose to receive their normal monthly curated Birchbox, or they

can choose to receive another box from any of the themes they’ve unlocked. This allows the

subscribers to have more say in what they are receiving.

The $150 minimum ensures that “Unlock the Box” would still be a profitable endeavor

due to the fact that it is $40 above the yearly subscription fee. By encouraging expenditures

through the online shop, long-term spending from consumers who participate in this program

will be achieved. Product loyalties will also form and will keep customers coming back for more.

One potential entry barrier would include customer resistance to spend the minimum

amount of $150. Because they won’t know exactly what type of products they would receive

from this extra spending, they might not think it is worth it to spend more. To prevent this,

Birchbox would send occasional emails reminding them of what unlocking opportunities are in

store for them, and would offer chances to look at brands or products that will be featured in new

boxes. By doing this, customers will be excited to see what they’re getting out of the program

and will continue spending. No cost-related barriers should arise due to the fact that $2 million

will be used for implementation over a 6 month period. These funds will cover any unforeseen

obstacles or errors, and will provide room for creativity within the program.

4) New Brand Positioning Statement

Discover the new you – Birchbox opens the doors to a unique beauty experience by

providing specialized items tailored to your individual character.

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Part Two

1) Expansion Strategies: Two Partnerships

Nordstrom – Nordstrom is one of the leading department store retailers. Out of all other

high-end retailers, Nordstrom has the largest geological footprint, with 117 full-line stores

throughout the U.S. Keeping this footprint in mind, a partnership with Nordstrom would reach

the broadest audience of potential new customers compared to other department stores such as

Saks Fifth, Neiman Marcus, or Bloomingdales (Beauty Retailing, 2015, pg. 2). Nordstrom states

that the company knows that customers “increasingly desire an experience that is both

personalized and convenient”, and they “respond to fresh, relevant brands”, so having Birchbox

as a partner will tap into those customer’s desires (Nordstrom Annual Report, 2014, pg. 2, 8).

The fresh Birchbox brand is the definition of personalized convenience, meaning Nordstrom

customers will appreciate and buy into the brand.

The partnership would benefit both parties and would work as follows:

1. Birchbox would choose 20 of the most successful brick-and-mortar locations to begin the

partnership

2. Birchbox would then send these 20 stores their monthly boxes, along with extra samples of

one product from each box, to showcase in the store.

Figure 5 – Interior of Nordstrom4Birchbox Figure 6 – Exterior of Nordstrom4Birchbox

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3. In return, Birchbox will feature 24 Nordstrom products of their choosing, in boxes

throughout the year, which translates to two products per month.

4. The boxes would be placed on display at registers all throughout the store, and customers of

Nordstrom would be able to subscribe to Birchbox right at the register.

To give customers instant gratification and satisfaction with their choice to subscribe, new in-

store subscribers could utilize Instagram or Twitter by using the hashtag #Nordstrom4Birchbox,

and in doing so would receive one free sample from that months Birchbox. Not only will this

satisfy the new Birchbox customer, but serve as a form of advertising for the new partnership

and will draw in even more potential customers.

Pocket Points – Pocket points is an application for mobile phones that is spreading like

wild fire. Students download the app onto their phone, and the app gives them rewards for not

using their phone in class. For every 30 minutes a student does not use their phone, they receive

a point, and when they accumulate enough points, they can redeem discount coupons and

freebies for restaurants and stores in their area, or online stores (Pocket Points-Rewarding, 2015,

pg. 2). Pocket Points is another fresh and relevant brand that has quickly gained massive

popularity and has already proved its power in the market. After being so successful at their first

campus, the two owners decided to expand in the spring of 2015. In just one year, the app “went

from a few thousand downloads on the campus of Chico State University in Chico, Cal., to more

than 200,000 downloads from students at more than 100 universities and colleges nationwide”

and is now currently at over 180 cities and over 200 college campuses across the U.S. (Daves,

2015, pg. 1). Although this company is very new, the brand has endless potential for success, and

will reach a wide range of college students.

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A partnership with Pocket Points will give Birchbox

a chance to expand their brand to a wider college-aged

market in a unique way. Birchbox would be able to choose

what type promotion or products they want to offer through

Pocket Points. An example of a deal would be; for 45

points a student can redeem a “50% off” coupon for their

first box, or for 60 points a student could receive two free

boxes. Another avenue Birchbox could take would be to

offer a product through Pocket Points as well. An example

of this would be, 35 points can be redeemed for one full-

sized Benefit mascara. This approach almost mirrors the

points system set in place for current Birchbox users

through the brand’s website, so this partnership will be an

easier type of transition with less trial and error.

Marketing Campaign

The goal for Birchbox is to expand the existing market into new territory and strengthen the

brand. The partnerships with Nordstrom and Pocket Points will support and broaden the market

in ways that are not currently achievable. To spread the Birchbox brand, the company will start

utilizing advertising networks such as Allure magazine, Marie Claire magazine, and various

social media channels. Social media and magazine outlets are currently the most powerful and

prevalent sources of advertising, so the majority of marketing efforts would benefit those areas.

Nordstrom’s biggest sale takes place in late July, and is when Birchbox would have its in-

store debut. Promotion for Birchbox will begin in late June and carry into mid-July. After the

debut, strong promotion will continue through September. Nordstrom has a high social media

Figure 7 - Mock Pocket Points app

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following, so the majority of advertising will take place through outlets like Twitter and

Instagram, and the hashtag #Nordstrom4Birchbox will be used. The partnership will utilize

advertising through magazines as well, which will appeal to consumers who do not have a high

social media presence. By utilizing both print and online marketing, multiple “potential new

consumer” groups will be targeted. The marketing strategy for Nordstrom will differ from that of

Pocket Points, and the timing will need to be slightly different as well.

Pocket Points is driven by college students, so the marketing strategies will revolve around

the school year. Marketing campaigns and advertisements will begin for Pocket Points in mid-

August when the school year is starting for colleges across the U.S. Because Pocket Points is a

mobile app, the bulk of advertising will take place through social media. College-aged students

are always willing to try the next-best-thing, so Birchbox’s position within the Pocket Points

brand is ideal for expansion. Students don’t usually have time to research an unfamiliar brand, so

the strategy of this marketing campaign will need to be attention-grabbing and will emphasize

the “personalized convenience” aspect of Birchbox. The nature of the Pocket Points app is

beneficial because students won’t typically spend much money on unnecessary products, so

redeeming points for free rewards will draw in more potential consumers.

Financial Plan: (figure 8)

Birchbox has reached $96 million in annual sales, and due to their success recently received

$60 million in funding for expansion (Griffith, 2014, pg.1). If Birchbox decided to distribute that

funding over the course of four years, $15 million in funding would be available each year. In

this financial plan, a large majority of the allocated money for 1 year will be used from August to

January. Because the bulk of advertising and partnership implementation will begin in these

months, $12 million of that $15 million is portioned for the 6 month period. Although the

“Unlock the Box” idea is part of the expansion plan, the program already falls within the

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Birchbox brand and is something that current subscribers will know about, therefore needs less

funding. An amount of $100,000 per month will be spent on new products for the themed beauty

boxes and amounts ranging from $200,000-$240,000 will be spent on implementation. The goal

of advertising and partnerships is to reach audiences that aren’t currently subscribed to Birchbox,

so more money and attention is allocated for the segments that will expand to those markets.

The estimated cost of advertising in Allure magazine is $67,445 (Allure - Gaebler, pg. 1).

The estimated cost of placing an advertisement in Marie Claire magazine comes in right under

$80,000 (Marie Claire - Gaebler, pg. 1). Each magazine will have an $800,000 budget, and when

distributed throughout the 6 month period, advertisements for Allure and Marie Claire would

appear 1-2 times per month in each magazine, depending on the month. Spending would be more

conservative in the first and second months for these magazine advertisements. The funding and

costs associated with the partnerships is outlined in figure 8.

2) Potential New Customer Base

The partnerships with Nordstrom and Pocket Points are going to skyrocket the potential new

customer base. By partnering with Nordstrom, Birchbox has access to a wide range of potential

subscribers. If the implementation of Nordstrom4Birchbox goes well and is profitable at the first

20 locations, the opportunity to expand to all 117 stores across the U.S. would become a reality

and would present endless opportunities for the brand. Nordstrom has a combined total of about

10.5 million fans and followers on all of their social media accounts. Assuming that those 10.5

million fans are all customers of Nordstrom, that is the estimated number for the potential new

customer base for Birchbox’s partnership with Nordstrom. Because the partnership involves

social media presence as a form of advertising, this number is relevant to use in the customer

lifetime value as well. By partnering with Pocket Points, Birchbox will have access to students at

over 200 schools across the nation. The average number of college students at medium sized

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school is about 15,000, so the potential new customer base from Pocket Points is at least

3,000,000. (CollegeData, 2015, pg. 1).

Not only will the partnerships aid in expansion, but advertisements will provide another large

potential consumer base as well. Marie Claire has 997,000 readers and Allure has 1,062,000

readers, which is a combined total of 2,059,000 readers from the two magazines alone (Gaebler,

pg. 1). A simple advertisement can go a long way, and could influence a large amount of people.

Customer Lifetime Value

The formula used for calculating the CLV is as follows:

(Average value of sale per customer) x (# of repeat transactions per customer) x (Average

retention time of the one customer) X the number of potential customers (Sugars, 2012, pg. 1).

The subscription fee is $10 per month, but customers also spend money in the online shop, so the

average value of a Birchbox sale per customer is $120. That number comes from dividing the

$96 million in annual sales by the 800,000 Birchbox subscribers. Based on my own conducted

research, the average retention time of one customer is 14 months, or 1.16 years. The number of

repeat transactions per customer, based on an average retention time and not including sales from

the online shop, would be 1 per month, or 14 transactions per customer. The potential customer

base for Pocket Points is at least 3,000,000, as mentioned before. Also, the potential customer

base for Nordstrom was estimated to be around 10.5 million, based on their social media fans.

Pulling all of the numbers together, the customer lifetime value comes out to be 30,321,379,200.

This number is quite substantial, and proves that these partnerships and advertising endeavors

would reach a large audience and would bring in very considerable profits.

($120) x (14 transactions) x (1.16 years) = 1,948.8 x (997,000+1,062,000+ 10,500,000 +

3,000,000)

1,948.8 (15,559,000) = 30,321,379,200

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Appendix

Figure 8 – Six Month Financial Plan

August September October November Decemeber January Total

Advertising

Allure magazine $70,000 $146,000 $146,000 $146,000 $146,000 $146,000 $800,000

Marie Claire magazine $80,000 $80,000 $160,000 $160,000 $160,000 $160,000 $800,000

Social Media $400,000 $400,000 $400,000 $400,000 $400,000 $400,000 $2,400,000

Advertising Total $550,000 $626,000 $706,000 $706,000 $706,000 $706,000 $4,000,000

Partnerships

Nordstrom $500,000 $600,000 $400,000 $500,000 $500,000 $500,000 $3,000,000

Pocket Points $600,000 $650,000 $350,000 $350,000 $500,000 $550,000 $3,000,000

Partnerships Total $1,100,000 $1,250,000 $750,000 $850,000 $1,000,000 $1,050,000 $6,000,000

Unlock the Box

Implentation $200,000 $240,000 $240,000 $240,000 $240,000 $240,000 $1,400,000

New designs/ products $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $600,000

Product total $300,000 $340,000 $340,000 $340,000 $340,000 $340,000 $2,000,000

Total expenses $1,950,000 $2,216,000 $1,796,000 $1,896,000 $2,046,000 $2,096,000 $12,000,000