Case Code: BSTR531
Case Length: 14 Pages
Pub Date: 2018
Teaching Note: Available
Organization: Birchbox Inc.
Industry: Beauty and Personal care, E-commerce
Abstract Case Intro 1 Case Intro 2 Excerpts
The case discusses Birchbox, a New York-based beauty products subscription start-up which had executed a second round of lay-offs in June 2016 in an attempt to steer itself toward profitability. Birchbox was founded in 2010 by Hayley Barna (Barna) and Katia Beauchamp (Beauchamp) when they met at Harvard Business School. The idea was to enable consumers to discover great products at their convenience. The concept was popularized as discovery retailing. Over the years, Birchbox had sustainably grown its subscriber base to 1 million but in 2016 it found itself at a critical point where it had to slow down its growth owing to lack of funds even as copycat businesses were shadowing its subscriber base. In 2016, Birchbox’s subscriber base had fallen by 7%. Competitors backed with better resources were giving it a tough time. New businesses which had popped up and operated in their own niches had gained a cult following.
Birchbox’s operations were labor intensive, which was a limiting factor and kept the company from exploring more customization while keeping the same cost structure. Subscribers were finding a mismatch between their preferences and the samples which Birchbox delivered to them. The surprise element which happened to be one of the core offerings of Birchbox was fading. Birchbox’s only way to effectively monetize its model was to convert the subscribers to full product buyers on its online portal. But Birchbox’s subscription also boosted its competitors’ sales as customers were free to make full purchases from any site of their choice. Birchbox had a generous loyalty program in place but its effectiveness came into question because there was a view that the subscribers were keener on earning loyalty points than on the products themselves.
Then Birchbox went for lay-offs followed by a round of funding which gives breathing room for the cash-strapped start-up. Meanwhile, competition had caught up and some clones offering the same kind of services as Birchbox had started eclipsing the subscriber base of the company. Beauchamp had to set her priorities to bring growth with profits. Reorders or full product sales would bring in profits but not without rise in subscription base so that new customers try more samples before going for full purchases. Subscription business was tricky; more customization to tap new niches and to excite existing customers was capital intensive. The enormous logistics cost of dispatching the boxes to the millions was prohibitive. Add to it unhappy customers and unforgiving clones; Birchbox had to find a way out.
The case is structured to achieve the following teaching objectives:
- Examine Birchbox’s business model and identify the key challenges pertaining to its model which limit the growth of the company
- Evaluate the competitive environment of the industry in which Birchbox is operating
- Inspect and critically evaluate the measures taken my Birchbox in the wake of the challenges it is facing
- Estimate the threats Birchbox might face in the immediate future. Analyze and devise a plan for counter measures
- Understand value creation for the shareholders through merger
US Beauty Market
The Beginning of Birchbox
The Business Model
The Rise of Clones
The Logistical Challenge
Birchbox,Beauty and personal care,Subscription model,Discovery retailing,Business model,Startup,Copycat businesses,Mass customization,Loyalty programs,Competition,Low entry barriers
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