Abstract

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. The case concludes with Beauchamp remaining optimistic about the future of Birchbox though Barna has stepped down as co-CEO and there is no funding in sight.

Learning Objectives

The case is structured to achieve the following Learning 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.

Keywords

Birchbox,Beauty and personal care,Subscription model,Discovery retailing,Business model,Startup,Copycat businesses,Mass customization,Loyalty programs,Competition,Low entry barriers