Rise of the Sample Economy
It seems like sample subscription boxes are the hottest new thing. Birchbox, which is arguably the most recognizable service and valued at a reported $485 million in April, 2014, led the subscription box trend with its 2010 launch. Birchbox’s model of providing customers with samples of personal care products in order to up-sell customers into buying the standard sizes of the sample products they enjoyed has proven to be a successful marketing tool. With extreme fragmentation, does it make sense to have a subscription box for every vertical?
Economics of Cosmetics
Liliane Bettencourt, the principal heiress to the L’Oreal cosmetics fortune, is the second richest woman. Bettencourt, 92, is worth an estimated $40.1 billion; she’s not involved in running the company her father founded.
The worlds largest cosmetic companies are L’Oréal, Procter & Gamble, Unilever, and Estée Lauder. In 2005, the market volume of the cosmetics industry in the US, Europe, and Japan was about 70 billion Euros per year. In the United States, the cosmetic industry’s size was $42.8 billion in 2008.
The markup on cosmetics is at 80 percent. It’s an especially good markup when you consider the ease of storing makeup, the fact that consumers need to constantly replace it, and how inexpensive it is to ship.
The other issue, as inventor Grace Mink mentions is that, “drug stores offer an incredibly limited selection of colors and options. Because makeup isn’t the main driver of sales in a Walgreens, they get more universally loved colors like pinks and reds, and exclude consumers who want to be bold. More niche retailers like Sephora have a wide selection of colors, but at a much higher price.”
For the reasons stated above, makeup subscription boxes makes sense. But does it for other businesses?
Other Box companies
- Glassful — Birchbox for wine.
Risks: 1) Sending a controlled substance that has to be consumed by a person over 21. 2) Shipping liquids can be heavy — therefore expensive.
Benefit: 1) American consumers are intimidated by wine and sampling it can help with the education. 2) Wine tends to have great margins.
As Blue Ocean Strategy writes, “Casella Wines found that the mass of American adults saw wine as a turnoff. It was intimidating and pretentious, and the complexity of wine’s taste created flavor challenges for the average person even though it was the basis on which the industry fought to excel.”
- Ship and Dip — Discover your next favorite dips (Birchbox for condiments).
Risks: 1) Sending perishable goods. Benefits: 1) Can be seen as a fun way of trying new dips.
- Craft Beer Club — Birchbox for craft beer: a monthly 12 pack feat. four beers.
Risks: 1) Sending a controlled substance that has to be consumed by a person over 21. 2) Shipping liquids can be heavy — therefore expensive. Benefits: 1) With all the fragmentation in craft beer, this is an easy way of tasting a wide variety.
- ArtSnacks — Birchbox for unique, high-quality art supplies
Risks: 1) This would depend on how frequently the person uses the supplies.
- The Happy Crate — Birchbox for cannabis lovers
Risks: 1) Illegal substances.
- Underclub — Birchbox for panties
Risks: 1) How many panties can one person own. 2) A woman can prefer the fabric of a certain brand that is not offered.
- Nature Box — Birchbox for Healthy Snacks
Benefits: 1) Non perishable goods which are “good” for you.
- Bacon Lover’s Feast — Birchbox for bacon
Risks: 1) Bacon is very unhealthy for you.
Platform for Discovery — Cratejoy
With all this fragmentation, tools which let anyone create a sample subscription box business arose. Cratejoy is the market leader with $4M in funding. It offers everything that a subscription business needs.
Subscription storefront: Subscription designs, Customer accounts, Mobile ready, Easy subscription changes, Edit HTML and CSS, Update billing information, Brand and customize your online store, Your own domain name, Update shipping destination, Web-based website builder, Back-end only support, Easy subscription changes, Skip a shipment, Referral program status
Subscriber accounts: Customer accounts, Easy subscription changes, Update billing information, Update shipping destination, Skip a shipment, Referral program status
Store management: Multiple user accounts, Access control list, Admin e-mail notifications, Diagnostics
Customizable subscriptions: Customizable rebilling frequency, Prepayment discount terms, Calendar rebilling schedule, Anniversary rebilling schedule, Cut-off date support, Customizable subscription variations, Subscription sign-up surveys, Per-product subscription settings, Shipping collection for subscription products, Unlimited subscription products
One time sales: Powerful one-time sales engine, Inventory management, Product variations, Product organization, Multiple images, Loyalty program ready, Product reviews, Unlimited products
Customer management: Customer profiles, Store search, Customer notes, Login as customer, Cancellations & refunds, E-mail templates
Checkout: Secure shopping cart, Accept all credit cards, Major payment gateways, Offer free shipping, Automatic shipping rate calculation, Customizable data capture, Flexible shipping rates, Automatic taxes
World class support: Dedicated support team, Knowledge base, Discussion forums, Subscription School
Logistics: Shipping page, Bulk operations, E-mail tracking codes, Print shipping labels, Discounted shipping rates, Export all data, Customization data, Shipping integrations
API & programming: Powerful HTML templates, RESTful API, Javascript API, Webhooks, Built for developers
Marketing & SEO: Referral program, Affiliate program compatible, Search engine optimized, Generated sitemap.xml, Discount codes and coupons, Promotional links using coupons, Metadata optimized, Social media integration, Email marketing
Web hosting: Unlimited bandwidth, Continuous backups, Level-1 PCI compliant, SSL certificate, Instant upgrades, Redundant servers, 99.99% uptime and 24/7 monitoring
Coupons & discounts: One-Time discounts, Multiple coupon codes, Coupon restrictions, Per-product configuration, Promotion scheduling, Order size and quantity requirements, Recurring discounts, Percentage or Fixed-Amount Discounts, Free shipping discounts, Coupon links
Referral program: Refer a friend campaigns, One click installation, Beautiful subscriber experience, Customized incentives, Social sharing, Dual incentive campaigns, E-mail sharing, Link based sharing, Performance by channel, Powerful analytics, Customer management
Analytics: Analytics dashboard, Subscription KPIs, Churn reports, LTV reports, Cash flow reports, Checkout reports, Export reports, Google analytics, Traffic/Referral reports
But with all these tools, you still need a good offering.
There are a lot of factors that need to be figured out in order to have a successful sample subscription business.
The right margin — are the margins for these products high enough to deal with sending a little to a lot of people?
Frequency of use — for makeup, a woman applies it everyday, so it would run out in time for the next shipment. This also falls under “it is kitschy or actually useful”?
Shipping costs — as we saw with the heavier products (liquor), it might be cost prohibitive to send too many bottles.
Legality — as with liquor or cannabis, the legality is tricky with sending it across state lines.
Checkout average — it the checkout average high enough to have a suitable business, but not too crazy for the customer to think twice about being a user?
TAM — are there enough people interested in this area to build a business?
Health — as people become more health focused, is it going against that trend?
The Upsell — would people want to eventually buy the full priced goods that we are marketing?
Perishible — can this item last on a shelf or will it spoil?
Size — Is this item simple to store?
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