Birch box_the future business model of e-commerce

BirchBox, the future Business
Model of E-Commerce?
A Thesis
Presented to the Faculty of European University
In Partial Fulfillment of The Requirements for
The Degree: Bachelor of Business Administration
By: Elena Starikova
Date: September 2013

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Executive Summary
With sales growth of ecommerce of 21.1% to top $1 trillion in 2012 and the sales predicted to grow
18.3% worldwide by the end of 2013, E-commerce is a rapidly growing industry with a large
amount of opportunities. More consumers are shifting spending from physical stores to retail and
travel websites because of lower prices, greater convenience, broader selection and richer product
information.
Amazon was one of the front runners in the development of the e-commerce industry. Started as
an online book-selling business in 1994, it became multibillion dollar electronic commerce company
and the world's largest online retailer. Amazon managed to create personal relationship with its
customers and able to collect endlessly useful information about shoppers with its inside analytical
systems. It uses the data to sell more products by targeting customers through e-mail and the
website itself.
Mobile commerce and tablets were other important factors of rapid e-commerce development.
Currently, tablets are driving much of the mobile commerce growth. Research shows that 65% of
online sales were made on tablets versus 35% on smartphone devices. By 2017, tablets’ share of
US retail mobile commerce sales forecasted to rise to 71.5%. Shoppers are using tablet both for
making purchases as well as for researching products because it provides a far more appealing
shopping experience for the consumer than smartphones.
Now, many start-ups are using technology to help customers discover and try new products. Many
of them are selling products using an innovative business model such as the subscription service.
One of the most prominent companies to implement this online subscription retail model is
Birchbox.
BirchBox started in New York in 2010 and offers a way for both men and women to discover new
beauty and grooming supplies. After completing an online "profile" outlining customer’s beauty and

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grooming needs, Birchbox sends a monthly package containing a range of sample products
tailored to clients’ needs. A subscription for women costs $10 a month, and one for men costs $20.
The packages arrive on a monthly basis, containing a different collection of curated items each
time. If a user enjoys one of the smaller sized products found in a monthly box, they are given the
option to purchase the full sized product over the Birchbox website.
The company ads value through the curation, editorial, and special experience of receiving a
delightful surprise package in the mail. Birchbox differentiates itself from the competition by
focusing on the discovery aspect, and by helping to guide consumers through a cluttered market. It
introduces customers to categories, brands and products they might not have tried otherwise.
After BirchBox’s success, number of companies started to implement subscription business model
to enter the online space. The products they offer range from man’s underwear to healthy snacks
and much more.
In this thesis there are few examples of successful subscription business services such as
Manpacks, Lacquerous and NatureBox. These companies have some things in common. They all
combine the perfect product with lean operations and good marketing strategy. Manpacks solves
the problem of man’s grooming essentials, NatureBox delivered healthy snacks in a box and
Lacquerous ships trendy high-quality nail polish to its customers. All of them implement surprise
effect and "curation" process that enables to evoke discussions among its community members.
Consumers want to know what the other people receive and what do they think about it. Also, with
technology tools such as Google Analytics, successful start-ups do number of tests before any
business decision. Analytical approach helps companies to implement larger revenues with
minimal expenses.
Subscription business model has its fails as well. Clear examples are Ellie, Dollar Shave Club and
RocksBox. These companies does not solve any real problem neither offer anything new. Most of
failed start-ups have a bad customer service and poor quality product. Only combination of good
price, quality product and great customer experience can results in a profitable business.

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To better understand BirchBox business model it was important to look at the e-commerce future
trends. Research of e-commerce trends indicates that data will become the beating heart of e-
commerce. In a future, management would have the access to advanced analytical resources
regarding the customer preferences that will allow them to make the right commercial decisions.
The insightful statistics that online analytical tools provide will change the way e-commerce is being
done.
The luxury quality goods would be offered at more affordable prices by cutting out the middleman.
The rise of smartphones and always-connected consumers would require businesses to deliver
service 24x7. Video will revolutionize social shopping and more and more companies will start to
include video for each of its product.
Future trends would only benefit subscription based business model to farther develop and
continue to innovate. When it comes to the future of e-commerce, opportunities seem endless.
Almost anything can be sold with subscription business model and the sky is the limit.
Findings, remains a large growth opportunity for companies and small start-ups. Strong numbers of
people answered that they will be willing to pay for the convenience and curation. Consumers
appear to like subscription services, even finding the monthly payment process painless.
The subscription business model will be successful because people prefer personalized and
meaningful relationship with the brand. The subscription business is still in its early stages and
there’s plenty of room for innovation and improvement.
With the rise of e-commerce with deeper curation and personalization process, Birchbox seems to
be in a right niche. It is only up to the company to keep up with the trend, technology changes and
customer needs in order to grow into highly competitive and sustainable business model of the
future.

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Table of Contents
Executive Summary.............................................................................................................................ii
Table of Figures.................................................................................................................................viii
Introduction...........................................................................................................................................1
E-Commerce .........................................................................................................................................3
Current Statistics.............................................................................................................................................3
History of E-Commerce..................................................................................................................................7
Mobile Commerce.......................................................................................................................................13
Tablets and Future of E-commerce...........................................................................................................14
Advantages &Disadvantages of E-Commerce......................................................................................18
Advantages...............................................................................................................................................18
Disadvantages .........................................................................................................................................19
Subscription Business Model ..........................................................................................................20
What is Subscription Business Model?.....................................................................................................20
Birchbox: the Mother of all Boxes...................................................................................................24
BirchBox Overview........................................................................................................................................24
BirchBox healthy growth..............................................................................................................................26

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BirchBox Business Model............................................................................................................................27
BirchBox Challenges ....................................................................................................................................33
Other Good Box Examples ...............................................................................................................34
Lacquerous.....................................................................................................................................................34
Manpacks........................................................................................................................................................34
Nature Box......................................................................................................................................................36
Why some subscription boxes are successful? ......................................................................................39
Failed Boxes .......................................................................................................................................41
Ellie ..................................................................................................................................................................41
Dollar Shave Club..........................................................................................................................................43
Rocksbox........................................................................................................................................................45
Why Boxes Fail?............................................................................................................................................46
Current Waves that are driving the Market.....................................................................................47
1. Social Commerce ......................................................................................................................................47
2. Private Sales ..............................................................................................................................................51
3. Mobile / Location .......................................................................................................................................52
Future E-Commerce Trends .............................................................................................................53

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1. Data is the beating heart of ecommerce..........................................................................................53
2. Cutting Out the Middle Man ...............................................................................................................54
3. Always-on shopping experiences ..........................................................................................................54
4.Social Shopping: Video experience in E-commerce............................................................................55
Conclusion..........................................................................................................................................57
Recommendations for BirchBox.................................................................................................................59
Bibliography........................................................................................................................................61
Appendix .............................................................................................................................................74

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Table of Figures
Figure 1. B2C Ecommerce Sales Share Worldwide, by Region, 2011-2016......................................4
Figure 2 Top 5 Courtiers, Ranked by B2C E-commerce sales, 2011-2013........................................5
Figure 3 Digital Worldwide.....................................................................................................................7
Figure 4 US Mobile Buyers, by Device, 2011-2017............................................................................15
Figure 5 The growth of mobile commerce outpaced overall ecommerce sales growth. 1st Quarter
2013......................................................................................................................................................16
Figure 6 US Retail Mobile Commerce Sales, 2011-2017 ..................................................................17
Figure 7 Revenue from Smartphone and Tablet Shopping (includes U.S. and Europe)..................17
Figure 8: Maximum value creation box in subscription e-commerce.................................................40
Figure 9 Booz& Company Estimate of Social Commerce Market Size(2010-2015; in US$ Billions)
..............................................................................................................................................................48
Figure 10 % Reviews from mobile devices.........................................................................................49

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Introduction
“Every woman wished she had a friend who lived in New York and she had an access to the editor’s closet.
That was the customer side of the inspiration”
-Katia Beuchamp, Co-Founder of BirchBox
Jody received her monthly Birchbox with 5 beauty samples with hair product, lotions and make up
essentials. She has been a regular customer of Birch box for over a year and enjoyed the joy of
new product discovery. The “surprise” element of unknown in every box was very attractive to
Jody. After her first quick look inside the box, she quickly signed into her BirchBox account and
started to watch tutorial videos on how to use each and every product. (Appendix 1) After some
sampling and trying, with help of online experts, Jody got very excited about her new beauty finds.
She loves the facts that Birchbox personalize every box depending on the preferences on Birchbox
client profile and that is why she received red nail polish instead of orange one that her friend
received. Most of the time, when sample is about to finish, Jody goes to Birchbox website where
she can buy full bottle of her favorite product. That is 360 degree of discovery from Birch box –“try,
learn, buy” concept. That is the beauty of subscription commerce.
Steady customers are vital to every business. Subscription business model found a way to solve
this business problem. In this business model customers pay a regular fee, usually monthly, for a
box of products delivered to their door.
Just about every product has a subscription business behind it—shoes (shoedazzle.com), beauty
products (birchbox.com), diapers (honest.com), even men's underwear (manpacks.com). The most

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compelling aspect of subscription commerce is that it increases the value of existing customers,
given that subscribers make multiple purchases over time.
Magazines are no strangers to the subscription model, but it’s taken a while for a media property to
team up with a subscription retailer. Birchbox is one of the very first monthly subscription services
that started to ship box with 5 beauty samples to over 400,000 monthly subscribers.1
BirchBox helped inspire a wave of copycats with monthly boxes of any possible— fishing, food,
kids, crafts, ect. Birchbox says its e-commerce sales are on track to triple this year, with more than
one-half of Birchbox’s monthly subscribers going on to make purchases from the company’s e-
commerce store. About 15 percent of the company’s orders come from customers who don’t get
the monthly box of sample products.
Why I choose this topic? I believe that subscription business model is here only to stay. With e-
commerce booming, personalization and curation services seems to be on the rise. As a business
school graduate, I always look for the opportunity and future trends. Birchbox model caught my
attention, because it is innovative, edgy and delivers more personalized value than many other
businesses. I have some digital marketing background, and with e-commerce sales predicted for
2013 to grow 18.3% to $1.298 trillion worldwide, there is a clear booming industry which I would
like to be a part of and have a clear understanding.
In this thesis I will try to answer if the Birchbox represents a future of e-commerce. I will analyze
what makes subscription business model successful, by comparing good and bad examples as
well as looking into the trends and detailed business model processes. I will also give some
recommendations for Birchbox improvement. Even though it is very strong and healthy company,
there are better and more advanced starts-ups that are born everyday. Theses start-ups have
1 “Birchbox e-commerce growth”, http://www,mashable.com/2013/08/15/birchbox-ecommerce-growth, 15 AUG 2013

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more fresh ideas and better customer service.
E-Commerce
With sales growth of B2C ecommerce of 21.1% to top $1 trillion in 20122 and the sales predicted to
grow 18.3% to $1.298 trillion worldwide by the end of 2013, E-commerce is a rapidly growing
industry with a large amount of opportunities.
By definition, ecommerce or electronic commerce, is the buying and selling of products or services
via the Internet. For many people, ecommerce is something they participate in on a daily basis, like
online bill payment or purchasing from an e-tailers.
Nowadays the thought of living without ecommerce seems unfathomable, complicated and an
inconvenience to many. It wasn’t until only a few decades ago that the idea of ecommerce had
even appeared.
Current Statistics
In 2012, B2C ecommerce sales grew 21.1% to top $1 trillion for the first time, according to new
global estimates by eMarketer.3
2 “Ecommerce Sales Topped 1 Trillion First Time”, http://www.emarketer.com/Article/Ecommerce-Sales-Topped-1-
Trillion-First-Time-2012/1009649, 1 Dec 2012

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In 2013, sales predicted to grow 18.3% to $1.298 trillion worldwide, as Asia-Pacific will surpass
North America to become the world's No. 1 market for B2C ecommerce sales.
Figure 1. B2C Ecommerce Sales Share Worldwide, by Region, 2011-2016
Sales in North America grew 13.9% to a world-leading $364.66 billion in 2012—a figure expected
to increase 12.2% to $409.05 billion in 2013—as more consumers shifting spending from physical
stores to retail and travel websites because of lower prices, greater convenience, broader selection
and richer product information. But despite strong growth, North America’s share of global sales
will drop from 33.5% in 2012 to 31.5% in 2013 as Asia-Pacific grows ahead.
3 “Economist: Digital-only subscriptions up more than 50%” http://www.journalism.co.uk/news/economist-paid-digital-
circulation-up-more-than-50-/s2/a549613/# 18 June 2012

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B2C ecommerce sales in Asia-Pacific grew more than 33% to $332.464 billion in 2012. In 2013, the
region will see sales increase by more than 30% to over $433 billion—or more than one-third of all
global B2C ecommerce sales.
Figure 2 Top 5 Courtiers, Ranked by B2C E-commerce sales, 2011-2013
China, unsurprisingly, is the primary driver of growth in the region. The country will surpass Japan
as the world’s second-largest B2C ecommerce market by the end of 2013, 5taking an estimated
14% share of global sales, as its total reaches $181.62 billion, up 65% from $110.04 billion in 2012.
4 “Ecommerce Sales Topped 1 Trillion First Time”,http://www.emarketer.com/Article/Ecommerce-Sales-Topped-1-
Trillion-First-Time-2012/1009649#ps2oHibuVkcxI8sS.99, 1 Dec 2012

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The US will remain the single country with the largest share of worldwide B2C ecommerce
spending, at 29.6% in 2013—down from 31.5% in 2012 despite relatively strong growth. This will
continue throughout the forecast period, though China is closing the gap fast. In 2016, China will
have 22.6% of the worldwide market, vs. 26.5% in the US.6
China also boasts the highest number of people who buy goods online in the world—219.8 million
in 2012, according to eMarketer—a result of increasing internet penetration; a burgeoning middle
class with growing trust in online shopping; government-driven campaigns to promote
consumerism; as well as improved infrastructure, product selection and services offered by online
sellers and retailers. In comparison, in 2012, number of people who buy goods online in US is
149.8 million, in Western Europe-168.6 million with Germany leading the industry with 41.2 million
growth.
Despite highest number in the world of people who buy goods online, China average spending per
user is much lower, reaching just $670 in 2013 , but the country will nearly double the number of
people who buy goods online between 2012 and 2016, resulting in considerable upside for B2C
ecommerce sales in China through the forecast period. US forecasted to have an average
spending of $2.466 per user, Western Europe user would spend $1.865, with UK leading with an
average of $3.8787, due to the currency exchange differences and popularity of online shopping
through English people.
5 “Ecommerce Sales Topped 1 Trillion First Time”,http://www.emarketer.com/Article/Ecommerce-Sales-Topped-1-
Trillion-First-Time-2012/1009649#ps2oHibuVkcxI8sS.99, 1 Dec 2012
6 “E-Commerce: A Statistical Market Analysis and Forecast of Emerging Trends”
http://www.csustan.edu/honors/documents/journals/crossings/Maguire.pdf
7 “E Commerce” http://www.studymode.com/essays/E-Commerce-1554293.html March 2013

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Figure 3 Digital Worldwide
History of E-Commerce
Ecommerce was introduced 40 years ago and, to this day, continues to grow with new
technologies, innovations, and thousands of businesses entering the online market each year. The
convenience, safety, and user experience of ecommerce has improved exponentially since its
inception in the 1970’s.

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1960-1982
Paving the way for electric commerce was the development of the Electronic Data Interchange
(EDI). EDI replaced traditional mailing and faxing of documents with a digital transfer of data from
one computer to another.
Trading partners could transfer orders, invoices and other business transactions using a data
format that met the ANSI ASC X12, the predominant set of standards in North America.8
Once an order is sent, it is then examined by a VAN (Value-Added Network) and finally directed to
the recipient’s order processing system. EDI allowed the transfer of data seamlessly without any
human intervention.
Michael Aldrich, an English inventor, innovator and entrepreneur is credited with developing the
predecessor to online shopping. The idea came about during a stroll with his wife and Labrador
when Aldrich lamented about their weekly supermarket shopping expedition. This conversation
sparked an idea to hook a television to their supermarket to deliver the groceries. Immediately after
the discussion Aldrich quickly planned and implemented his idea.
In 1979 Aldrich connected a television set to a transaction processing computer with a telephone
line and created what he coined, “teleshopping,” meaning shopping at a distance.
1982-1990
It was apparent from the beginning that B2B online shopping would be commercially lucrative but
B2C would not be successful until the later widespread use of PC’s and the World Wide Web, also
known as, the Internet. In 1982, France launched the precursor to the Internet called, Minitel.
8 http://www.pearsonhighered.com/samplechapter/0131735160.pdf

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The online service used a Videotex terminal machine that was accessed through telephone lines.
The Minitel was free to telephone subscribers and connected millions of users to a computing
network.
By 1999, over 9 million Minitel9 terminals had been distributed and were connecting approximately
25 million users in this interconnected network of machines. The Minitel system peaked in 1991
and slowly met its demise after the success of the Internet 3 years later. Eventually, in 2011,
France Telecom announced its shutdown of the Minitel service system. Sadly, it had not become
what it had hoped to be, the Internet.
90’s -2005
In 1990 Tim Berners Lee, along with his friend Robert Cailliau, published a proposal to build a
“Hypertext project” called, “WorldWideWeb.” The inspiration for this project was modeled after the
Dynatex SGML reader licensed by CERN.
That same year, Lee, using a NeXTcomputer created the first web server and wrote the first web
browser. Shortly thereafter, he went on to debut the web on Aug. 6, 1991 as a publicly available
service on the Internet. When Berner’s Lee decided he would take on the task of marrying
hypertext to the Internet, in doing that, the process led to him developing URL, HTML and HTTP.
When the National Science Foundation lifted its restrictions on commercial use of the NET in 1991,
the Internet and online shopping saw remarkable growth. In September 1995, the NSF began
charging a fee for registering domain names. 120,000 registered domain names were present at
that time and within 3 years that number grew to beyond 2 million. By this time, NSF’s role in the
Internet came to an end and a lot of the oversight shifted to the commercial sector.
9 http://www.pearsonhighered.com/samplechapter/0131735160.pdf

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The 1992 book, Future Shop: “How Technologies Will Change The Way We Shop And What We
Buy”, provided insight and predictions on the future of consumerism. The author of the book saw
the constant growth and complexity of the marketplace and how it affect and confuse regular
consumer. Book argued that new information technologies, combined with innovative public
policies, could help consumers overcome that confusion.10
From the beginning, there were many hesitations and concerns with online shopping but the
development of a security protocol - the Secure Socket Layers (SSL) - encryption certificate by
Netscape in 1994 provided a safe means to transmit data over the Internet. Web browsers were
able to check and identify whether a site had an authenticated SSL certificate and based on that,
could determine whether or not a site could be trusted.
Now, SSL encryption protocol is a vital part of web security and version 3.0 has become the
standard for most web servers today.
Megastore: Amazon
Amazon was one of the front runners in development of e-commerce industry. Started as an online
book-selling business in 1994 by the founder Jeff Bezos, it became multibillion dollar electronic
commerce company and the world's largest online retailer11.
Brick-and-mortar bookstores were limited to about 200,000 titles and Amazon, being an online only
store, without physical limitations was able to offer exponentially more products to the shopper.
10 “Future Shop-How New Technologies Will Change The Way We Shop and What We Buy.” By J.H. Snider and Terra
Ziporyn, 11 Nov 2008
11 http://www.forbes.com/fdc/welcome_mjx.shtml

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Amazon was among the first ecommerce businesses to activate the “shopping cart” program as
well as one-click purchases.
Currently, Amazon offers not only books but DVDs, CDs, MP3 downloads, computer software,
video games, electronics, apparel, furniture, food, and toys. The company also produces consumer
electronics such as Amazon Kindle e-book reader and the Kindle Fire tablet computer and is a
major provider of cloud computing services.
The company attracts approximately 65 million customers to its U.S. website per month and
earned revenue of 61 billion dollars in 2012. 12 As of the fourth quarter of 2012, Amazon had over
200.000 million active customers’ accounts. 13
Amazon’s greatest strength is a personal relationship with its customers. While brick-and-mortar
stores are trying to figure out customer behavior, Amazon is able to collect endlessly useful
information about shoppers with its inside analytics and use it to sell more stuff by targeting
customers through e-mail and the website itself.
Whenever a customer buys something from Amazon, company collects all kinds of information
about that person. There’s a lot of data that can be find about how customers uses website, what
they put in the cart, what they abandon and how the customer actually goes about searching for a
product. This relationship, and what Amazon can do with this data is invaluable and puts Amazon
in a prime position to turn the growing role of e-commerce into revenue growth for itself.
12 “Amazon Sales top 61 Billion’, http://www.internetretailer.com/2013/01/29/amazon-sales-top-61-billion-2012, 1 Dec
2012
13 Statista.com

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Amazon was quick to realize that e-commerce would migrate from traditional computers to mobile.
That is why it developed its own Kindle book-reader with instant access to millions of books. Jeff
Bezos realized that these products were necessary to maintain Amazon’s strong presence in the
digital-media business. While books, movies and music don’t account for nearly as much of
Amazon’s revenue as they once did, they still account for 37% of it. Company estimates that in the
long run, upwards of 90%14 of all media sales will be digital.
In recent years, Amazon has started its “cloud computing” services, or its business of leasing out of
server space in its large data centers around the world so that small businesses don’t have to risk
such up-front capital investment. It has also greatly expanded its third-party marketplace, where
merchants all over the world can set up their own virtual stores on Amazon.com and sell their
products alongside Amazon’s. Retailers who use Amazon’s third-party marketplace now account
for 35% to 40%15 of all units that Amazon sells per year.
Amazon was one of the first online retailers, who figured out the way to give customers the kind of
instant gratification that until now only brick-and-mortar retailers could provide. Amazon will surely
continue to grow and change the future of e-commerce.
14 “Will Amazon Take Over the World”, http://business.time.com/2012/07/16/will-amazon-take-over-the-world/, 16 Jul
2012
15 “How Amazon Changed the Way we Shop”, https://www.ipoll.com/blog/2013/04/how-amazon-changed-the-way-we-
shop/, 1 Apr 2013

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Mobile Commerce
Mobile commerce was important element in rapid e-commerce development. The phrase mobile
commerce was originally made in 1997 to mean "the delivery of electronic commerce capabilities
directly into the consumer’s hand, anywhere, via wireless technology."16
History of Mobile Commerce
Mobile commerce services were first delivered in 1997, when the first two mobile-phone enabled
Coca Cola vending machines were installed in the Helsinki area in Finland. The machines
accepted payment via SMS text messages. The first mobile phone-based banking service was
launched in 1997 by Merita Bank of Finland, also using SMS.
In 1998, the first sales of digital content as downloads to mobile phones were made possible when
the first commercial downloadable ringtones were launched in Finland by Radiolinja .
Mobile-commerce-related services spread rapidly in early 2000. Norway launched mobile parking
payments. Austria offered train ticketing via mobile device. Japan offered mobile purchases of
airline tickets.
Since the launch of the iPhone in 2007, mobile commerce has moved away from SMS systems
and into actual applications. SMS has significant security vulnerabilities and congestion problems,
even though it is widely available and accessible. In addition, improvements in the capabilities of
modern mobile devices make it prudent to place more of the resource burden on the mobile device.
16 “Global Mobil Commerce Forum”, http://cryptome.org/jya/glomob.htm, 20 Nov 1997

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More recently, brick and mortar business owners, and big-box retailers in particular, have made an
effort to take advantage of mobile commerce by utilizing a number of mobile capabilities such as
location based services, barcode scanning, and push notifications to improve the customer
experience of shopping in physical stores. This is seen as a bridge between the gap created by e-
commerce and in-store shopping, and is being utilized by physical retailers as a way to compete
with the lower prices typically seen through online retailers.
Tablets and Future of E-commerce
Currently, tablets are driving much of the mobile commerce growth. The majority of mobile
commerce sales in 2012 and 2013 were made on tablets. According to Emarketer Magazine,17
65% of online sales were made on tablets, where only 35%, purchases were made on smartphone
devices. By 2017, tablets’ share of US retail mobile commerce sales forecasted to rise to 71.5%,
vs. 27% for smartphones.
Shoppers are using tablet commerce both for making purchases as well as for researching
products that they will later buy over their laptops and desktops, or in person at a brick and mortar
shop. Many reports18 are indicating that tablets provide a far more appealing shopping experience
for the consumer.
This rise of tablet commerce is giving retailers the opportunity to provide a much stronger mobile
experience to their shoppers, as the slightly larger screens make it easier to navigate sites and
view images of products.
17 “Smartphones Tablets Drive Faster Growth Ecommerce Sales”, http://www.emarketer.com/Article/Smartphones-
Tablets-Drive-Faster-Growth-Ecommerce-Sales/1009835, 24 Apr 2013
18 “Tablet Commerce Vital Part Retail Online Shopping”, http://www.mobilecommercepress.com/tablet-commerce-vital-
part-retail-online-shopping/858662/, 13 Sep 2013

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Moreover, Adobe has recently released a statistic that has suggested that the user of a tablet is
likely to spend twice as much while shopping online than one who is using a smartphone.
In 2013, 79.4 million US consumers, amounting to 51% of digital buyers19, will purchase online
using a mobile device. By 2017, 77.1% of digital buyers in the US will use a mobile device to make
at least one online purchase.
Figure 4 US Mobile Buyers, by Device, 2011-2017
IBM Online Retail Index and the U.S. Department of Commerce made studies related to the growth
of mobile commerce compared to e-commerce and brick and mortal. As a result, they discovered
that in the first quarter of 2013, in-store retail sales grew 3.7 percent, overall ecommerce sales
grew 20 percent, and mobile ecommerce grew the tremendous 31 percent.20 This data indicates
19 “More shoppers proceed to checkout online” http://usatoday30.usatoday.com/tech/news/2003-12-22-shoppersx.htm
12/22/2003
20 “Mobile Commerce Growth 31 Percent in Q1”,http://www.practicalecommerce.com/articles/4010-Mobile-Commerce-
Grows-31-Percent-in-Q1, 7 May 2013

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that the growth of mobile ecommerce outpaced brick-and-mortar sales growth by nearly 10-to-1
and accounted for roughly 17.4 percent of all ecommerce sales, again according to IBM. Total U.S.
retail sales were approximately $542.9 billion in the first quarter of 201321, according to the U.S.
Commerce Department’s Advance Monthly Sales report showing preliminary data. Overall,
eMarketer estimates, US retail mobile commerce sales will reach nearly $39 billion in 2013, up
56.5% over 2012 and almost triple the amount spent in 2011. 22
Figure 5 The growth of mobile commerce outpaced overall ecommerce sales growth. 1st Quarter
2013.
21 Ibid
22 Mobile Commerce Growth 31 Percent in Q1”,http://www.practicalecommerce.com/articles/4010-Mobile-Commerce-
Grows-31-Percent-in-Q1, 7 May 2013

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Figure 6 US Retail Mobile Commerce Sales, 2011-2017
Bank of America predicts $67.1 billion in purchases will be made from mobile devices by European
and U.S. shoppers in 2015. 23
Figure 724 Revenue from Smartphone and Tablet Shopping (includes U.S. and Europe)
23 “ComScore Announced Availability of US Mobile Sales Estimates”
http://www.comscore.com/Insights/Press_Releases/2013/8/comScore_Announces_Availability_of_US_Mobile_Comme
rce_Sales_Estimates, Aug 2013

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Advantages &Disadvantages of E-Commerce
Advantages
1. Overcome Geographical Limitations
With physical store, customer is limited by the geographical area. With an ecommerce website, the
whole world is at the fingertips. Additionally, the rise of mobile commerce dissolving even more
limitations of geography. Small businesses can operate local outlets and have storefronts while
also offering products and services to a broader market through their websites and electronic
communication formats.
2. Lower Costs
One of the most tangible positives of ecommerce is the lowered cost. A part of these lowered costs
could be passed on to customers in the form of discounted prices. Here are some of the ways that
costs can be reduced with ecommerce:
3. Enable Deals, Bargains, Coupons, and Group Buying
Though there are physical equivalents to deals, bargains, coupons, and group buying, online
shopping makes it much more convenient. For instance if a customer has a deep discount coupon
for turkey at one physical store and toilet paper at another, she may find it infeasible to avail of both
discounts. But the customer could do that online with a few mouse-clicks.
24 “Why Mobile commerce is Set to Explode”, http://www.businessinsider.com/bii-report-why-mobile-commerce-is-set-
to-explode-2013-3, 15 Mar 2013

19
4. Quick search of the product
It is no longer about pushing a shopping cart to the correct aisle, or scouting for the desired
product. On an ecommerce website, customers can click through intuitive navigation or use a
search box to immediately narrow down their product search. Some websites remember customer
preferences and shopping lists to facilitate repeat purchase. E-commerce also provides shopping
comparison.
5. Provide Abundant Information
There are limitations to the amount of information that can be displayed in a physical store. It is
difficult to equip employees to respond to customers who require information across product lines.
Ecommerce websites can make additional information easily available to customers. Most of this
information is provided by vendors, and does not cost anything to create or maintain.
6. Open All the Time
Store timings are now 24/7/365. Ecommerce websites can run all the time. From the merchant's
point of view, this increases the number of orders they receive. From the customer's point of view,
an "always open" store is more convenient.
Disadvantages
1. Ecommerce Lacks Personal Touch
E-commerce doesn’t provide personal touch and feel emotions. The only way to communicate to
customer service is via chat, email or phone call, without face to face interaction. As a result,
shopping at those retail outlets is reassuring and refreshing. Clicking on "Buy Now," and piling up
products in virtual shopping carts, is just not the same.

20
Customer cannot touch the fabric of the garment that he wants to buy. And he cannot "test" the
perfume what is an easy task in a brick and mortal retailer store.
In many cases, customers want to experience the product before purchase. E-commerce does not
allow that.
2. Waiting time
E-commerce websites take longer to get the goods into customer hands. Even with express
shipping, the earliest customer can receive the goods is next day. For example, if customer would
like to buy something simple as pen or paper, he would have to wait at least 24 hours before
receiving his goods, but it would be much easier for him to go to the local store and purchase the
product.
3. Security
These days anyone can open online store that means that there is no guarantee that the seller is a
genuine person with a quality product. The lowered barriers to entry might be a great attraction to
the aspiring ecommerce entrepreneur. But for the buyer, reliability can be an issue. This could lead
customers to restrict their online purchases to famous ecommerce websites only.
Subscription Business Model
What is Subscription Business Model?
As a popular model for online content purchases, subscriptions stand to play an increasingly
important role in peoples lives as more and more companies embrace online delivery over the

21
Internet. Already, the offers range from PC protection and backup services to daily staples, such as
detergent, socks and energy bars. 25
The subscription business model is a business model where a customer must pay a subscription
price to have access to the product or service. The model was pioneered by magazines and
newspapers, but is now used by many businesses and websites.
Rather than selling products individually, a subscription sells periodic (monthly or yearly) use or
access to a product or service.
Industries that use this model include mail order book sales clubs and music sales clubs, cable
television, satellite television providers with pay-TV channels, satellite radio, telephone companies,
cell phone companies, internet providers, software providers, business solutions providers,
financial services firms, fitness clubs, and pharmaceuticals, as well as the traditional newspapers,
magazines and academic journals.26
Benefits for the Buyer
Consumers may find subscriptions convenient if they believe that they will buy a product on a
regular basis and that they might save money. For repeated delivery of the product or service, the
customer also saves time. An example might be Carefree Crafts, a monthly craft subscription box
for kids.
An unlimited use subscription to a service for a fixed price is an advantage for consumers using
those services frequently.
25 “Best Practices for Online Business Models”,
http://www.vindicia.com/sites/default/files/VN_BPG_OnlineBusinessModels_F.pdf, 2012
26 “Overblown Commerce Models, Part III: Subscription Commerce” http://allthingsd.com/20120629/overblown-
commerce-models-part-iii-subscription-commerce/ JUNE 29, 2012

22
Benefits for Business Owner
Subscription models offer three concrete benefits:
1. A predictable, regular revenue stream
2. Greater customer retention and a more committed customer base as it transitions from
purchase to opt-out decisions
3. More potential for upselling and cross-selling other products or services
Submodels
There are 3 submodels that apply to the subscription model:
1. frequent subscriptions infrequent
2. subscriptions
3. freemium subscriptions .
Frequent Subscriptions
Frequent subscriptions are those that charge customers at least once quarterly and,
more commonly, monthly or weekly . This submodel, which enjoys widespread customer
acceptance, is popular for online sites that offer dating, news, music, gaming, video and both digital
and physical services .
A key benefit of this submodel is that customer acquisition through payment-method required free
trials is a well-defined and successfully proven approach .
Notable companies that offer frequent subscriptions include Activision Blizzard, Amazon,
Morningstar and The Wall Street Journal.

23
Infrequent Subscriptions
Infrequent subscription model charges customers once every six months or longer .Many online
content sites commonly offer a long-term subscription option, such as annual or even two- and
three-year plans . This submodel offers three major benefits:
 Less transaction frequency, which results in a more manageable customer base
 Lower overall transaction volume, which creates a more manageable customer base
 Lower impact on profits from payment-transaction costs
Though similar to their frequent subscription counterparts in many respects, infrequent
subscriptions face unique challenges, including the following:
1. Increased payment failures — The longer duration in billing cycles means a higher
likelihood that the customer’s payment information has changed in the meantime.
2. Reduced customer contact — Infrequent customer communication might lead to delayed
detection of and reaction to customer dissatisfaction.
Notable companies that offer infrequent subscriptions include Symantec, Citrix and Adobe.
Freemium
Freemium subscriptions, the newest type of subscription sub-models, are adopted by digital
businesses to attract a large user base and to monetize the most devoted group of users.
These subscriptions for premium customers work much like frequent subscriptions but have the
added aspect of supporting the users who choose a free version of the product. A major benefit is
the elimination of free trials since acquiring paying customers involves only a simple conversion
step.

24
Challenge with freemium subscriptions is the task of updating and enhancing multiple product lines
over time while maintaining a clear difference in value.
Notable companies that offer freemium subscriptions include DeviantArt, Flickr, YouSendIt, Skype
and LinkedIn.
Birchbox: the Mother of all Boxes
BirchBox Overview
Birchbox is a $10 monthly subscription service in the United States. It was created in 2010, and
was the first ever cosmetics subscription service. The customer fills out a beauty profile, and then,
every month, a little box of high-end beauty samples arrives at the customer’s door. Every month is
different, every product is adapted to the profile, and everything in the box is a surprise. If the
customer ends up liking a products enough to want to buy the full size version, they can go on the
Birchbox website to make the purchase. The Birchbox team never leaves the subscribers in the
dark about the products: The YouTube channel offers product demos, and the website has tips and
tutorials to help them “discover products love.” The company is dominating the US market and
penetrating the European market.
The mission of BirchBox is to change the way people discover and shop for lifestyle, grooming, and
beauty products. The company combines a personalized subscription service that delivers high-
end samples to members’ doorsteps with an online community to make it easy to shop and
purchase.

25
In 2012, company sales quadrupled and full-sized products represent just more than a quarter of
Birchbox's overall business, according to cofounder Katia Beauchamp. 27
Birchbox is now attracting buyers who don't even subscribe to its monthly program, but instead
discover products through its on-site editorial, which includes a blog and more than 20 how-to
videos every month. Those buyers now represent 15% of ecommerce orders. 28
Content is Key
Birchbox’s success was no accident; content is an integral part of the start-up’s success at growing
its customer base and upselling its subscribers on more products.
The content was a major focus from the beginning. Company had a Twitter handle and a blog
before it had any customers. As a result, BirchBox growed rapidly. The Birchbox blog, newsletters,
and beauty tips guide, bring readers in from search engine and social channels and turn those
readers into customers with trustworthy editorial content and solid advice. They are a company
built on trust and they gain that trust by giving people useful, relevant content that they can’t get
anywhere else.
Cancel at any time
Monthly members can cancel their Birchbox subscription at any time. It is very attractive for the
potential customer that means that they can stop receiving samples whenever they want and
without any obligation. There are no cancellation fees. The customer only has to go to its own
Birchbox online account, look for 'Cancel Subscription' button and click to submit cancellation.
27 “Birchbox Ecommerce Growth”, http://mashable.com/2013/08/15/birchbox-ecommerce-growth/, 15 Aug 2013
28 Ibid

26
Another option would be to send an e-mail to BirchBox29 office and company will take care of this
problem for the customer. This is a very simple and easy procedure therefore is very attractive for
someone who is not sure whether they should sign up or not.
BirchBox Man
Following the success of the beauty box, Birchbox announced that it’s moving into new target
group: man. For a $20 per month box, the subscriber will get a box filled with grooming
accessories, lifestyle products and tech toys. The boxes are double the price of the Birchbox for
women packages as they include full-size products and more expensive categories. At launch,
Birchbox partnered with established brands including Billy Jealousy, Costume National, Kérastase
and Kiehl’s.
BirchBox healthy growth
Birchbox released some numbers in August 2013, announcing that — in addition to passing the
400,000 monthly subscribers mark30- its full-priced ecommerce business is also growing at a
healthy clip. Sales quadrupled last year and full-sized products now represent just more than a
quarter of Birchbox's overall business.
Birchbox is now attracting buyers who don't even subscribe to its monthly program, but instead
discover products through its on-site editorial, which includes a blog and more than 20 how-to
videos every month. Those buyers now represent 15% of ecommerce orders.31
29 Birchbox.com
30 “Birchbox Ecommerce growth”, http://mashable.com/2013/08/15/birchbox-ecommerce-growth/, 15 Aug. 2013
31 “Birchbox Ecommerce growth”, http://mashable.com/2013/08/15/birchbox-ecommerce-growth/, 15 Aug. 2013

27
Four hundred thousand subscribers is an impressive number, but ultimately, it's a limited
market: There are only so many people who will pay $10 or $20 a month for a box of samples they
don't need. Does that mean that Birchbox is moving towards business like Sephora or
Beauty.com?
It doesn’t seem like that. Birchbox is focused on one segment of the market: first-time purchases.32
The company wants to help individuals figure out which of the tens of thousands of products
released every year they should purchase. Discovery is improved by personalizing the samples
they send, based on the feedback individuals send to the company every month.
Company doesn’t plan to become Amazon of beauty, it doesn’t want to overwhelm it’s clients. Its
already has over 4,000 products on site. 33 For company it’s all about generating demand, they are
dictating what comes in demand.
BirchBox Business Model
Problem
One of the most important factors in whether a brand will hit the best-seller list is whether it solves
a real problem for consumers or makes life better in some way.
As Birchbox Web site states34, the company solves the problem of “sorting through the clutter to
send client what works and what’s worth the upgrade.” Birchbox helps client to get beauty samples
32 “Birchbox Cofounder: 'We've Grown Really Fast, And We Could Be Growing A Lot Faster”
http://www.businessinsider.com/birchbox-co-founder-on-what-it-takes-to-scale-and-break-into-new-markets-2013-3
MAR. 5, 2013
33 Ibid

28
in an easy way. Some stores, such as Sephora or large department stores, sometimes offer free
samples, but it all depends on the size of purchase order and personal preferences of the sales
person. People like the discovery factor of trying new things but no one wants to pay the full price
without trying the product. Birchbox made it simple for people to access and try new products
without having to spend the time and effort to sort through the clutter in the stores.
Overall there are two problems that Birchbox is solving:
1. There is no easy way to acquire beauty samples.
2. Consumers need some extra help in picking up a new beauty product. Birchbox helped
customer to discover new quality product without spending much money.
Additionally, Birchbox recognized that there were no new concepts when it came to beauty
ecommerce and that beauty online had unique pain points since touching, trying, smelling and
experiencing products were essential to product discovery. Hayley Barna, co-founder of Birchbox,
had a close friend who was a beauty editor and for years had gifted her the newest and best
products along with advice on how to use them. Birchbox founders realized that all women would
love to have a best friend who could cut through the clutter and deliver them great products along
with the info on why and how to use them.35
Ideal target
34 http://www.birchbox.com/
35 16. “Birchbox, Like Apple and Amazon and Google, Is a Hit Because Its Founders Hit On the Right Question”
http://www.forbes.com/sites/allenadamson/2012/09/12/birchbox-like-apple-and-amazon-and-google-is-a-hit-because-
its-founders-hit-on-the-right-question/2/ 9 Dec 2012

29
Business can gain a competitive edge by focusing their marketing efforts on specific segments of
the market instead of trying to appeal to everyone. Market segmentation involves using market
research to identify the business's ideal target market and customer. Segmentation can be used to
develop several different types of customer profiles.
Segmentation and Customer Profile for BirchBox
• Demographic Profile
Post-secondary educated females aged 25 to 39 with an annual income level of $35,000 to
$55,000.
• Psychographic Profile
Female, who loves beauty products and takes care of her looks. She is in a constant search for
new and exciting products to stay beautiful and desirable. The opinion of other people is important
to her. She is oriented towards time and cost saving.
• Behavioral Profile
She enjoys trendy innovative beauty products and believes that quality should come at the right
price. She is loyal to brands.
Unique Value Proposition

30
BirchBox sends beauty product samples every single month at customer convenience at a flat
predictable monthly fee. The company ads value through the curation, editorial, and special
experience of receiving a delightful surprise package in the mail.36
Birchbox differentiates itself from the competition by focusing on the discovery aspect, and by
helping to guide consumers through a cluttered market. It introduces customers to categories,
brands and products they might not have tried otherwise.
Birchbox gives context to the samples with stories about each product on its website. The site also
sells full-size versions of everything it sends out. That makes Birchbox a compelling business
model for big brands looking for fresh ways to get their names out and new platforms to sell their
goods.
Solution
Birchbox is about the combination of three things: a subscription service, original editorial content,
and an online shop. Those three things work together. The content is there to add value to the
BirchBox experience — to give members context for their products, to inspire and educate them,
and to get them to engage with the company. Birchbox offers beauty sample based on clients
personal preferences profile.
Channels
Online-relationship are managed via a monthly roster of articles and videos, daily blog posts, and
Facebook and Twitter presence. Additionally, Birchbox leveraged other popular social media
platforms, such as Foursquare, Pinterest, and Youtube
36 “Birchbox: The company that started a trend by accident” http://www.bbc.co.uk/news/business-22710405 5 June
2013

31
Revenue Stream
Birchbox has two major revenue streams:
1. Subscription revenue. For $10 a month, a user receives a box with product samples. This
subscription fee needs to at minimum cover the marginal cost of shipping each box (the
shipping cost), and also help to cover some of the other major expenses (marketing,
overhead, etc.)
2. "Affiliate" fee. When a customer purchases a sample at full price from one of Birchbox's
suppliers, Birchbox shares revenue on the total amount of product purchased. Over time,
this will become a more and more important source of revenue for Birchbox as they will
understand their users' tastes better and increase the available supply of product samples
that they can provide to users.
Cost Structure
1. Cost to acquire the samples. At some point the company can actually turn this cost into a
revenue. They can charge manufactures to distribute the samples.
2. BirchBox has to spend money on promoting itself, do online and offline marketing such as
ads online, work with bloggers, ads in popular woman magazines, ect.)
3. Shipping costs of the company. It has to send out the boxes to different customers across
the world. This process require solid investment.
4. Warehouse cost. Products and samples have to be stored in a warehouse before it is
shipped to customers.
5. Technology infrastructure cost. Company website requires complicated computer
engineering knowledge because of stored credit card on it, management of subscriptions
profiles and curation of personalization aspect of the process.
6. Cost of Employees. BirchBox currently employs over 150 employees in 4 main offices
worldwide, such as New York, Paris, London and Barcelona.. Talent requires a solid
investment and BirchBox realizes that.

32
Key Metrics
1. Number of new subscribers- scaled to over 45.000 paying customers within 10 month after
its launch. As of 2013, BirchBox has over 400.00 subscribers37.
2. Number of cancellations per month. The number shows how many people decided to
unsubscribe.
3. Number of people buying products. Birchbox doesn’t reveal revenue data but in August
2013, company announced that sales quadrupled in 2012 compared to 2011.
Early Adapters
Certainly Birchbox has captured the novelty effect which gave it a lot of publicity and media
coverage, which in turn brought new customers. Furthermore, with a substantial customer base
now it is able to negotiate better prices from its service providers (shipping, packaging, cosmetic
suppliers etc.).
The early adapter advantage for Birchbox is significant. However, this does not exclude
competitive companies from the competitors that focus on niche market, like eco-cosmetics or bath
cosmetics only.38
Unfair Advantage
1. Unique and original business concept. BirchBox was the first company who introduced
“Subscription in a Box” business model in 2010.
37 “Birchbox the perfect subscription business” http://www.slideshare.net/AnnaPietka/birchbox-the-perfect-subscription-
business-13899217 Aug 07, 2012
38 Klutchclub.com

33
2. Lead in “beauty product sample” market. BirchBox has become the leader in beauty
market sample market. They managed to build trust in the community. Also company
managed to nurture strong relationships with beauty brands, companies who produce
beauty samples
3. From the supplier’s point of view, BirchBox collects feedback from customers and provide
results to suppliers, this way producer can better understand its target market. This
collaboration creates a win-win situation for both parties. Additionally, BirchBox is an
excellent distribution channel. With over 400.000 BirchBox subscribers worldwide, the
supplier can tremendously increase its brand awareness and sales revenue. (Appendix 2)
BirchBox Challenges
Birchbox’s greatest challenge is that there are limited sample amounts being produced by brands.
That could be considered a dangerous engagement which jeopardizes the long-term viability of
their core business model. If business keeps growing with the rate that it grows now than it would
need much more suppliers with large orders or overseas expansion, which company is already
exploring. Another potential problem is that BirchBox often requests free samples from the beauty
brands. According to Ms. Suk Chan, the founder and CEO of Soukenberi, an eco-friendly home
fragrance brand, Birchbox requested 300,000 units of a product for a little fee; in return, they could
offer a conservative purchase order of 400 units. Birchbox also requested a special sample size,
which Ms. Chan would need to create, that would yield at least 3 uses of the product. After
negotiations with company, they decided to lowered the amount of requested product from 300.000
to 50,000 for a more targeted customer base. In the best case scenario the company would win
much. From 1%to 5% return and brand recognition.
Not many beauty brands, especially on smaller scale can afford to make large amount of samples
at their own expense in return of unknown profit.

34
Other Good Box Examples
Lacquerous
Lacquerous is the Netflix for luxury nail polish. It offers a 3 nail luxury polishes that are on trend for
$18/month which is less than the cost of 1 bottle of luxury nail polish. It’s an affordable option for
women who want to experience trendy new colors from luxury brands while spending a fraction of
the cost.
Since the launch of the brand in summer 2013, they have been overwhelmed with customers; at
the moment, there are 5,000 people on their waiting list to become new Lacquerous members.
Why does it work? Nail polish is one of the hottest consumer commerce categories right now.
Customers want to discover the trendiest luxury nail polishes at a discount. Lacquerous offers nail
polishes from the most premium brands like Tom Ford, Chanel and NARS. The products are on
trend (focused curation), and, more importantly, its customers can choose the colors they want
(personalization).
Manpacks
Manpacks is a three years old web-based service that offers subscriptions to all man essentials —
socks, shirts, underwear, razors, vitamins and more — that mails personalized “pack” every three
months. Manpacks seems to solve important problem for man- to get essential items that customer
use on daily basis at the convenience of own house. Customer can customize its own schedule,
and never have to worry about running out of its favorite items again. Manpack has a subscription
base of over 5,000 subscribers. Mainly targeting young professional men, but about 15 percent of
accounts are set up by women for the men in their lives.

35
Manpacks as well as a Birchbox, seems to focus on “trendy” and popular brands in its category.
For example, Manpacks best sellers are Black boxer briefs by Calvin Klein and Saxx39, followed by
Champion and Hanes athletic socks and shaving products and soaps. Company’s concept has
been to use best in class brands like Hanes and Calvin Klein ones that people already have an
affinity for. But company also wants to work with small brands that people haven't heard of
because its eager to bring an original story to its customers. For example, because of Manspacks
the small company "Grooming Lounge” has become a success story in grooming products
category, because it was featured in one of the Manpacks boxes.
Manpacks can customers create their first pack themselves, which ships immediately. Subsequent
shipments go out every three months but recipients can rush or "snooze" shipments when
necessary. Subscribers receive reminder e-mails a week prior to their quarterly shipment and can
make changes to it via their personal dashboard.
Customer service is very important for the young company. In the beginning Manpacks focused on
just automation, resulting in a smaller customer service focus because of the limited options. But
now, Manpacks has a full customer dashboard that allows guys make more adjustments — like
snoozing or accelerating a shipment. As CEO of the company, Kent Johnson said that eventually
customer would have enough socks and underwear and instead of relentlessly sending more
product customers way and prompting them to cancel their service, company encourage them to
take breaks with a “Snooze” feature. The company’s goal is to offer a concierge service to
customers that help them get the full value of their company. This strategy definitely paid off. By
adding more products and flexibility, the average order size increased by 84%.40
39“About Page”, http://www.manpacks.com/about
40“Manpacks row Customer Base Customer Service”, http://blog.perfectaudience.com/2012/11/01/manpacks-grow-
customer-base-customer-service/, 01 Nov 2012

36
Returns are free; less than 1 percent of shipments are returned.41 As Co-Founder and CEO, Ken
Jonson stated: “I think there's an 'oh well' factor where they know these are basics they will use at
some point," 42he pointed out. Additional advantage for the brand is that sizing issues are minimal
as most people know their underwear and T-shirt sizes.(Appendix 4)
Nature Box
Subscription commerce start-up NatureBox launched in the beginning of 2012 to create a line of
tasty, healthy snacks shipped to customers once a month. In July 2013, the company announced
that it raised an $8.5 million Series A round of funding led by General Catalyst and Softbank
Capital. The funding is planned to go toward expansion of its engineering team, with an eye toward
building new products to increase customer satisfaction.
NatureBox is a similar concept to Birchbox but instead of beauty products company ships healthy
snacks. For $20 a month, subscribers get a box full of food that can be an alternative to the usual
bad snack food choices. Each box contains five full-sized snack items. All NatureBox snacks are
nutritionist approved and free from high fructose corn syrup, partially hydrogenated oils, trans fats,
and artificial sweeteners, flavors, and colors. NatureBox produces all the food itself and gets
ingredients from local growers and independent food producers. The assortment generally includes
a range of sweet and salty snacks based on a seasonal theme. Treats include various kinds of
granolas, trail mixes, fruit and vegetable chips, and nut- and seed-based snacks.
Company believes that is help grocery industry that has devolved into a sea of too many choices
and its only confusing customer. Nature Box believes that through data, it can create a much more
41 ‘Manpacks American Apparel and Start-up Arbitrage”, http://thenextweb.com/entrepreneur/2012/04/19/manpacks-
american-apparel-and-startup-arbitrage/, 19 Apr 2012
42 IBID

37
personal shopping experience for consumers and give consumers products that they will
love.(Appendix 5)
For the Founder Gautam Gupta, it t wasn’t just the lure of a good business move that prompted to
start NatureBox. Gupta struggled with obesity during his childhood, and it wasn’t until his late teens
that he learned enough about proper nutrition to transform his eating habits into healthy ones.
Wanting to combine his passion for health with his knowledge of the e-commerce industry, he
bootstrapped NatureBox with college friend Ken Chen, who had experience in online marketing
and is currently the chief marketing officer of Naturebox.
Market research firm IRI43 found that 49 percent of the population has one to two snacks a day
while 43 percent have three to four, and 60 percent of consumers snack for enjoyment. Whether it
is to satisfy hunger, boost energy, out of boredom, or in a social setting, Americans consume
almost 25 percent of their daily calories from snacking, and most of these foods consist of empty
calories. Snacking is a major cause of childhood obesity, which has more than doubled in children
and tripled in adolescents in the past 30 years. One-third of children and adolescents are
overweight and obese in the U.S.
While unhealthy snacks contribute to weight gain, healthy snacks are part of an overall healthy
diet. Health experts have found that small, nutritious snacks speed up your metabolism and curb
hunger and consumers are growing more aware of how to eat well. The IRI study44 found that 87
percent of consumers said they are trying to eat healthier, and sales for natural and organic snacks
are on the rise. This is where NatureBox steps in.
43 http://www.iriworldwide.com/
44 Naturebox Chews on 8-5 m to tackle Obesity Epidemic with Healthier Snacks”,
http://venturebeat.com/2013/07/23/naturebox-chews-on-8-5m-to-tackle-obesity-epidemic-with-healthier-snacks/”, 23
Jul 2013

38
NatureBox currently has about 80 different healthy snack options available to send to customers,
and adds about 5-10 new products per month, while occasionally removing others. It expects to
have more than 100 options by year-end.45 But it’s not just about creating a wide range of healthy
snacks. NatureBox also has to inspire customers to eat these healthy snacks and keep overall
healthy lifestyle. That is why, the startup matches customers with snacks that they’ll love, and —
more importantly, that fit their dietary restrictions.
So far, the idea seems to be on a rise. In 2012, the company shipped 50,000 boxes to subscribers.
In 2013, it expects to increase that number to more than a million annual shipments.
But there’s still work that could be done. That includes improving its data analytics and the
algorithm matching products to customers, for instance. That’s part of NatureBox’s plans to grow
its engineering team to better serve its customers, according to NatureBox CEO Gautam Gupta.46
It also plans to invest in product and marketing functions with the new funding.
NatureBox designs and manufactures all of its own snack products at two facilities acquired early
in the life of the company — a lab in San Carlos, where there is lots of testing and work around
trying to improve customer service, and a facility outside of Sacramento where they fulfill orders.
Company currently has 35 employees, but is targeting 45 by the end of the year 2013.47
NatureBox can also personalize the box based on dietary restrictions and allergies. These options,
combined with the convenience of the distribution and flexibility of the subscription, sets NatureBox
apart from retail competitors Whole Foods and Trader Joe’s.
45 Ibid
46 “Healthy Snack Subscription Commerce Startup NatureBox Raises $8.5 Million From General Catalyst & Softbank”,
techcrunch.com/2013/07/23/naturebox-8-5-million-series-a/, 23 Jul 2013
47 Ibid

39
Why some subscription boxes are successful?
Companies who succeed with subscription model combine the perfect product with lean operations
and good marketing strategy.
For example in the beauty industry, product releases are frequent and the product itself is
expensive. Therefore the trial adds real value to the customer. From the cosmetic producer
perspective it is also a perfect situation because he or she can control to whom the sample goes
and target better its customers. On top of that, Birchbox wraps up the samples so that it feels like
receiving a beautiful gift, not just the samples you have paid for.
The second component is marketing. Birchbox, due to its surprise effect and "curation", was able to
evoke discussions among its community members. Consumers wanted to know what the other got
and what do they thought about it. Again, it is the nature of cosmetics and the target market. It
would be hardly possible to generate so many testimonials and reviews with man target market.
Young, affluent females (target market) are among one of the most digitalized groups in any
society. Thus in this case, stirring the discussion was relatively easy to do.
The third component is lean operations. Birchbox and Manpacks are very careful on hiring,
choosing only the best talent. Also, they run multiple detailed online tests before changing
anything on the website or in business strategy. For example, Birchbox still tests whether going
into lifestyle products is a good solution.
There are two things required to create maximum value in the subscription commerce space:
1. Opt-out economics
2. Brand voice

40
Figure 8: Maximum value creation box in subscription
e-commerce48
Value Driver #1: Opt-Out Economics
One of the great things about the subscription model is consumer commitment. When customer
subscribes, he makes the purchase decision one time, but receives an item every month. The
success factor of this service is that it is completely separate the “pain” of the purchase from the
reward of the final product. The consumer gets a ton of distance from the pain of paying and may
even think of the service as a gift.
Value Driver #2: Brand Voice
Subscription commerce is most valuable when it fundamentally changes a consumer’s
consideration and buying process. These companies build a powerful brand voice because the

41
conversation with the consumer is a constantly on-going process. It is this voice that builds an
unfair advantage when it comes to curation and personalization in a cluttered market. It is this
voice that helps the consumers discover want, shows them why they need it and delivers the
surprise and delight to generate loyalty, motivate engagement and drive incremental purchases.
Because of these two must have value drivers, subscription businesses work best in categories of
consumer goods that are overwhelmed with choice from infinite brands. Subscription business is
more relevant when consumer understands quality rather than quantity way and where
experimentation with a new product is both low risk and delivers immediate results.
Failed Boxes
There are many successful companies like BirchBox and Manpacks that have proved the viability
of subscription models. They have innovative ideas. They create something that people want and
need. They disrupt old-fashioned ways of doing things like having to physically go into store to buy
man essentials. They created markets and trends, instead of chasing the trend. But some start-ups
apply this model without innovative products, bad branding and poor business practices.
Ellie
In February 2013, the Science incubator in Los Angeles launched yet another subscription start-up,
a company called ELLIE.49 It offers workout clothes for women with a monthly subscription service.
The core issue of the start-up was there since the very beginning: they didn’t solve any major
problem. There are not that many people who buy workout clothes every month.
49 http://www.ellie.com/

42
Science start-ups have one thing in common: an aggressive emphasis on paid and socially-driven
customer acquisition. To build a customer base quickly, ELLIE reportedly engaged in deceptive
bait and switch tactics that were unprofessional. Prior to launching ELLIE, the founders launched a
company called PvBody which offered customers two pieces of designer fitness apparel from
brands like Lululemon, Nike and Under Armour for $39.99 a month. PvBody even offered a 40%
promotion via popular fitness blogs like SarahFit.com to lure customers.50 Over 70 of Sarah Fit’s
readers who signed up for the promotion complained about their less than stellar experience:
everyone got a notification that PvBody was not going to be sending out the designer brands they
promised , but their own brand named ELLIE.
Later, PvBody has been rebranded as ELLIE.com. ELLIE used the clout of leading brands like
Lululemon and Nike to deceptively acquire subscribers while promising those brands instead of its
own. These alleged bait and switch tactics – sometimes known as fraudulent conveyance — were
used to create “traction” for ELLIE prior to the brand’s launch. Ironically, ELLIE’s suspicious
business venture was supported with $2M from three venture capital funds.
If start-up don’t have sophisticated branding or valuable product for customer, the chances of its
success is very limited, subscription service is all about relationship building and if its not provided
then there is no mutual agreement reached.
50 “The Ellie/PV Body Experiment Revealed?”, http://sarahfit.com/the-elliepv-body-experiment-revealed/, 29 Mar 2013

43
Dollar Shave Club
Dollar Shave Club, which raised $9.8M51 on an exceptionally healthy $30M pre-money valuation in
their most recent round, has experienced impressive but very fleeting traction after their extensive
paid customer acquisition efforts.
Dollar Shave Club made major headlines in April 2012 with a viral Youtube video, thanks to a
catchy and a solid promise: high-quality razors delivered to your door for just a few bucks a month.
Headquarter in Santa Monica, Calif.-shortly was flooded with thousands of orders, according to
The Wall Street Journal.52 It also garnered CEO Michael Dubin plaudits for being a market
disrupter.
It began with Dorco. That's the South Korean company known by razor aficionados for its well-
made blades. Dorco's sold remarkably similar razors to those offered by Dollar Shave -- but with a
catch. In order to get the best deal, you need to make a bulk purchase about the size of a Kleenex
box.
Dollar Shave sold its highest-end Dollar Shave Club razor with six stainless-steel blades, lube
strips and a pivoting head, for $90 over 10 months period, that included razor plus 3 cartridges per
month. When Dorco sold a six-blade model with the same features, for the same period of time, it
51 “Not just razors anymore Dollar Shave Club introduces wet wipes for your other sensitive areas”
http://pandodaily.com/2013/06/04/not-just-razors-anymore-dollar-shave-club-introduces-wet-wipes-for-your-other-
sensitive-areas/, Jun 04 2013
52 “A David and Gillette Story “,
http://online.wsj.com/article/SB10001424052702303624004577338103789934144.html, 12 Apr 2012

44
contained 30 cartridges, but for the price of $28.66. 53 That is a large difference for the same
product.
In fact, Dorco appears to be the supplier for most of Dollar Shave's blades. Ken Hill, president of
Dorco USA, said his firm sells Dollar Shave Club the four- and six-blade razors that are used in its
packages, but not the Dollar Shave's two-blade option.
So why customers should join the Club when they can buy razors directly from a company like
Dorco for as much as 75% less. The only reason could be the convenience, the convenience of
product being delivered to the door steps every month, but isn’t it a high price to pay of 75%
difference.
Besides questionable price policy, some Dollar Shave Club customers are questioning the
service's reliability and billing practices. On the company's Facebook page, between good reviews,
are persistent complaints from clients upset that Dollar Shave took their orders, but now says
blades won't be delivered until May 15.
In messages posted on its Facebook page, Dollar Shave Club apologized for the delays, saying
that the company's customer service reps were "a little back-logged" with thousands of orders due
to the "overwhelming demand." Yet, the company has charged these customers in full for holding
their place in line. According to Visa rules, transactions should be voided if the merchant can't ship
the product within seven days. AMEX's policy is eight days, while Mastercard requires merchants
53 Does Dollar Shave Really Save? Popken: The subscription blade service is a YouTube sensation. But is it a good
deal?
Popken, Ben. SmartMoney.com (Apr 20, 2012)

45
to bill only when goods are shipped. Dollar Shave Club claimed they were not aware of those
policies.
Dollar Shave's struggled an increasingly common problem for companies navigating the new world
of social media. Most firms hope for a viral campaign success, but many aren't prepared for what
happens next. Wise marketers know to put in circuit breakers. Every business is going to have
challenges. In 2011, Domino's limited winners of its Facebook game to one winner of a free $10 gift
certificate every 60 seconds. This let the pizza chain exploit social media, while controlling exactly
how much product they gave out. "Apple runs out of products. People have to wait for their iPads,"
says Dollar Shave's Co-Founder Dubin. "We're not the first company to have customers unhappy
with the product or unhappy with the service. And we're going to do our best to get better." But is
this good enough? Only time will show if their procedures and company decisions were executed
correctly.
But start-up is going through many challenges. As a new business, Dollar Shave Club clearly has a
few things to learn. In summer of 2013, Dollar Shave Club increased its full-time staff to 24
employees.54
Rocksbox
Rocksbox is a jewelry subscription/rental service where client fill out a style profile, and then
receive 3 designer pieces of jewelry. Next, client can wear theses designer jewelry pieces for up to
60 days and if he decides to keep the items, he can purchase them at members-only discounted
prices. A month-to-month subscription is $19.99 .
54 “Dollar Shave Club from Viral Video to real Business”,
http://www.nytimes.com/2013/04/11/business/smallbusiness/dollar-shave-club-from-viral-video-to-real-
business.html?pagewanted=all&_r=0, 11 Apr. 2013

46
It has been few companies online from customers who weren’t happy with quality and
personalization aspect of the box. For example, fashion blogger “Diva Taunia55 did a short review
where she wasn’t happy with the insides of the box. She claims that the box was rather
disappointment than happiness. Two pieces out of three were not matching blogger personal style
and the last, third piece, Akil Necklace in Black Jade & Silver from Robyn Rhodes (retail $78)
looked cheap and not again not fitting clients personal style.
She filled out a style profile on a site and followed all the instructions, but at the end dislike
anything that was offered. As a result she didn’t see any point to spend $20 on the jewelry pieces
she strongly disliked. Also, the model seemed to be irrelevant. Beside monthly spending’s of 20$,
client would have to pay high price for designer pieces, in some cases over 250$, that caters to
luxury clients and probably should be simply retailed instead of doing a subscription business
model. Additionally some reviews claimed that some clients had their skin turning green after
wearing the product. That could only means that Rockbox uses cheap supplier and doesn’t provide
level of service that they initially promise to the customer.
Why Boxes Fail?
The previous examples don’t solve any problems or offer anything new. If someone is merely
looking for Lululemon- style activewear at a lower price point, there are plenty of online retailers
that offer lower priced workout-wear such as H&M, Gap, Athleta, even Target. Unless new start-
ups are offering great products, prices and experiences, they should not try to compete with
established big brands or e-tailers. What problem are they solving? What is their point of
difference? Are they making the process easier? Many of online retailers are offering lower prices.
Subscriptions only work when the price, product, quality and user experience are great. If there is a
product mix, it must be personalized or expertly curated, not random. These companies offer poor
55 “Overdue Review Rocks”, http://divatauniablog.com/2012/09/21/overdue-review-lipo-in-a-box-underology-rocks/, 21
Sep 2012

47
after sale service. They don’t make the customer experience very fluent and often have billing
issues or sending out the product not on-time.
Current Waves that are driving the Market
In an effort to understand what are the future trends are, one needs to understand the current
waves that drive the market.
1. Social Commerce
84% of consumers say that trustworthiness is required in order for them to interact with brand. 56
Social commerce is a subset of e-commerce that involves using social media, online media that
supports social interaction, and user contributions to assist in the online buying and selling of
products and services.
Social Media is one of the most significant influencers of the next wave of E-Commerce innovation.
For example, Facebook transformed web behavior from simply receiving of information or reading
a news article to interactive engagement, such as commenting or sharing. Many brands, such as
Sephora and ASOS, started to heavily invest in social media marketing and running major
campaigns around informing its followers through different online media channels. From 2011 to
2012, Sephora has seen a 300%57 increase in mobile shopping..
56 Demand Media Report, 2013
57 “Sephora 15 Days” http://mashable.com/2012/06/20/sephora-15-days/, 20 Jun 2012

48
Forrester Research predicted that Social Commerce would reach $14b by 2015, which is 5% of
online retail’s revenue.
Figure 9 Booz& Company Estimate of Social Commerce Market Size(2010-2015; in US$ Billions)
26% of consumers access customer reviews and consumer conversations on mobile devices for
PCWorld. This trend is only going to accelerate. 58
In September 2011, the percentage of reviews submitted via mobile devices was just 8%. Over a
period of 18 months this percentage grew to 212%.59
58 “The Rise of Social Commerce engagement on Mobile dvices”, http://econsultancy.com/es/blog/62518-the-rise-of-
social-commerce-engagement-on-mobile-devices, 15 APR 2013
59 Ibid

49
Figure 10 % Reviews from mobile devices
The Psychology of Social Commerce
The importance of social psychology cannot be overstated. This branch of psychology deals with
how people think about influence and how individuals relate to one another. In Facebook, Twitter,
Google+, and every other network, the social economy within each is defined by how people earn
and spend social capital. Based on the commerce of actions, words, and intentions, individuals
contribute to their stature not only within each network, but among those to whom they’re
connected.
There were series of studies based on the work of Robert Cialdini60 that identified six universal
heuristics that shoppers use to make decisions.
60 Robert B. Cialdini, Harnessing the Science of Persuasion, from the Hatvard Business Review, 2008

50
1. Social Proof
During the new customer journey, a consumer may find themselves at a point of
indecision. When consumers are uncertain of what to do next, social proof helps to see
what others are doing or have done. To influence decisions, wish lists, popularity lists,
social sharing, reviews, and social recommendations become paramount.
2. Authority. Authority in social media is not only related to commerce, but it is the very
source of how interest graphs take shape. During the dynamic customer journey,
authorities rise as the sherpas to guide in effective decision making. Authorities have
invested their time, resources and activity in earning a position of influence and their
reward for doing so is a community of loyalists who place trust in their recommendations.
For Example, BirchBox positions itself as an authority in beauty box business industry.
People trust their expertise due to the quality product, extensive media coverage and great
customer service. Authority comes with trust and consistency. Only quality brands receive
an authority label in industry.
3. Scarcity. A function of supply and demand, greater value is assigned to the resources that
are perceived to be less available. Driven by the fear of loss or the stature of self-
expression, consumers are driven by the ability to participate as members in exclusive
deals.
4. Liking. There’s an old saying in business, people do business with people they like. And,
nothing is truer than that statement in social media. People trust someone like themself.
Human has a natural inclination to emulate those they like, admire, find attractive as these
attributes also contribute to the “guilt by association” impression of self-identity.
5. Consistency. When faced with uncertainty, consumers tend not to take risks. Rather, they
prefer to stay consistent with beliefs or past behavior. When these do not line up in the
decision making cycle, consumers tend to feel cognitive dissonance or true psychological
discomfort.
6. Reciprocity. As human beings, we have an innate desire to repay favors to maintain a
balance of social fairness whether or not those favors were invited.

51
BirchBox is heavily involved in Social commerce. Comapny often participate in social media to
create social interactions. This brand is active member in social media sites such as Facebook,
Twitter, Pinterest and Instagram. BirchBox provides value to its community through social media
channels as well as promotes its product. BirchBox collaborates with many popular Beauty and
Fashion Bloggers in order to extent its social reach. Company had a large success in Blogging
Industry61 and increased its subscription base because of interesting business concept and good
quality product.
2. Private Sales
Private sale is a sale where all the transactions take place only between buyer and seller without a
third party involved, whereas in a normal sale, there is almost always some form of intermediation.
It is word of mouth which makes people aware that an item is for sale.
Private Sales have become popular online with new selling techniques in email marketing that
exploded onto the retail landscape since 2011. Members often are invited to the website by their
friends. Websites offers great prices on everything from designer clothes, to furniture, to kitchen
supplies, restaurant deals, and flight, hotel and vacation packages. Most memberships are free,
but some sites, like Ideeli, offer paid VIP membership that affords members early access to sales.
In the world of private sales, it's first come, first receive the best deal, so having an early start over
most people can really help.
Gilt62 is one of the most popular and successful private sale sites. In the private sale business
model, brands send samples of their clothes to Gilt, where merchandise buyers hand pick the
61 “The NYC Trip BirchBox Bloggers Take Manhattan”, http://blog.birchbox.co.uk/feature/the-nyc-trip-birchbox-
bloggers-take-manhattan.html, 11 SEP 2013
62 Gilt.com

52
items they want to sell on the site. The buyers then place their orders for the amount of
merchandise they'd like the brands to set aside for the sale, based on available stock.
After members pay for their goods and the sale ends, Gilt then places the confirmed purchase
order with the brand for what it has sold online. Merchandise is then shipped to Gilt, where
everything is packaged in Gilt-branded boxes and shipped out to customers.
This is a fairly safe model with few risks to Gilt. The most Gilt really has to worry about is the time it
takes for the brand to send its purchase order, and then send it out to customers. Another risk in
this model has to do with inventory. If the count isn't accurate, the company could have a number
of customers receiving refunds and apologies that their order could not be filled. Gilt is reportedly
made about $500 million in revenue in 2012, and that's up from $170 million in 2011.
Despite the fact that Private Sales is not related to Birchbox business model, both of these models
are heavily depends on subscription base and e-commerce business.
3. Mobile / Location
Mobile / Location is one of the most powerful innovation that is driving the future. With the adoption
of smartphones, consumers began interacting with the web in a fundamentally new way – while on
the go.
Forrester Research estimates that M-Commerce will grow into a $31b industry, nearly double their
forecast for Social Commerce by 2016.
But the ability of smartphone to detect individual's physical location facilitates large amount of
selling opportunities for retailers. These could offer purchase Online & Pick-up in Store options or
offer geographically targeted discounts and loyalty points.

53
These three trends lay the foundation for the future e-commerce trends.
Future E-Commerce Trends
1. Data is the beating heart of ecommerce
Fast Fashion stores such as Zara and H&M have fundamentally revolutionized the fashion-
industry by ending the traditional “seasonal” approach for retail primarily through their analytics
driving a modern, vertically integrated manufacturing process.
The ability to transform actionable analytical insights into demand-responsive product compositions
presents the core strategic value proposition for fast fashion. The “seasonal approach” does not
work anymore and is ever increasingly augmented by the under-performance of traditional
“seasonal” firms. In order to investigate its own company "demand signals", for example Amazon
placed yellow "like" button and based on that feedback it can determine which products are the
most popular.
In a future, management would have the access to advanced analytical resources data regarding
the customer preferences that will allow them to make the right commercial decisions. Company
size will determine what data engines need to be invested in, with smaller firms more likely to use
Google Analytics as their primary resource.
The insightful statistics that online analytical tools provide will change the way e-commerce is being
done. And I a future this commercial decision will start to influence bricks and mortar retailers. The
knowledge that is achieved in e-commerce tests will be transferred to the traditional retail business
model.
The growing importance of data management will see more ecommerce leaders owning traditional
marketing budgets rather than traditional marketers taking control of ecommerce. The future may

54
see marketers become even more data-driven, giving rise to a new kind of marketer who uses a
set of data-heavy metrics such as return on promotional investment, driving conversion rates and
optimising efforts.63
2. Cutting Out the Middle Man
One of the biggest revolutions and most attractive developments for consumers in e-commerce
right now is the offering of luxury quality goods at more affordable prices. New young brands like
Warby Parker and Deal Decor are offering up their own high-end style products by cutting out the
brick-and-mortar and the middleman. By working directly with manufacturers, these companies are
eliminating everyone who takes a cut of the profits in between factory and shelf to create a price-
point that far undercuts traditional luxury brands of the same caliber. By cutting out those in-
between parties, the system also changes the speed at which the creative process takes place.
Not confined by traditional retail seasons, these brands can release items when the trends are
happening, and move closer to the pace of consumers when it comes to keeping up with style.
This trend will continue to blossom in a near future.
3. Always-on shopping experiences
The rise of smartphones and always-connected consumers means businesses must deliver service
24x7 so customers who can access what they need, when they need it, across devices. But
companies must carefully consider the cost of service they provide.
63 http://www.crmsearch.com/ray-wang.php

55
In most cases it makes little sense to have a 24-hour service flowing across time zones and offices
within the organisation. Companies would have to have a very complex order management system
in several languages with proficient customer service agents in many languages.
BirchBox target market is a young female who is often uses social media to find answers to her
questions.64 This form of communication is very beneficial to Birch Box because its customers do
not require call centers, but rather use chat or email form of communication. In a future, BirchBox
would need to invest in its online support team who can answer customer’s questions online or via
skype at any time of a day or night.
4.Social Shopping: Video experience in E-commerce
Social shopping is a method of commerce where shoppers' friends become involved in the
shopping experience. Social shopping attempts to use technology to mimic the social interactions
found in physical malls and stores. With the rise of mobile devices, social shopping is now
extending beyond the online world and into the offline world of shopping.
Since the rise of social media, there have been many definitions of Social Commerce. In the
beginning, Social Commerce was typically defined as recommendations of products by friends that
eventually led to sales of said product. There have been many uses of this, from peer
recommendations, social curation, influencer commerce, to social shopping. This evolved over time
as businesses, merchants, non-profits and brands started sharing links inside social media. Media
platforms started to develop business models to augment this sharing to track, measure, and target
optimize these links. Social link sharing that eventually leads to a purchase is what we now often
define social shopping as.
64 “Generation Y: purchasing power and implications for marketing.” http://www.freepatentsonline.com/article/Academy-
Marketing-Studies-Journal/166751796.html, 01 Jan.2012

56
Probably the best example of Social Shopping is innovative start-up Joyus65 . Joyus is the video
shopping platform startup led by former top Google executive Sukhinder Singh Cassidy. The San
Francisco-based start-up is combining video experience with online retailing. The company
believes that “fashion, beauty and lifestyle brands can directly monetize video through direct
response product sales.”
Using premium video content, Joyus said that it converts at 5.15 times the rate of visitors who only
browse product listings on the site and that its viewers buy 4.9 times more than those who don’t
watch the product videos.66
Every time someone watches a video, Joyus can measure the resulting sales revenue, creating the
first ever metrics for return on investment (ROI) using online video to drive product sales. Company
has noticed that every thousand views of video produces between $470 and $930 in direct sales
revenue. It shares a part of the sales on its site with its merchants and provides the purchasing
tools.
Joyus believes that online retail has to shift from a focus on engagement statistics and
monetization via brand advertising to direct product sales results.67
This a clear example of new class of e-commerce of entrepreneurs, someone who mixes different
channels together and makes the overall customer experience much more entertaining and simple.
65 https://www.joyus.com
66 “Video Shopping Start-up Joyus Raises 11-5m in Second Round Focuses on ROI of Online Retail”,
http://allthingsd.com/20130505/video-shopping-startup-joyus-raises-11-5m-in-second-round-focuses-on-roi-of-online-
retail/, 05 May 2013
67 Ibid

57
Successful social shopping is when the voices of retailers, experts and consumers come to live
through video. And at the same time, monetize the entire experience.
In social shopping video68 helps to do emotional impact on customer decision making process. For
example, customer goes to the store because he or she finds it relaxing and fun. But until now, it
was difficult to transfer those emotions through online channels. Also, when customer goes to the
fitting room, they would like somebody else’s perspective on their choice. That is why expert
curation on website can be only beneficial.
It has to do a lot with feeling validation. When customer wants to buy product not just because it
looks great but often because somebody telling him that it looks really good. In shopping online, a
static image can only yield so much, it doesn’t give you customer validation or experience. But this
is changing with social shopping.
Video gives a unique opportunity for trust, for a connection with somebody who can help the
customer to feel empowered. It’s adding a voice and a perspective.
In some way, BirchBox uses a social shopping model by uploading video tutorials each month to
BirchBox website and explaining how to use each individual product as well as what are the
benefits of the product.
Conclusion
BirchBox has transformed subscription services into big business in the last few years. Now the
subscription world has expanded even further, and these days everything from underwear to
68 “BII REPORT: Why Mobile Commerce Is Set To Explode” http://www.businessinsider.com/bii-report-why-mobile-
commerce-is-set-to-explode-2013-1 10 Jan 2013

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