Birchbox brings surprise to online shoppers, savvy marketing to companies

Casey Miskowski signed up for a Birchbox subscription in September on the recommendation of a Facebook friend. For $10 a month, the online beauty vendor sends her sample sizes of designer products, from lip gloss to moisturizer, delivered to her door in a cheerful box with a personalized note. If there's something in the package she really loves, she can buy a full-sized product at a discount directly from the Birchbox website.

"I love the surprise of it," says the Manhattan-based charter school teacher. "I'll forget that it exists, and I come home and it's a pleasant surprise once a month." The contents of her box are chosen for her based on a questionnaire that she filled out when she signed up. "I like the idea that it's tailored to you, and they tend to be higher-end products that I wouldn't make the investment to try out."

Birchbox is the first and most recognizable name in "discovery commerce" – a retail trend that aims to bring the fun of free samples and window-shopping to online consumers. Founded in 2010 by two Harvard Business School students, the Manhattan-based company has more than 400,000 subscribers to its monthly boxes, which now include boxes for men, as of August 2013.

The business model is a logical fit for the beauty industry, in which giving out free samples in the hopes of attracting customers has a long precedent. Rival beauty boxes, such as Ipsy and PopSugar, soon followed Birchbox. But the concept has expanded to include a wide range of industries, including food (NatureBox), clothing (Stitch Fix), fitness (Stride Box), and even pet supplies (BarkBox). Promoted as "Birchbox for dogs," BarkBox launched in 2012 and has already raised about $7 million in venture capital.

"I love the whole Christmas effect," says Ryan Benk, a radio reporter in Tallahassee, Fla. He recently signed up for Trunk Club, a clothing service for men in which clients work with an on-staff stylist. Trunk Club then sends a box of clothes based on the client's needs and preferences. Mr. Benk buys what he wants and sends back the rest.

The variety of boxes has exploded over the past couple of years, says Liz Cadman, founder of MySubscriptionAddiction.com, a popular subscription box review site and online community for box enthusiasts. "I started in summer 2012, and I was reviewing maybe a box per week," she says. "Now I get around seven per day."

A good discovery commerce service, Ms. Cadman notes, makes users feel as if they're getting expert, personal attention for a bargain. "Consumers want to get more than what they paid for," she says. "If I pay $10 and get $20 worth of items, but only half of them are for me, I still feel like I'm coming out ahead, and the [product selection] is key. Whether it's from a team of editors or a celebrity, it can't feel like random items thrown into a box."

Indeed, many celebrities, including fashion editor Nina Garcia and chef Tyler Florence, put out their own boxes.

For companies, partnering with a discovery commerce platform is a savvy way to reach the right customers. "A company like Birchbox can take a beauty simpleton and get a new makeup product into her hands," says Linda Shein, managing director of the Jay H. Baker Retailing Center at the Wharton School of the University of Pennsylvania in Philadelphia. It's a great marketing tactic, she says, but it's also an effective way for brands to figure out who their ideal customers are. If a makeup brand launches a new mascara, for example, Birchbox can send it directly to users who, based on survey information, are already looking for mascara. "It's an opportunity for several more different channels of distribution," says Ms. Shein.

Ms. Miskowski also stockpiles her unwanted products to give as presents, and the subscription-box world has spawned a vibrant sub-economy of people making online swaps, bartering, and selling with a fervor akin to that of baseball card collectors. Cadman recently launched a "swap" forum on her site for users to exchange items through the mail, which has racked up thousands of exchanges in a matter of weeks.

There are drawbacks that could hamper the model's growth. One is price: Birchbox has a low barrier to entry, but beyond samples, things can get expensive. "The price point was a little outrageous for me," Benk says of his first box from Trunk Club. "It's much cheaper to go to a store."

There's also the simple matter of scope. E-commerce still makes up only 6 percent of the US retail market, and box subscriptions represent only a fraction of that. Miskowski guesses that the appeal could be limited to a certain type of personality. "It has to be people who aren't set in their ways, who like trying new things," she says, "and people who don't mind spending a little on something frivolous."