Beauty Subscription Business Model: MyGlam's Approach

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Hi All,

I wanted to start this thread because while it's fun to discuss the products, share the excitement, rant about the problems of this new company, I've always been interested in how they run their business.  I am merely speculating about their vision, their goals, and the business tactics that they've taken to achieve their goals.  So feel free to jump in, shoot me down, and give me your thoughts.

Beauty Subscription Business Basics

History

All of these subscription companies (MyGlam, Birchbox, Beauty Army, BeautyFix, Sample Society) are a part of a relatively new trend of moving beauty purchasing online. However, its origin began with well known company that is completely unrelated to beauty: Netflix. Birchbox's founders said that they modeled their sampling service to Netflix because they liked the idea of having a convenient monthly subscription and in return a customer could get unlimited access to movies.  As a result, a beauty subscription company was born when Birchbox applied this monthly subscription concept to sampling beauty products. Because of their overwhelming success, dozens of other companies have emerged in the past couple of years as competitors, hoping to take a chunk out of this newly emerging market.  For the most part, these companies include the foreign Glossybox, EcoEmi, Platinium Box, and Gogogirlfriend.   

Advantages over Traditional Brick-and-Mortar stores (like Sephora and Ulta)

1. Enormous marketing power

They have enormous marketing power for small independent or less well known brands that do not have contracts with Sephora and Ulta.  Every makeup subscription company has the attention of all of its subscribers and therefore can introduce whatever product they want to their customers.

2. Greater consumer purchases

Customers are more willing to purchase products after being able to sample them unlike the one time sample uses obtained from traditional stores.

3. Easy access to customer base

Since all of these companies are based online, everyone has easy access to them.  Traditional stores like Sephora and Ulta are limited by their store location. Customers, no matter their location can participate.

4. NO ADVERTISING COSTS at all.

Birchbox has openly disclosed that they spent no money one marketing or advertising by running ads anywhere.  Rather, their business grows through social media buzz through its customer base.  All of the youtube videos that feature what a subscriber got in their monthly box is free advertising. Similarly, when people tweet or post a FB note about their subscription, it raises awareness. (I haven't even gotten to beauty blogs or even forums like the one I am posting this to either.)  The great thing about reliance on social media is that potential customers get "real" feedback from people that they know and trust and it helps to build interest into the beauty subscription company.

5. No costs spent towards building an actually store

They're based online so they don't need to pay the rent for service store; the only thing they need is an office and a warehouse for their goods.

6. Cemented Brand Recognition

This is probably the biggest asset of a beauty subscription service but probably also the hardest to prove.  For example, let's say I've never heard of theBalm (from the Jan. 2012 bag) and I receive their nail polish.  I will use them and probably not purchase anything from them for a while since I got a full size product.  However, in the future if I ever hear from them again or see them in a store or online, I am more likely to purchase from them.  MyGlam may not be able to profit from any future purchases I make from theBalm, but theBalm benefits in the long term because I have remembered their name and tried their polishes.  

Disadvantages

1. Internet Rumors / Trolls / Speculation

Since they are based online, there is an element of anonymonity that can blow some concerns out of proportion.  For example, if eight people out of 100, have had unsatisfactory experience, they may vlog, blog, and tweet about it.  If these people happen to have a large following, other individuals may feel wary even though the remaining 92 individuals of the company have had a wonderful experience. The same thing can happen with rumors.

Plus, because they're based online there's by default less confidence with the company.  I am pretty sure Sephora or Ulta have never been treated with the same level of dissatisfaction and mistrust as I have seen with some beauty subscription companies.

This disadvantage of working online is a general problem with all makeup subscription companies. 

So how does MyGlam apply to all of this?

Well, if you're an upstart company, how do you take advantage of the resources available to you?  What would give you an advantage compaired to other established companies?  How can you persuade a luxury brand to invest in you as opposed to your competitors? 

Here are my thoughts with what Marcelo and Michelle did:

1. Early Launch

MyGlam probably realized that in order to be competitive, they needed to start before all the other subscription companies began in the spring and that's why they sent their first bag in December of 2011. (If you look at the number of companies that are beginning from January to March, there's at least five or six (Beauty Army, Sample Society, Sindulge, The Look Bag, etc.) If you want to grab up the customer base that's looking for alternatives to Birchbox, you better start before the customer base moves to another new company by random chance. Thus, MyGlam has the advantage in comparison to all of the other spring companies. (This assumes that the average customer is going to be sampling from one company at a time. Because besides the people on this forum who have 3+ subscriptions, how many people are really going to spend more than $10 for a sampling service?)

2. Really take advantage of the free social media advertising

How did everyone find out about MyGlam? Some of the super makeup subscription junkies probably heard it on this forum first.  But I can probably make a safe bet that most people found out about MyGlam's launch through  the youtube gurus' (Michelle Phan, Bethany, Promise, Andrea, Jessica Harlow) videos.  This may explain why MyGlam got so many prominent youtube video posters in on their company launch.

3. Grow to a competitive size

What's the advantage of being big? 

It means that you have a strong customer base so that any cosmetic company that MyGlam will work with can be guaranteed that they're products will have huge exposure.  For example, with Birchbox, they said that they put one single lipbalm in some of their November box and the company that sent them the lipbalm had over 3,000 purchases of the full size product within several weeks.  The lipbalm/treatment was valued at $14 each.  Do the math. That's about $48,000 and brand recognition for life.  So while MyGlam hasn't released their sponsered cosmetic companies' profits since they've spotlighted them, one can imagine that their featured brands may have experienced a similar uplift in sales.  

Going back to my original statement, I think MyGlam's goal in the first three months of its launch was to grow as massively as possible because in the age of newly launched subscription companies, the only way to have a larger marketing power is to be big.  According to their latest newletter, they have about 300,000 subscribers; Birchbox has half of that customer base.  

Because growing was MyGlam's primary priority, this can explain the glitchy site, the lack of customization, and the limited number of items available.  I think that in order to have customization of products to each customers' profile, one has to grow their company slowly and that's why Birchbox is still smaller than MyGlam even despite it being around a full year longer. Birchbox has taken smaller, incremental steps with increasing their customer base.  MyGlam didn't have that option because they wanted to harness the large market of beauty consumers before they moved onto new companies and they only had a small window of time from December to March.  The benefit is that now that they are large, they can have a greater marketing power to bring to their sponsered cosmetic companies.

4. After being big, focus on customer satisfaction

I really think that growing big was MyGlam's thing. Because, after three months of tremendous growth, they have only really started searching for feedback to improve their customer relations. Hence, they got glammie ambassadors and are seeking to update their site with a better customization quiz for its subscribers. 

What MyGlam should continue to do:

1.  They should continue to focus on streamlining their shipping method.

I personally don't really care about how long it takes for something to arrive to me as long as it arrives, but if people are really upset by the shipping order (east coast vs. west coast) and the time (is it taking a week?) then they should make it quicker. 

2. Getting Personalized

The lack of customization with the Sheer Cover concealer probably alienated a ton of dark skinned customers.  I don't think MyGlam realized the ramifications of this error, but on a subconscious level it might have sent out a message that beauty is only for lighter skinned people or that they only expected lighter skinned customers.  I COMPLETELY THINK THIS WAS UNINTENTIONAL, but it does create a sticky message. 

3. Luxury beauty items

While people want to see more makeup items, I personally think that people want to see luxury brand items more than anything else. This means a combination of skincare and makeup. However, if MyGlam does want to distinguish itself from other subscription companies, they should come up with a ratio of 3:2 or 3:1 with makeup to skincare/haircare/perfumes in the bags. 

4. Continue to send out massive savings coupons but not as a "featured" item

While everyone here seems to hate the idea of a Nume "giftcard" I'm sure it was extremely profitable for the company and for MyGlam.  They basically sent out a promocode and when the customer purchases something, MyGlam takes a cut of the profit from Nume.  Not only does it raise brand recognition, but it also gives MyGlam pure profit since they didn't actually do anything. This is actually probably very profitable because again if only 3000 purchased an item from Nume out of its 300,000 subscribers and the average amount of things they purchased was about $15 (assume everyone got the mini), Nume and MyGlam just made $45,000. Thus from a business standpoint, they should continue to send out coupons like this.  However, to not piss off customers, they should not make the coupon a "featured" item in their bag but only as an additional thing.

5.  Get the YT gurus to make better videos

In addition to their "what did I get in my MyGlam bag" videos, they should specialize their videos. For example, Bethany can talk about how she likes to pair her nyx roll on with this eyeshadow or other creative ways of using it.  Promise should do a Q and A with her subscribers about information about how well her flat iron works and how heavy it is.  Andrea should do a spa video with all the skincare products. Michelle can combine past feature products with the current ones to do a make up video. Jessica can just each chocolate.  Yes, they would be advertising videos, but I don't mind that because that's what they're: advertising and generating hype. 

6. Continue with "Glammie of the Day" video spotlights

It does create a community when you see other glammies spotlighted. And if you're  a vlogger, this is an opportunity to receive free publicity to your channel if you're featured on their FB page.  Plus, it can create greater customer loyalty to MyGlam because the Glam staff put their video on their FB page and twitter.  Furthermore, it can diffuse the negativity that MyGlam has been receiving on their facebook page. No one is going to post a negative comment (and much less likely to post a complaint) on a post that features a happy glammie opening their bag. First of all, if they do, it makes the poster look bad. Secondly, most people wouldn't understand the logic of posting a negative comment on their fellow Glammie's video.

So this is all speculation and my own personal analysis of what they've been striving to accomoplish.  I'm excited to hear that Zadidoll's trip to MyGlam was successful and that she got to give her vast list of suggestions and insights to the staff.  Again, please feel free to post your thoughts about my ideas.

 

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