Mail-order beauty box company TopBox fights cosmetics-delivery competitors for shares in a new Canadian market

In the quest for big profits, beauty product supply company Topbox has focused on something small.

For $12 a month, the six-person, Toronto-based startup sends customers a box containing four beauty product samples. Only top quality products are selected – such as Yves Saint Laurent mascara or Marc Jacobs fragrances – so the boxes always deliver a premium, surprise taste of what’s current in women’s beauty. The packages are assembled by a secondary company and sent out to 10,000 members each month.

“We are always working with the best brands to get more samples for these women to try,” says Topbox founder and CEO Brian Lau. “Our members are very discerning about what products and what brands we put in those boxes.”

They can be as discerning as they want – unsatisfied customers don’t have to look far for alternative businesses offering nearly identical services.

Topbox was already facing two beauty box competitors when it sent out its first package in October 2011. Montreal-based Glymm started one month prior, Toronto’s Loose Button launched earlier that same year, and there are now four companies vying for positions in the same space. This means Topbox not only has to pull customers away from the perfumed call of free cosmetic counter products, it also has to fight several rivals to sign brands and carve out shares in a new market.

This is no small challenge. With more than $5 billion spent annually on beauty care in this country, according to Health Canada, it definitely pays to be a leader in the industry. But Lau says that although Topbox is already profitable, his chosen niche in the beauty market is simply not big enough for all the competition.

“Whether it’s three or two or one, it’s to be determined. But it’s not big enough for four,” he says.

To ensure they aren’t cut out of the market, Topbox is focusing on flexibility and boosting its value proposition in order to attract as many brands as possible.

Like most other companies, Topbox receives its samples from producers for free. But unlike its competitors, the business doesn’t require brands to send enough samples for its entire subscription base. This allows producers to target specific niches within Topbox’s customer demographics.

“If a makeup company wanted to target women with fair skin and large pores, we would then go and find out how many people fit that description in our membership and only send samples to those,” Lau explains.

And there are other opportunities to earn cash, says Mandeep Malik, assistant professor of marketing management and sales management at McMaster University’s DeGroote School of Business. He says these companies have unique access to certain market information, which they can use to create a valuable second revenue stream. All it takes is having customers fill out questionnaires after trying products. Answers that reveal demographic information, buying habits, and consumer opinion are heavily sought after by companies trying to hone a marketing message.

And, adds Malik, feedback from subscribers is often more valuable than data obtained from free sampling – paying consumers, he says, are more likely to critically test samples and give thoughtful opinions.

“When somebody has put $10 out there, it’s literally as if they have invested in it,” he says. “There is an intrinsic commitment and motivation to use, and [either] ask for more, or reject and say ‘This is not something that works for me.’”

Topbox is working to create this additional service by asking members to fill out feedback forms online, which include standard demographic and opinion questions, as well as custom queries from the brands themselves. Lau says more than 80 per cent of subscribers fill out feedback forms, a practice the company incentivizes by customizing boxes to match a member’s likes and dislikes

Topbox is also in the midst of launching its own online marketplace, with a key distinguishing feature: free shipping for every product, which Lau says isn’t yet offered by any Canadian beauty store.

The eventual goal is for new income streams to generate half of the profits. But that won’t happen unless the company can successfully fight for a larger share of the currently overcrowded market.

According to Lau, Topbox focuses on two strategies to increase its membership faster than the competition: a strong social media presence to create an ongoing conversation with customers (they currently have more than 14,000 Facebook ‘likes’), and an early referral program where members received free boxes for signing up friends.

“Within two and a half months, we were sold out and we had a waiting list of over 10,000 women,” Lau says.

As the business grows, Lau says the number of subscribes – and just as importantly, the number of brands – will continue to increase. But, he adds, it’s the company’s close relationship with customers that will be key for lasting success.

“Every time a customer interacts with us, whether it’s through email, Facebook, phone or even through our boxes, they finish their experience happy,” he says.