Nick Kozak for the Toronto Star
Case Studies

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

Vital Stats
Name:
Topbox
Field:
Beauty products/mail-order
Years active:
1
Core Customers:
Women aged 24-30

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.

EXPERT VIEWS

As Interviewed by: Tom Henheffer

The market isn’t big enough for TopBox and all its competitors. So the company needs to establish itself as one of the two best options in order to avoid being weeded out as time goes on. They’re already adding an extra value by collecting customer information they can sell back to brands, and have an excellent website featuring ecommerce functionality so subscribers can easily buy the products they like. But what I’m not seeing online is testimonials from users. The company should add this feature so people can quickly see the value in their service and understand why it’s something worth subscribing to. TopBox should also be sending samples to bloggers. It’s an easy, cheap way to “surprise and delight,” and in return have key influencers generating word of mouth online. Finally, I think TopBox should take advantage of the season. Christmas is coming up, why not offer three-month memberships that people can give away as gifts? It’s a great way to find new members, and possibly get an edge on the competition.

by Tisha Rattos

People are time-starved, and willing to pay for the convenience of having samples delivered. There are four competitors out there, but I don’t think the market is saturated. The demand for cosmetic and health products is growing among both genders — the key to developing their sales model is delivering these products via sub-segmentation of their potential client base. For example, what I want will likely be different from you, your friend or your partner, but my choices may be the same as my neighbour down the street. If TopBox could create client segments of five or ten groups of individuals who fit certain demographic or psychographic profiles, they could send products appropriate to each group based on the sub-segmentation. The market potential could be huge. I’d also recommend they add coupons to boxes that customers can redeem to buy products they liked from TopBox’s website. There doesn't appear to be any company providing discounts on brand name luxury cosmetics, so this would expand the value for customers and make the company a distributor for brands — a new revenue stream that could propel TopBox even further.

by Peter Conrod

The key will be increasing their database of customer information to make their offering more appealing for manufacturers. That way they get an additional revenue stream when selling this information, and can also ask manufacturers for bigger and better product samples to attract even more users. It’s a kind of positive cycle that will give them more cash for expansion as they need it. So, to grow that database, TopBox is asking customers to fill out feedback forms. But there’s little incentive for them to do so. It might be worth offering coupons or adding an extra sample to the next box for anyone who completes a form — they need to increase the value for customers in exchange for their information. And, once they are ready to take on more customers, I think it’d be worth reaching out to both the zoomer generation — who are less social-media savvy and will require a different marketing strategy — and remote regions where women can’t normally get premium beauty products. They’re huge potential audiences, and will also be captive ones if TopBox can tap them first.

by Hélène Moore

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