

Fast Co. Named Birchbox & Science the Most Innovative Co's.They Arent't. - sindhya
http://www.os-fashion.com/the-naked-truth-about-subscription-start-ups/

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sindhya
Birchbox’s beauty and greatest vice is that they don’t pay for products from
brands. Although Birchbox, which received $11.9M in venture funding, clearly
has the cash to pay for the products, it engages in dangerous business
practices which jeopardize the long-term viability of their core business
model. I recently interviewed Suk Chan the founder and CEO of Soukenberi, an
eco-friendly home fragrance and bodycare brand. Ms. Chan said, “Birchbox
requested 300,000 units of a product for free; in return, they said that could
offer a conservative purchase order of 400 units for that product if it was
received well by their sampling audience.” 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 Ms. Chan negotiated with them, they lowered the
amount of requested free product to 75,000 and then to 50,000 units (for a
more targeted customer base). Birchbox only wanted to pay for a purchase order
of 400 units after receiving 50,000 units for free. Ms. Chan decided not to do
business with them since it was clear she wouldn’t get even a 1% return.
Beyond a very conservative purchase order, Birchbox cannot quantify a
significant return to brands despite their huge subscriber base. This is a
flawed, inequitable method of doing business with brands since it puts many
brands in financial jeopardy. Having a large subscriber base doesn’t
necessarily yield a successful business. A successful business invests in its
supplier ecosystem, it doesn’t destroy it.

