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CHICAGO (Reuters) - At Harvard, Katia Beauchamp coveted the makeup samples her friend and fellow student, Hayley Barna, regularly received from a friend in the fashion media industry. That envy turned into the idea for Birchbox, a creative makeup startup the business school grads officially launched this fall.
The venture is a twist on the direct-selling model pioneered by catalog company Avon, as Birchbox offers its cosmetics-starved clientele a sample kit of upscale lipsticks, shampoos, skincare and the like for a $10 monthly fee. They pair the products with advice, offered via their website (www.birchbox.com), on how to apply the samples within the comfort of their own homes.
"We think it's so hard to make a decision that a lot of people just opt out of the process," said Beauchamp about the sometimes intimidating situation of trying on cosmetics in department stores in front of pushy salespeople. "How could we do it in a way that is like your friend telling you about the product, the way your friend would teach you, so you would trust her?"
Each month Birchbox sends subscribers an attractive, hand-packaged box of four or five samples from established brands such as NARS, Laura Mercier and Benefit, as well as from lesser-known prestige labels - some from foreign makers - that they might be hard pressed to find in most U.S. department stores.
"We're very thoughtful about what is in the mix each month," said Beauchamp, who turns 28 this week. The company doesn't allow members to opt out of any categories, but it does customize for products that vary based on a user's personal traits such as skin type and hair color, she said.
Birchbox also provides supplemental content in an online "Haute Box" of beauty information, designed as an alternative to the traditional fashion magazine. Subscribers can view online demos, articles and blogs, walking them through the how-to's of product use. If they like something, they can purchase a full-size quantity directly from Birchbox.
To entice manufacturers to participate, Birchbox asks for detailed feedback on its samples through customer surveys, one of several methods that can earn members loyalty points they can use as credit toward purchases.
"It's like a huge focus group, if you think about it," said Beauchamp, adding that market research will likely become a Birchbox revenue stream in addition to memberships and sales of full-size products. "A usual focus group is 20 women; our sample size is 2,600 and growing."
Brands appear eager to put their goods into the hands of pre-qualified users. Historically most samples have been given to customers in stores as an add-on to sales of regularly packaged products where there is no channel for customer feedback.
"People are paying for their samples, so it's a motivated customer," said Ellen Greenwald, chief marketing officer for New York-based Gurwitch Products LLC, maker of cosmetics under the Laura Mercier brand.
Laura Mercier is awaiting customer responses from samples of a lip product it provided for Birchbox's October offering; the company plans to test additional products in December.
"We're getting in on the ground floor of something that's high end, which is very important to us," said Greenwald.
Beauchamp and Barna began building the Birchbox website with just $10,000 of their own investment and another $10,000 in award money from a Harvard-sponsored business plan contest.
Birchbox is already looking to expand, helped by a round of $1.4 million in outside funding that was led by prominent venture capital firms First Round Capital and Accel Partners.
"Instead of discovering (products) in a magazine and then going to a store to buy them, why not discover them from a trusted resource that provides them to you," said First Round principal partner Phineas Barnes.
First Round was attracted to Birchbox's targeted sampling methods, he added, noting there is potential to apply it to other consumer industries.
Whether or not Birchbox can gain scale before a larger rival attempts to replicate its methods remains to be seen, said Gene Alvarez, vice president of CRM and ecommerce for the market research firm Gartner.
"It's an interesting model," he said. "But there are challenges. Sephora.com (the online presence of a leading global perfume and cosmetics chain) could add samples easily. The barrier to entry for copying that piece is low."
That doesn't deter Beauchamp, who is gearing up for what she expects to be a robust holiday season for memberships.
"We fully intend on growing and we want to be smart about how we do it," she said. "We're going to work as hard as we can to make that happen."