Sellers of beauty boxes pass the lipstick test

Cash-strapped customers of the growing number of subscription retailers hand over £10 a month, and a mine of data, for the service.

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The lipstick test is often seen as a sign of how well the economy is faring. When times are bad, women apparently buy more small luxuries such as lipsticks. Estée Lauder’s chairman Leonard Lauder even created the term “lipstick index” to describe this phenomenon in 2001 after the dotcom bubble burst in the late nineties.

So it’s no surprise that a range of innovative businesses have sprung up to service the need for small treats. From mail order “beauty boxes” to monthly bespoke fashion deliveries such as Stylistpick, it seems that giving consumers breaks from normality is paying off for many brands.

Yet there are some key differences between the 2001 lipsticks and the 2012 treats. These can be summed up in three words – regularity, data and psychology – that will help ensure that this new range of treat brands become ongoing moneyspinners.

GlossyBox, Latest in Beauty, Carmine and JolieBox are just a few of the “beauty boxes” that have been launched in the UK in a matter of months. A beauty box is a subscription service where for a payment each month, someone receives a box of sample travel and full-size cosmetics and toiletry products.

A typical beauty box costs about £10 for each monthly delivery. GlossyBox promises five miniature items from luxury brands including Illamasqua and Stila. In JolieBox, you can find Korres and Yon-Ka.

Beauty boxes are clever because consumers have to sign up to monthly packages, meaning that the unpredictability of the treat purchase is largely taken away. It is clear to the brand how much income it will get from subscribers. Meanwhile, at just £10 or so for multiple items – the cost of a high-street lipstick – consumers consider it a justifiable expense.

The data component of the beauty box business is also extremely smart. Many of the beauty box companies follow the same corporate model. Take GlossyBox. Customers pay to receive samples. They hand over data about their personal attributes and preferences so that they can be sent the correct products. After they receive their box, the customer can order a full-size version of any items from the company’s website. Or they can earn points towards free products by filling in a feedback form.

Imagine making the pitch to your chief executive: “Rather than spending cash trialling things with unpaid volunteers, we will get our customers to pay us for trying our products. Then these consumers will tell us what they think of them, saving us millions in market research. And we can even sell them more of the products directly if they like them enough.”

This business model is not entirely new, of course. I worked in Australia almost a decade ago for a sampling company that did exactlythis. It was paid commission by fast-moving consumer goods brands to place their products in its boxes – everything from tea bags to washing-up liquid.

It was also paid handsomely by consumers to receive the items. It was essentially a data shop with a large postage budget.

But the beauty boxes are a new breed of this model. They combine the data gathering and market research with an insight into how people want to shop in harsh economic times. They understand the psychology of consumers who, until four years ago, were used to having large amounts of disposable income and still want access to that lifestyle.

This style of business goes beyond the innovative companies behind beauty boxes. Online fashion service Stylistpick takes a similar tack. Consumers sign up to pay £39.95 each month and select items from a list handpicked by an automated stylist process. Users choose which celebrity styles they most admire and a bespoke online showroom is presented to them.

The service follows the same principles as the beauty boxes. It is a regular monthly treat; it provides the retailer with data about customers’ preferences; and it taps into the psychology of luxury goods, with a personal shopping service and adherence to celebrity trends.

Stylistpick has 600,000 members after just a year of operation, claiming a tripling of quarter-on-quarter revenue at the end of 2011. It has been so successful that its US competitor Shoedazzle has given up on the UK market, although among its rivals remain Shoes4You, JustFabulous and BeachMint.

So far, it appears most of these services are in the cosmetics and fashion area. But there are also similar services for chocolate or coffee emerging. A physical store, SampleTrend, which offers samples to consumers for an annual fee of £60, has opened on London’s Goodge Street.

This model works for any sector where the products are not strictly necessary in consumers’ lives but still desirable. Unlike traditional mail order services, these clever companies use the psychology of how we live today to generate demand. The treat model looks set to stay with us throughout 2012, at least until the economy improves. In so many ways, it is fair to say that these services are right on the money.

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