Businessmodel of The Honest Company

Customer Segments

The Honest Company has a mass market business model, with no significant differentiation between customers. The company targets its products at parents who want safe products for their children.

Value Proposition

The Honest Company offers four primary value propositions: convenience, cost reduction, risk reduction, and brand/status.

The company offers convenience through its membership program. The program enables customers to have essential products such as diapers delivered to them on a regular basis. This helps ensure that parents will always have necessary supplies on hand and will not need to rush out to buy them.

The company reduces costs by providing a number of deals. It offers a free trial for new customers, which enables them to try a “Discovery Kit” of products in one of two categories at no cost. The categories are Diapers & Wipes and Personal Care & Home Cleaning Products. The company also offers free shipping for orders totaling more than $50; gives customers a $20 account credit when friends they invite make a purchase; and provides exclusive deals through the membership program.

The company reduces risks by offering the “Honestly FREE Guarantee.” This is a commitment it makes to ensuring that its products contain no health-compromising compounds or chemicals. Specifically, it promises the following:

• It uses a broad definition of safety that takes into account exposure routes and a broad spectrum of health effects such as teratogenicity, carcinogenicity, neurotoxicity, and allergenicity
• It provides truthful, meaningful, comprehensive lists of ingredients on all product packaging
• It maintains a master list of ingredients it will never use and constantly updates that list
• It stays abreast of developments in the world of toxicology to ensure that it is up-to-date The company has established a strong brand. It automatically launched with a high-profile due to the fame of its main founder, actress Jessica Alba. However, it has also received many honors as a result of its success. These include PC Magazine’s Seal of Consumer Approval in Tech, the ACG Award for Social Responsibility, the Allure Best of Beauty Award, and the Pioneer in Sustainability Award given out by the Sustainable Business Council of Los Angeles.

Channels

The Honest Company’s main channel is its website, through which it acquires most customers. Approximately 80% of its sales occur online via its monthly membership program. The company also sells its products in retail stores. The primary chain is Target (and its website), but other chains include: Whole Foods, Magic Beans, The Pump Station, Sprout, Right Start, Buy Buy Baby, Nordstrom, Costco, Gelson’s, Bristol Farms, the Vitamin Shoppe, Baby Earth, Lazy Acres Market, Destination Maternity, A Pea in the Pod, and Motherhood Maternity.

The Honest Company invites interested retailers to contact it regarding opportunities to distribute its products in their outlets. However, it does not currently offer reselling opportunities.

Customer Relationships

The Honest Company’s customer relationship is primarily of a self-service nature. Customers use its products while having limited interaction with employees. The company’s website offers detailed answers to frequently asked questions, and includes a “My Account” section which consumers can use to manage their shopping activity. That said, there is a personal assistance component in the form of phone and e-mail support.

Key Activities

The Honest Company’s business model entails designing, developing, and distributing its products. It outsources the manufacturing of the items to third party contractors in China.

Key Partners

The Honest Company maintains an affiliate marketing program through which it invites third parties to promote the firm through their channels (website, mobile apps, etc.). The company pays those parties a commission if the referral leads to a product sale. Honest also actively invites vendors who have a strong interest in safe products to contact it about partnership opportunities.

Key Resources

The Honest Company’s main resource is its staff of scientists and industry experts who provide expertise and formulate its offerings to ensure they are safe.  As a relatively new startup it has relied heavily on funding from outside parties, raising $222 million from nine investors as of August 2015.

Cost Structure

The Honest Company has a cost-driven structure, aiming to minimize expenses through low-price value propositions. Its biggest cost driver is likely cost of goods sold, a variable cost. Other major drivers are in the areas of product development and sales/marketing, also fixed costs.

Revenue Streams

The Honest Company has two revenue streams:

Product Sale Revenues – Revenues the company generates through sales of its offerings on its website and in retail stores.

Subscription Revenues – Revenues the company generates through its monthly membership program, which provides four bundles: the Diapers & Wipes Bundle,  the Essentials Bundle, the Health & Wellness Bundle, and the Organic Infant Formula + DHA Bundle.