There is nothing quite like the element of a surprise. And blind boxes bring that thrill to the shopping experience. A blind box is a product that contains a mystery item, typically a single toy in a series, like Hello Kitty, Harry Potter or Star Wars. But blind box buyers don’t know exactly which toy they’re buying, only that the box contains an item from a particular series of toys. They could be unwrapping a rare and highly sought-after item -- or finding that they’ve bought a duplicate of something they already own.

“The possibility of finding something rare is a big part of the thrill,” says Shreyas Sekar, a professor of operations at the University of Toronto.  “You open it and see what's inside. It might have a rare toy that you’d be so happy to find, but you just don’t know. Experiences like this  fall under hedonistic commerce. You make shopping fun, engaging and social.”

Originating in East Asia, the trend is now catching on in North America. According to various research firms, the global market is already worth billions, and it’s growing. But what makes a good blind box design?

“It is this notion of rarity,” says Sekar. “The idea of making an item rare and pumping up its value has been around for millennia. Blind boxes do this with toys and collectibles.”

Sekar gives the example of a blind box sold by the Chinese toy company Pop Mart, an industry leader. Pop Mart produces a series of Harry Potter figurines that include twelve of the characters from the series of young adult fiction books about wizards. Each blind box in the series contains one of twelve “regular” figurines or a special “secret” figurine of the series’ titular character.  And while there is a one in twelve chance of obtaining the more common figurines, there is only a one in 144 chance of finding the secret one. Its rarity gives the Harry Potter figurine added value -- even though each of the toys cost about the same to manufacture.

According to data from Qingdao, a marketplace for trading collectibles, people are willing to pay more than 10 times as much for a rare toy in general. And many are willing to buy a blind box based largely on the mere possibility that they might obtain one. But to draw in customers, blind box designers need to get the balance right.

Working with professor Ming Hu and Taojie Qin, a PhD student from Southwestern University of Finance and Economics in China, Sekar devised a model to understand what type of products are most suitable for sale via blind box, and how rare special items should be to keep consumers coming back.

“Should the rare items be twice as rare? Four times? Ten times?” asks Sekar. “You want special items to be rare enough that people covet them. On the other hand, if you make it too rare, no one will actually have the item. You don’t want people to think they have little chance to actually get it, and give up on purchasing your blind box.”

The blind box sales model encourages buyers to make multiple purchases, and as a result, they may buy some toys or collectibles they otherwise would not.

“This can be more profitable than selling each item individually, but it works best in specific circumstances,” says Hu, a professor of operations management at the Rotman School of Management. “Our model finds that when items are priced low, it helps drive sales -- people buy the blind box again and again. Some hope to find the rare item, and others want to collect the entire set. And they are willing to keep buying a blind box in pursuit of their goal.”

At the other end of the price spectrum, high prices can drive profitability -- even with lower sales volumes. Toys and collectibles have high profit margins, Sekar says. So, more expensive blind boxes can have a high enough margin to justify using the model. But in the modest middle of the price spectrum -- where sales are not as high as they are for low-priced blind boxes, and margins are not as juicy as for high-priced ones -- a blind box is not necessarily more profitable than selling items individually.

“A blind box works best when people buy a lot of the product, or when profit per sale is very high,” says Sekar. “The model allows you to control an item’s rarity in an organic way and charge a premium for that rarity.”

Sekar, Hu and Qin also sound a note of caution against other possible costs of the blind box model. Making multiple purchases of the same product has an environmental impact, and blind boxes mimic gambling, which could have social costs down the road.

“It gamifies commerce, and that could be a driving force behind the popularity of blind boxes,” says Hu. “It’s a buzz to open a blind box, so why not? The model is a little like a lottery, with a random probability of getting something valuable. But unlike a lottery, it is not regulated as gambling, and some people are worried that blind boxes could normalize gambling for children.”