3 Ways To Manage Profitability and Churn Rates More Effectively for Subscription Services

More and more big box brands are entering in the subscription space, and I don’t see that stopping anytime soon.  Businesses are flocking to subscription services for multiple reasons.  It increases customer retention, diversifies revenue, drives more e-commerce and in-store sales, and provides more predictability when forecasting inventory & sales. All of these factors are big drivers for entering the subscription space, but quite often brands fall short when managing margin and profits. We’re now seeing an increase in artificial-intelligence, cost-effective new product discovery, and an all-encompassing customer experience, as popular solutions to combating high churn rates and profit management.

Artificial Intelligence

The main profit concern for the continuity space pertains to churn rate.  That’s why one of the biggest investments we’re going to see from these subscription services is in AI (Artificial Intelligence).  With churn rate being amongst the largest issues that brands face, AI will help them more accurately predict the wants of their customers, ultimately decreasing their churn rate.  AI is the most effective and efficient way to personalize a service…which seems a bit backwards, I know.  Most of the time, we’d think that an individual person would be better at personalization, but AI has the ability to identify patterns in large data sets to predict what the customer wants before the customer knows they want it.  Not only does AI decrease overall cost, but its more scalable and provides more accurate predictions.  That’s why Stitch Fix has been combining humans, AI and data scientists for years to create incredibly accurate recommendations. This helps them achieve a low churn rate and very happy customers.  As AI continues to become more affordable, we’re going to see more brands start combining AI and human forces as well.

New Product Discovery

Subscription box services are going to become the way people experience new products, but it’s not all about the new products.  If we’ve learned anything from the success of movies, it’s that people like to be able to relate to (and almost cling to) what they already know and like.  Think about how core Star Wars fans loved The Force Awakens over any of the Episodes 1-3.  This is because Star Wars brought back the core cast of characters that their fan base had grown to love, a story plot they could relate to, and a little bit new, to set up for something bigger.  Subscription services should be set up the same way.

The key to lowering churn rate while encouraging new product discovery is to keep some core, familiar items in the box, while adding 1-2 new products for discovery. This should all be delivered with an experience they know and expect from your brand. The product discovery item(s) should be trendy and buzzworthy, as opposed to left over inventory that you’re trying to get rid of. Including products people didn’t like in the first place is a sure way to get people to cancel.  Subscription boxes are perfect for testing new product lines, new colors, or just gaining momentum for an existing product line that hasn’t received a lot of marketing attention. 

Subscription boxes also help lower costs for new product discovery.  Many times, companies give away free product or samples for coming into the store.  Sometimes, the customer doesn’t even need to even make a purchase to qualify.  By including these samples in the subscription box, you’re at least able to recoup some of the investment, therefore reducing the overall cost of the product discovery phase of the product line.

Customer Experience

Subscription boxes & services are going to start creating an overall customer experience from doorstep to ecommerce to driving in-store sales.  This goes back to my previous point about movies.  People relate to a plot they are familiar with, so make sure your all-encompassing experience matches your brand image.

More big brick & mortar brands are creating subscription services similar to the Sephora & Play! or Nordstrom & Trunk Club.  These relationships make sense because customers can become immersed in a quality experience starting with the subscription box in their own home. Some boxes include an in-store coupon or free experience, like a makeover for coming to the store.  And we all know that when we drive traffic in-store, you increase impulse purchases.  Others can encourage customers to interact with their app or Instagram account for greater brand loyalty.  Brands like Birchbox boosts the purchase of full-sized products that the customer experiences through their box on their ecommerce site. 

There are so many benefits to coupling a subscription service delivered to your door with quality products your customer wants and an interactive experience in other facets of your business. A quality customer experience will lower your churn rate, diversify your revenue stream and increase your average Lifetime Value.   

 

 

 

Sources:

http://www.computerworld.com/article/3067264/artificial-intelligence/at-stitch-fix-data-scientists-and-ai-become-personal-stylists.html

http://sloanreview.mit.edu/article/using-analytics-and-ai-subscription-e-commerce-has-personalized-marketing-all-boxed-up/