Recently, I signed up for a subscription box service. Every month I’ll receive a curated selection of various baits and tackle to fuel my fishing obsession. The bait shop comes straight to my door. What a great time to be alive.
If you’re not familiar with the subscription box craze, the model focuses on serving new customers based on their specific interests, such as cooking, fashion, dress socks, ties or, in my case, fishing. After signing up for the subscription level that’s right for you, you sit back and bask in retail perfection.
Putting Customer Data to Work
Most of these services offer an initial discounted purchase and promise a completely flexible subscription model. Ultimately, the goal is to keep you on the subscription list indefinitely.
After calming down from the joyous realization that my birthday will now come 12 times a year, my first thoughts were, “How are they going to keep me? How are they going to keep prying that $26.99 out of my bank account and make sure I don’t become a churn statistic?” The answer for many of these subscription box companies is artificial intelligence, or AI.
Information is a critical element of success for box service providers. They need to know what their customers want, what they like about the service, what problems to avoid and how to improve the service. Several seek feedback directly from their customers. Others allow consumers to return items they don’t want to keep. Additionally, these retailers can access a wealth of customer sentiment that exists on social media, as customers comment and publicly review their boxes. All of these interactions create data that can be used by AI to extract insights about customer preferences. This data informs subscription providers about their customers and helps them to make small, course-correcting tweaks intended to keep their customers from clicking the unsubscribe button.
Keep Your Eye on the AI Target
In a 2018 study, McKinsey investigated the dynamics of the subscription box market and found that customers closely scrutinize the value of these services, and 40 percent end up canceling their subscriptions. In some cases, such as the meal kit category, providers experience a churn rate as high as 70 percent within the first six months. Tuning in to customer preferences and how they affect subscription cancellations is paramount.
The law of diminishing returns applies to AI projects well beyond the monthly box subscription service industry. The importance of measuring your AI projects against your overarching organizational goals is huge. As economist Thomas Sowell puts it, “The law of diminishing returns means that even the most beneficial principle will become harmful if carried far enough.” Even the best AI projects will run their course, so retailers must be ready to shift to the next one as the need arises. As with everything else in life, survival is all about adapting to a changing environment.
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