Feature
The Gist
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Membership upgrade. A revised Target Circle membership program, featuring a new tier Target Circle 360, puts Target in closer competition with Walmart.
Customer insights. Subscription models open the door for understanding your customers.
Profitable integration. Combining AI and analytics with subscription data makes profitability opportunities possible.
Retail marketers have shown those in other industries the value of data analytics in boosting profitability. Retailers, influenced by Walmart's extensive use of analytics, are mining their data to enhance operations and profit margins. Let’s take a closer look at how subscription models work.
The latest trend among retailers, subscription membership programs, illustrates how subscriptions are transforming business models. Target's introduction of a new membership program offers marketing lessons on effectively aligning with customer experiences.
Related Article: 3 Customer Experience Lessons Brands Can Learn From Amazon
Subscription Models: Target the Earnings
Target reported a loss for its fourth-quarter financial results. Despite beating Wall Street analysts' profit estimates, Target experienced its first annual loss in nearly seven years. Cautious shoppers were less inclined to buy discretionary items, such as apparel and home goods.
To boost sales, Target unveiled a new membership marketing strategy introducing subscription pricing for enhanced services. The new program, Target Circle 360, ranks above two other tiers, each offering varying personalized offers and specialty deals for members. Target Circle 360 is launching with an introductory annual subscription price of $49.
The Target membership marketing program arrives as various retailers introduce subscription models to manage customer demand and offer more services to preferred customers. Subscriptions play a role in calculating churn rate — the number of customers who cancel a subscription. Having subscription metrics assists marketers in identifying the ideal customer. Customers who do not fit the ideal customer profile or behave differently from it should be allowed to churn. Churn analysis is about determining which customers to serve best.
Effective subscription tier models require precision in supporting analytics. Marketers need to segment user engagement by frequency or depth of usage based on available data to distinguish core customers from casual ones.
Related Article: The Most Powerful Model for Any Business: Subscription
Keeping the Right Products In Stock
Target’s membership marketing strategy is an implied nod to the master of inventory management, Walmart. One benefit of membership programs is that they provide opportunities for better inventory management. Few retailers have become as proficient at inventory management as Walmart has.
Although Walmart was known for its aggressively low prices on consumer products during the 1990s and early 2000s, its true success grew from using analytics to streamline its supply chain to maintain a real-time inventory. The result was a profitable sales mix that fueled its expansion.
Other retailers, like Target, are working to catch up on Walmart’s model.
Target currently stocks more non-essential merchandise. It has stocked more groceries at its stores to adjust its reliance on discretionary goods. The change has better positioned Target against Walmart, yet Walmart remains the sales leader among grocers through its lowest-price strategy and intensive usage of analytics.
Related Article: Analyzing the Growth of the Ecommerce Subscription Model
Analytics and Subscription Models = Profitability
Analytics is well-suited for subscription models because real-time data is generated from subscription-related activities. This data can do more than inform dashboard metrics; it forms the basis for various downstream operations that ultimately offer more effective business model guidance. It can also serve as a springboard for elevating an inventory system to compete with Walmart's standards.
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One of the most significant outcomes of analytics is identifying retention opportunities. Customer retention is crucial for retailers and is a key objective for any business. Many businesses are adopting subscriptions as a strategy for customer retention.
Take HP as an example. Bloomberg reported that HP announced an intriguing printer subscription program where customers pay a monthly fee for a printer shipped to their home, a 20-page print allowance per month, automatically shipped ink and technical support. The cost starts at $6.99, with higher-tier plans available, up to $35.99 for 700 pages a month.
HP introduced the plan to attract people who find printers unnecessarily complex to manage but still need occasional printing services at home or in the office. HP still commands the lion’s share of the printer market, but printer sales have been steadily declining over the years. A subscription service allows HP to offer new convenience to its customers while adapting to changes in customer segments.
Related Article: Lessons From Target's Missteps in Its Pride Campaign
Subscribing to the Right Lessons of Subscription Models
Like the HP example, subscription models and membership plans can enlighten teams on how to best align operations to support customer experiences. Here are three key benefits and lessons that can result from this approach.
Related Article: Why Marketers Should Consider the Freemium Business Model
Understand the Impacts to the Customer Experience KPIs
One aspect of maintaining a solid subscription analysis is to have an early warning system for changes in a key performance indicator (KPI). KPIs provide a reference point to track and compare progress toward an overall business strategy.
You can determine the impact on a sales-related KPI or identify emerging trends in selling a product or service. There are many ways to analyze KPI-related data. If used for regression analysis, marketers can determine if there is a correlation between subscriber interests in certain products over time. This can help create personalization campaigns and reduce customer churn more quickly. Naturally, you'll want a dashboard and team alerts for periodic changes in metrics related to a given KPI.
Develop Early Warnings About Customer Experience
The big risk is understanding the inflection point for consumer consumption through paid subscription models. Revenue growth from subscription models is not indefinite. Today's customers face ongoing cost-of-living challenges in deciding how to maximize the value of each dollar. Comparisons are being made between spending on dining out and spending on essentials like toilet paper, soap and dog food. Questions arise about how many newspaper subscriptions are too many. As a result, everyone is looking for ways to reduce household discretionary spending.
Marketers can analyze analytics related to apps, websites, or point-of-sale devices as an indicator of demand. Often, KPI-related metrics take the form of time series data, which can be visualized as a time series chart. Time series data analysis can serve as an early warning system, indicating the frequency of service orders by customers. Advanced analytics, such as the time series analysis explained in this post, can reveal whether growth trends are significant and sustainable, indicating whether a sales uptick should be bolstered with additional marketing efforts, for example.
Establish Environment for AI-Based Services
Subscription models create a strong environment for experimenting with customer-centric AI solutions. AI solutions are trained on a relatively fixed dataset — for a business, this dataset could be product or service information.
AI developers and data engineers are learning how to enhance the training data, guiding the model to produce more accurate outputs. This is driving the high interest in Retrieval Augmented Generation (RAG). RAGs are systems, typically involving vector database storage of various media, that improve a large language model by adding additional query information to increase the relevance of an answer for a given prompt.
Many companies are experimenting with RAGs containing dynamic information to enable AI assistants to provide more accurate suggestions. For example, imagine a database storing weather data that allows an AI assistant to adjust its product suggestions based on the weather near a customer's preferred store.
According to its website, Target is exploring customer-centric AI solutions to enhance service satisfaction for its customers, whether shopping in-store or online. Segmenting customers through subscription models can help tailor these AI initiatives. Subscription-related information, such as the products customers have subscribed to, add-ons activated, and activation and cancellation dates, can be used in an RAG system for an AI assistant serving a specific customer membership group.
Today's subscription models simplify the management of customer experiences by creating an environment for improved service quality, churn measurement and personalized customer treatment. Target's adjustment of its membership marketing model serves as a reminder not to take these models for granted, especially as they become increasingly tied to analytics and AI opportunities.
