Why AI-powered subscriptions are the future
Kyle Beldoch |
Artificial intelligence (AI) is on the precipice of revolutionizing eCommerce — especially subscriptions. Despite AI’s growing popularity, however, few merchants understand the new tech, much less how they can successfully incorporate it into their subscription program.
To help you, we’ve collected everything you need to know about AI, from what exactly it is to ways you can use it to create a superior subscription program. By the time you finish this post, you’ll understand why AI-powered subscriptions are the future.
What Is Artificial Intelligence?
Before we go further, we should clear something up: When we speak about artificial intelligence we aren’t referring to robots like the Terminator, Johnny 5, or Ultron. Instead, we’re referring to an area of computer science that makes machines do tasks that require human-like intelligence. This includes learning from experience and problem solving.
The majority of AI applications you hear about in the news refers to a category of algorithms known as machine learning. According to MIT Technology Review, “these algorithms use statistics to find patterns in massive amounts of data. They then use those patterns to make predictions.”
As an illustration, Netflix uses machine learning to recommend movies and shows to their subscribers. In other words, Netflix analyzes their customers’ viewing habits to offer them tailored content.
For the purposes of this blog, when we use the term AI, we are referring to machine learning.
Why Is AI Perfect for Subscriptions?
As mentioned in the previous section, AI requires massive amounts of data to make accurate predictions. This requirement aligns perfectly with a subscription business model.
Subscription merchants have an ongoing relationship with their customers. As a result, they’re able to collect new data with each recurring order and rapidly improve their predictive algorithms.
Put another way, subscription merchants generate and have more access to customer data than organizations without subscription offerings.
AI Uses for Subscriptions
AI’s potential is enormous. However, it is an emerging technology. In the subscription space today, highly sophisticated merchants are starting to use AI predominantly for churn mitigation. In the future, we expect to see new applications for AI, including the potential use of it to deliver recommendations.
To understand why AI is such a powerful churn mitigation tool, it’s necessary to know why shoppers leave subscription programs in the first place.
The primary reason for churn is overstock. In fact, 32% of all subscription cancelations are because subscribers have too much product on hand.
What’s more, most subscribers report that they would stay in a subscription program if it was easier to adjust their order cadence. Internal Ordergroove data shows that 47% of customers who left a subscription due to overstock would have stayed if they could have paused or skipped an order.
Through AI, merchants can analyze subscriber data to determine whether a shopper is at risk of churn because of overstock and take action to remedy the situation.
For example, Ordergroove uses AI to anticipate when a subscriber is at risk of churn due to overstock and sends them a message offering them the option to skip their next order. Our data shows that this preemptive communication can reduce churn by as much as 17%.
It’s worth noting that many subscription platforms offer the ability for consumers to skip, pause, or swap products, but those capabilities alone are not enough to combat churn. The AI element is what allows for proactive communication with the right customers at the right time.
AI-driven recommendations are uncommon in the subscription space. In the next several years, merchants may be able to use AI to dynamically serve shoppers content based on their previous actions, browsing behavior, purchase history, and personal data.
This could include:
- Customized product recommendations: By analyzing a subscriber’s purchase history, merchants will be able to offer their customers products that better match their preferences.
- Onboarding quizzes: AI-powered onboarding quizzes will ensure subscribers’ expectations are met by recommending an initial product or service that aligns with their specific needs.
- Customized promotional incentives: Shoppers’ needs are not monolithic. AI-powered incentives will match subscribers with promotions that are more likely to lead to a conversion. For example, some shoppers want a discount, while others prefer a free gift.
Artificial intelligence is a powerful new technology. Leading subscription merchants are already using it to mitigate churn and extend the lifetime value of their subscribers. Soon, this new tech will be a must-have capability to compete in a crowded marketplace.