Abstract
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Membership upgrade. The revised Target Circle membership program, featuring the new tier Target Circle 360, will put Target in closer competition with Walmart.
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Customer Insights. Subscription models open the door to understanding your customers.
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Profitable integration. Combining AI and analytics with subscription data enables profitability opportunities.
Retail marketers are showing people in other industries the value of data analytics in improving profitability. Retailers are mining data to improve operations and profit margins, influenced by Walmart's extensive use of analytics. Let's take a closer look at how the subscription model works.
The latest trend for retailers, subscriber programs, shows how subscriptions are transforming business models. The introduction of Target's new membership program offers marketing lessons for effectively aligning with customer experience.
Related article: 3 customer experience lessons brands can learn from Amazon
Subscription model: aim for revenue
Target reported a loss in its fourth quarter results. Despite beating Wall Street analysts' profit expectations, Target reported its first annual loss in nearly seven years. Careful shoppers were less likely to purchase discretionary items such as apparel and home goods.
To increase sales, Target announced a new membership marketing strategy that introduces subscription pricing for enhanced services. The new program, Target Circle 360, sits above his other two tiers, each offering a variety of personalized offers and specialty deals for members. Target Circle 360 starts at an introductory annual subscription price of $49.
The Target membership marketing program comes as various retailers implement subscription models to manage customer demand and offer more services to their preferred customers. Subscriptions play a role in calculating the churn rate, or the number of customers who cancel their subscriptions. Subscription metrics help marketers identify their ideal customers. Customers who don't fit the ideal customer profile or whose behavior differs from the ideal should be allowed to churn. Churn analysis is about determining which customers to best serve.
An effective subscription tier model requires precision to support analysis. Marketers need to segment user engagement by frequency and depth of usage based on available data and differentiate between core and casual customers.
Related article: The most powerful model for any business: Subscription
Maintain proper product inventory
Target's membership marketing strategy is an implicit homage to Walmart, the master of inventory management. One of the benefits of the membership program is that it provides an opportunity to improve inventory management. Few retailers are as adept at inventory management as Walmart.
While Walmart was known in the 1990s and early 2000s for aggressively selling consumer products at low prices, its real success lies in its use of analytics to streamline its supply chain and provide real-time It started with maintaining inventory. The result was a highly profitable sales mix and accelerated business expansion.
Other retailers such as Target are also working to catch up to Walmart's model.
Target now has more non-essential items in stock. The company has increased grocery inventory in its stores to adjust for its reliance on discretionary items. This change gives Target an advantage over Walmart, which remains the grocery store sales leader due to its lowest price strategy and intensive use of analytics.
Related article: Analyzing the growth of e-commerce subscription models
Analytics and subscription model = profitability
Analytics is well-suited to a subscription model because real-time data is generated from subscription-related activities. This data does more than just inform your dashboard metrics. This forms the basis for various downstream operations that ultimately provide guidance for more effective business models. It also serves as a starting point for strengthening inventory systems that compete with Walmart standards.
One of the most important outcomes of analysis is identifying retention opportunities. Customer retention is extremely important for retailers and is an important goal for any business. Many companies are adopting subscriptions as a customer retention strategy.
Let's take HP as an example. Bloomberg reported that HP has announced an interesting printer subscription program. Under this program, customers pay a monthly fee for a printer delivered to their home, a printing allowance of 20 pages per month, auto-shipped ink, and technical support. Pricing starts at $6.99, with higher plans available up to $35.99 for 700 pages per month.
HP has introduced a plan to attract people who feel that managing a printer is unnecessarily complicated, but still need printing services from time to time in their home or office. Although HP still has the largest share of the printer market, printer sales have been steadily declining over the years. Subscription services allow HP to offer new conveniences to customers while adapting to changing customer segments.
Related article: Lessons learned from Target's Pride campaign failures
Subscribe to the correct lessons in the subscription model
Similar to HP's example, subscription models and membership plans can educate teams on how to best align operations to support the customer experience. Here are three key benefits and lessons learned from this approach.
Related article: Why marketers should consider freemium business models
Understand the impact on customer experience KPIs
One aspect of maintaining robust subscription analytics is having a system in place that provides early warning of changes in key performance indicators (KPIs). KPIs provide a reference point for tracking and comparing progress toward your overall business strategy.
Determine the impact on sales-related KPIs and identify emerging trends in the sales of your products and services. There are various ways to analyze KPI-related data. When used in regression analysis, marketers can determine whether there is a correlation between subscriber interest in a particular product. This allows you to create personalization campaigns and reduce customer churn faster. Naturally, for regular changes in metrics related to a particular KPI, dashboards and team alerts will be required.
Create early warnings about customer experience
The big risk is understanding the inflection point for consumer consumption through paid subscription models. Revenue growth with a subscription model is not infinite. Today's customers face ongoing cost-of-living challenges when determining how to maximize the value of their dollar. Spending on eating out is compared with spending on essentials like toilet paper, soap, and dog food. The question arises whether there are too many newspaper subscriptions. As a result, everyone is looking for ways to reduce household discretionary spending.
Marketers can analyze analytics related to apps, websites, or POS devices as indicators of demand. KPI-related metrics often take the form of time series data and can be visualized as time series graphs. Time series data analysis acts as an early warning system that indicates the frequency of service orders by customers. Advanced analytics, such as the time series analysis described in this post, can reveal whether growth trends are significant and sustainable, and whether, for example, sales growth should be reinforced with additional marketing efforts. You can see what's going on.
Creating an environment for services that utilize AI
The subscription model creates a powerful environment for experimenting with customer-centric AI solutions. AI solutions are trained on relatively fixed datasets. For businesses, this dataset could be product or service information.
AI developers and data engineers are learning how to enrich their training data and guide their models to produce more accurate output. This has led to increased interest in search augmented generation (RAG). RAGs are systems that typically include vector database storage in a variety of media to improve large language models by adding additional query information to increase the relevance of answers to specific prompts.
Many companies are experimenting with RAGs that include dynamic information to help AI assistants provide more accurate recommendations. For example, imagine a database that stores weather data that allows an AI assistant to tailor product recommendations based on the weather near a customer's preferred stores.
According to the company's website, Target is exploring customer-centric AI solutions to improve customer service satisfaction, whether they shop in-store or online. Segmenting your customers through a subscription model can help you customize these AI efforts. Subscription-related information such as products subscribed to by a customer, add-ons activated, activation and cancellation dates are available in her RAG system of AI assistants serving a specific customer membership group.
Today's subscription models simplify managing the customer experience by creating an environment for improved service quality, churn measurement, and personalized customer interactions. Target's adjustments to its membership marketing model serve as a reminder not to take these models for granted, especially as they become increasingly tied to analytics and AI opportunities.
