We’ve already explored how AI is changing the ecommerce sector, but another area in which artificial intelligence is increasingly being leveraged is the subscription industry. Over the last decade, subscription services have become so widespread that now almost every software company is moving in that direction.
The subscription economy is fundamentally changing the way consumers buy products and services, and new subscription-based business models like Software-as-a-Service (SaaS), Content-as-a-Service (CaaS), and Access-as-a-Service (AaaS) have made it easier than ever for companies to shift from one-off purchases to a recurring revenue model.
AI, AR, VR, and other emerging technologies have all aided the rise of subscriptions across industries. But how exactly is artificial intelligence helping to drive forward the subscription economy? And why are AI-powered subscription models the future?
Why consumers are diving into subscription services
Why are consumers increasingly choosing subscription services over one-time sales? A few reasons stand out as primary drivers behind this trend.
- We’re living in a digital world: Many consumers are opting for digital versions of physical products. Several subscription services only offer their products as digital versions, which makes transitioning from a one-time sale model much easier for businesses.
- We’re becoming more budget-conscious: Consumers are becoming increasingly careful with their spending, and subscription services can help meet that demand by offering a range of flexible, affordable pricing models.
- We’re looking for convenience: In our increasingly busy and chaotic lives, subscription models introduce convenience by automating the purchase of commodities and services we use regularly.
- We’re overwhelmed by choice: With so much choice in the marketplace, subscription services can help make buying easier for consumers.
- We value personalization: Subscription-based businesses can offer a level of personalization that traditional retail businesses can’t, offering a tailored experience that’s more likely to promote long-term loyalty.
For these reasons and more, the subscription industry will continue to see accelerated growth in the coming years, as more consumers come to rely on subscription-based services — and this growth will only be possible through leveraging technologies such as AI.
The rise of AI-powered subscriptions
It’s predicted that AI will contribute over $15 trillion to the global economy by 2030 (that’s more than the current output of China and India combined), so it’s clear that its impact across all industries will be gargantuan in the coming years.
Retailers of all types will benefit from AI (through AI, they’ll be able to further enhance the user experience, make intelligent recommendations, streamline customer support through chatbots, and create more personalized interactions), but subscription-based retailers (whether they offer physical products or a SaaS-based business model) will especially reap the benefits of AI’s advancing capabilities.
The subscription economy itself is expected to reach $1.5 trillion by 2025, as we progressively move away from physical ownership of products. AI is already playing a crucial role in this transition towards a subscription-based model: as AI becomes increasingly democratized, this makes it easier for businesses of all sizes to adopt AI-powered technologies.
Enabling a new generation of highly intelligent and flexible subscription-based models that benefit both the business and the consumer, AI-powered subscriptions will become the subscriptions of the future. But how?
How AI is driving the subscription economy
There are a number of ways in which artificial intelligence is helping to facilitate the rapid and continued growth of the subscription industry. From smarter recommendations to automated customer lifecycle management, let’s explore some of the ways in which AI is empowering the subscription economy.
Making relevant recommendations
The most important role of AI in subscription services is to provide personalized recommendations to each customer. AI allows businesses to collect data from customers, analyze that data, and use the insights gained from that data to make intelligent, relevant recommendations that address a customer’s most pressing needs: and that’s significant, since 80% of consumers are more likely to purchase from a business that provides personalized experiences.
Subscription businesses can also use AI for customer segmentation, which helps businesses create custom strategies for each customer segment based on their unique needs. Companies can also use AI to improve customer retention: AI-powered recommendations can help customers receive exactly what they need, while steering clear of unwanted products and services.
The rise of AI-powered recommendations in the B2B space has also made it easier than ever for B2B companies to adopt subscription-based business models: B2B companies can use AI-generated recommendations to reach new customers, create targeted marketing campaigns, and improve customer retention rates.
Automating customer lifecycle management
One of the most taxing parts of operating a subscription-based model is managing the customer lifecycle, which describes how a customer-to-business relationship evolves and progresses over time. In the subscription industry, customer acquisition and retention are key measures of success (the latter, particularly so) and therefore it’s essential to manage every step of the customer lifecycle to keep customers engaged. AI plays a central role in this, as it enables subscription businesses to automate the management of customer lifecycles.
Take subscription management by Chargebee, for example: this subscription management software tool uses a degree of artificial intelligence to help automate the otherwise manual (and colossal) task of subscription lifecycle management; the tool can automatically step in and nudge users toward paid plans when they’re approaching the end of a trial, or let them know when their subscriptions are due for renewal through automated notifications.
Reducing customer churn
Customer churn (sometimes referred to as customer attrition) is essentially the point at which a customer stops using (and therefore paying for) your product or service. Keeping churn rates as low as possible is essential for subscription businesses, as doing so will ensure they’re retaining more customers over the long term. This is another area where AI can be beneficial, for a number of reasons:
- Predicting when churn is likely to occur: By measuring and analyzing customer behavior, AI tools such as DataRobot use data engineering and machine learning algorithms to then predict when a customer is likely to cancel (or consider canceling) their subscription.
- Analyzing why and how churn occurs: A customer may cancel a subscription for a number of reasons, but AI can help subscription businesses understand the most frequent reasons for cancellation, which can help to combat voluntary churn in future.
- Taking preventative action to combat churn: AI not only identifies when, why and how churn occurs, but it can also step in to prevent churn at the point it’s most likely to happen — for example, tools like Tellius reduce churn by offering an incentive before the customer cancels or decides not to renew.
- Identifying and preventing involuntary churn: Involuntary churn usually occurs as a result of a failed payment (due to outdated payment details, for example) and AI can help reduce payment declines by sending automated dunning emails and automatically retrying payments when they’re most likely to succeed.
Generating more leads
Increasingly, B2C and B2B companies can also use AI to generate leads. For B2B businesses specifically, AI-powered lead generation tools enable the automation of the entire lead generation process: B2B businesses can use AI to identify potential customers, create personalized marketing messages for each lead, and distribute those messages across multiple channels.
Using AI-powered segmentation capabilities, B2B companies can target their marketing efforts towards a specific customer segment, while they can also use AI to create personalized sales pitches based on a customer’s unique needs. This can help B2B companies close more sales, regardless of the marketing channel.
The bottom line
AI-powered subscription services have become a huge part of the business landscape. From Software as a Service (SaaS) to Content as a Service (CaaS), and everything in between, AI has played a huge part in the rise of subscription services. The trend towards AI-powered subscription services will only grow in the coming years, and this is because AI will become even more accessible to businesses of all sizes.
As AI matures, we’ll likely see more AI-powered subscription services, encompassing AI-generated recommendations, automated customer lifecycle management, customer churn reduction, and enhanced lead generation.