We believe that IoT will soon play a pivotal role in driving retail engagement with the end customer by enabling an enhanced subscription model. Armed with live data collected from customers via connected devices, the e-commerce industry will improve its ability to address issues related to inventory management and delivery.
Subscription model challenges
As noted, the subscription model has been a boon to many retailers, but it is far from perfect; under this model, challenges that have long faced retailers still exist:
- Inventory management and fulfillment. To a certain extent, managing inventory becomes easier and more predictable with subscriptions. But under this system, fluctuations caused by fads and consumer fickleness, especially for perishable items related to dietary needs, can make it difficult and expensive to maintain inventory as consumer tastes and subscription orders change. Dead stock and slow turnover loom as particular risks.
- Delivery schedules. Delivery schedules are a key contributor to logistics cost. Under the subscription model, setting fixed times for delivery is more efficient for retailers than one-time orders. But what about better aligning deliveries to real-world consumption? What about times when the customer goes on vacation and neglects to proactively notify the retailer? As noted, consumers demand flexibility in their subscriptions; the step beyond this is proactive anticipation of changes in needs, and smart devices can help provide this.
- Data security. Subscriptions require that customers provide payment details for ongoing billing. As with e-commerce in general, such data storage comes with regulatory and security requirements. In addition, usage data must be handled appropriately while being shared internally for product insights.
Interventions supported by IoT and predictive capabilities that can address subscription-model challenges include:
- Collecting real-time data at the point of user consumption
- Offering greater personalization of products and subscriptions
Adapting predictive maintenance to CPG usage
Because the application of IoT to the subscription model is a nascent evolution, when exploring the concept with clients we find it helpful to apply lessons learned in implementing predictive maintenance solutions. We worked with a US-based chain that found it difficult to manage its inventory of point-of-sale and billing systems, kitchen equipment and other items due to unpredictable service issues and failures.
We helped the client develop a process to better maintain store equipment inventory and improve service efficiency, mapping equipment inventory to historical data of individual stores’ problems to develop a failure-likelihood pattern.
This predictive model supported an improved customer experience by reducing store downtime, and the increased visibility into equipment performance and service needs helped implement preemptive capacity management.
We believe that a similar model can improve the customer experience in the CPG subscription arena.
Enabling subscription orders to be fulfilled based on real-time data captured through smart devices elevates the experience for customers and retail companies alike. We’ve dubbed this hypothetical solution to monitoring consumption at the source the “connected kitchen shelf.”
It would ensure that inventory was managed more effectively by using live data to keep tabs on the products being stored, their weight (that is, the quantity remaining) and customer usage patterns.
The connected kitchen shelf could be integrated into smart home solutions and devices to place orders based on customer usage. A sensor-enabled system could offer the following features:
1 Unified ecosystem.
Smart devices could be operated through an app that can allow the user to monitor and control various parameters, such as refrigerator temperature, product usage and their current subscription levels and frequency.
2 Data insights.
Collected usage data could be analyzed by vendors to identify patterns and anticipate customer expectations to support product or service recommendations.
3 Product marketplace.
A connected app could be further extended to brands and e-commerce providers to extend promotional offers.
We’re seeing IoT progress on a few fronts, such as the rise of “smart caps” for prescription medication bottles. With smart caps, Bluetooth-enabled caps let users program reminders, and the bottle records usage based on whether the cap has been removed. Clearly, one of their primary benefits is the ability to proactively order refills so that users — notably the elderly or those who cannot or should not leave home — never run out of critical meds.
In addition to offering an enhanced customer experience, peripheral benefits that emerge from connected devices include:
- Smart inventory management. Inventory and delivery can be controlled easily by e-commerce companies, thanks to the live data feed on the subscribed products. In turn, usage data shared with manufacturers could be used as an input for sourcing products and planning delivery. Moreover, retailers could change pricing strategies and create bundled offers based on usage data.
- Cross- and up-selling. Collected data could also be used to suggest complementary products or services to customers based on their usage patterns. This would help e-commerce businesses optimize their inventory across categories and product types. Typical examples would include plan upgrades based on higher-than-expected usage, or an increase in the package size of the subscribed product.
- Prototyping and promoting. The product usage data and mix would be critical inputs when designing new products, services and promotions. This would improve the customer experience and result in higher satisfaction levels as retailers developed products with evidence-based features and enhanced usability. IoT devices could also be used to seek customer feedback on highly specific product features.
As the smart-caps example demonstrates, IoT is playing an increasingly pivotal role in driving engagement with customers. In one study, subjects were 13% more likely to adhere to their medication schedules when they used the devices.
We believe that IoT will improve the CPG subscription model through greater personalization and flexibility, thus increasing customer loyalty for forward-looking retailers. The challenge will be to develop IoT devices and systems that appeal to customers and can be easily integrated into their already smart home ecosystems in a secure and non-intrusive format.
To learn more, visit the IoT section of our website or contact us.