IoT And The Rise Of Subscription Marketing

The ties that bind consumers to brands are growing stronger. At the same time, however, they are fading into the background, thanks to the Internet of Things (IoT).

Today, a slew of devices, from refrigerators to thermostats, are connecting to the Internet. Soon, the signals from those devices will automate thousands of purchases consumers make. Our running shoes will tell us when they are worn out, and, if we like, they’ll order their own replacements. Our refrigerators will stock themselves. By 2020, Gartner predicts brands will have access to data from 25 billion connected things.

The more signals connected devices throw off, the more the analytics will drive our marketing. As a consequence, marketing will evolve from an attention-seeking model to a subscription model. Brands will own the consumer/supplier relationship and maintain it by using data to automate and deliver goods and services that align with consumer needs.

What will subscription-driven marketing look like for marketers?

We Are A Chevy Family

Driving past a car dealership my father would often say, “We are a Chevy family.” For us, and millions of other brand-loyal households at the time, the question wasn’t which automotive brand we’d choose, but rather when we would buy a new car.

Historically, automotive brands have relied on a long and costly marketing funnel to uncover the timing of that question, albeit with limited precision. The data applied to that funnel has increased exponentially in the last decade, but only recently have car makers begun to use the IoT to capture the most determinative data — the condition of the customer’s current car.

Today’s cars — many of which are connected via the Internet to the manufacturer — are capable of telling both the owner and the dealer when maintenance is needed and, although none are programmed to do it yet, when they need to be replaced.

If a car can schedule its own replacement date, the automotive industry’s business model will have to evolve. Rather than selling you a car, an automotive brand would be better off selling you a multi-year subscription to a service contract that includes the car, maintenance and scheduled upgrades to a new model.

Given the totality of IoT data coming from tomorrow’s cars, it would also make sense to include fuel and insurance in the subscription.

Once the automotive business model catches up with technology, marketers will face a big challenge. Rather than creating generic demand for anyone who may be in the market to buy a new car, the real battle will center around establishing lasting relationships.

In the same way that it was common to find Chevy families 50 years ago, marketers will need to work hard on establishing the strongest possible ties with consumers in the rare moments when they are unsubscribed.

How will they achieve that? It starts by recognizing the efficiency and cost savings of IoT technology. In the automotive industry alone, McKinsey estimates that the economic impact of the IoT could be as high as $700 billion.

That’s an unprecedented disruption that will clear away many of the legacy expenditures associated with the traditional automotive funnel. As that happens, marketers will be able to shift focus from generic outreach to developing personalized experiences that automatically address consumers with customized solutions.

Whatever It Takes To Own The Relationship

Check your mailbox and count how many offers you get for credit cards. I receive up to two or three each day. Dagget, my dog, has even been pre-approved, although that particular offer probably says more about the data management practices of the direct mailer than the credit worthiness of a Jack Russell.

Between the never-ending direct-mail offers bombarding us with TV and online ads and loyalty programs, credit card issuers look wasteful; their customer acquisition costs typically run into the hundreds of dollars.

But any marketer in the financial services industry will tell you a couple of hundred bucks per new card holder is money well spent. Those relationships, over the long term, are where credit card issuers make their money. In effect, credit card companies have always operated on a subscription model.

But it’s not just financial services where the relationship matters more than an individual transaction. Increasingly, the relationship is the only thing that matters in retail. Naturally, the company that best embodies this “acquire-at-all-costs” philosophy is Amazon.

Free shipping, hassle-free returns, and dozens of other customer-centric policies all drive up Amazon’s customer acquisition costs. But so what?

As any Amazon Prime member can attest, each year we happily turn over more and more of our purchases — from groceries to gadgets, from books to streaming content — to Amazon. Year after year, Amazon outperforms its competitors by doing whatever it takes to own the customer relationship.

Of course, marketing isn’t as simple as spending more than your competitors to attract customers; it’s about delivering valuable experiences that tie customers to brands. How you anticipate your customer’s needs is increasingly becoming a data-driven proposition, even if current marketing strategies are still mostly about targeting ads.

As we deploy the IoT, the amount of consumer data will grow exponentially, and so will the insights. Some marketers will doubtless use that technology to immediately bombard their customers with more relevant ads; and in the short run, they might move the sales needle.

However, the marketers who win the customer relationships of the future will do so by personalizing their offerings to a consumer’s preferences, habits and environments, and managing that consumer’s requirements over the longer term.

In other words, the challenge of owning the customer relationship for marketers will be about establishing the continuity of the brand; using data from the IoT to make a customer’s life better today, tomorrow and for years after that.

What If They Don’t Subscribe Directly?

Not every brand is subscription-worthy. I buy batteries, but I’d be hard-pressed to imagine a relationship with Duracell. I also buy light bulbs, but Sylvania and Phillips are not brands I ever think about. How will brands like that survive the rise of a subscription-marketing model?

Those brands will not only need to consider their value to the customer, but also their role in a larger subscription ecosystem. If the batteries I buy signal when my household supply of AA batteries is low, that data is perhaps most valuable to Amazon, or whichever virtual big box store to which I might subscribe.

If the light bulbs in my basement signal that they are near end-of-life and replacements automatically go on a virtual shopping list as part of my Home Depot service contract, then that is valuable to me as a consumer, more sales efficient for Home Depot and much more cost-effective to Sylvania and Phillips.

My connections to the battery brand and the light bulb fades into the background, but, at the same time, their role in the marketing ecosystem takes on a new level of importance. The value of IoT data from the battery or light bulb enhances my experience at the point of sale with the service providers to which I subscribe.

It also collapses the cost structure for these products. In effect, the battery and light bulb brands of the world transform themselves into brokers of data and analytics. Astute marketers will quickly realize there are greater opportunities to be had by exploiting the vertical integration of the data and analytics with other brands and products.

In turn, the true value of IoT data will serve to drive down the logistical and marketing cost of deliverables, as many products will no longer need to incur these costs. Quite literally, analytics will become marketing, thanks to the IoT.

TechCrunch: http://techcrunch.com/2015/08/27/iot-and-the-rise-of-subscription-marketing/