Last year, Amazon announced it has more than 100 million Prime members and ever since, there’s been a lot of chatter in the market about paid subscription loyalty programs.
The lines between loyalty and subscriptions have increasingly blurred over the past few years as consumers now value convenience and time savings as much (or even more than in some cases) as money savings. To add, companies’ eyes have dollar signs on them knowing margins may improve with the potential incremental revenue subscription programs can drive. However, before plunging into a subscription-based loyalty model, marketers need to take a step back and evaluate if subscription models are best for your brand and customers.
First and foremost, determining if a subscription loyalty program makes sense for your business comes down to knowing your customers’ behaviors and preferences.
Subscription programs appeal to specific segments of customers. For example, portions of the millennial segment clearly are candidates for a subscription-based model. This consumer group craves convenience and in many cases they don't want the hassle of tracking promotional offers or downloading or cutting coupons.
Further, this segment has grown up using subscription services such as Netflix and Xbox Live – it’s more natural to them than clipping coupons. They don’t mind paying a fee to have everything organized, categorized in one location or delivered to their doorstep every month.
The other side of the subscription-model coin is price. Bed Bath & Beyond started a paid membership loyalty program last year, called Beyond®. Members pay an annual $29 fee in exchange for a 20 percent discount off all purchases and free shipping for online orders. Beyond® removes the need for chasing down the coupon. Additionally, the free shipping is convenient as it removes the need to have to go in-store. Bed Bath & Beyond benefits because the 20 percent discount makes their prices competitive, if not better, than Amazon. And customers benefit because the $29 membership pays for itself quickly; often times, after just one purchase.
As you’re evaluating your loyalty program to determine if shifting to a subscription-based model, or including a paid subscription tier makes sense for your business, consider reviewing these items:
- Does it make sense for your ‘category’ of business: Certainly some types of industries are more adaptable to the subscription model. When considering if the model is right for your business, it’s important to evaluate your product (or service) to determine if it makes sense for your customers. For example, many consumers would find a subscription model very convenient for products or services that are frequently replenished (such as beauty products, baby products, pet supplies or food items). Brands such as Blue Apron and PetSmart are actively engaged in this kind of subscription-based model. Consumers will often also pay a subscription to unlock access to exclusive content or a special benefit that help members save money and/or time.
- Your loyalty platform: Marketers need to evaluate their technology infrastructure to determine if their brands’ platform is equipped to manage and transact subscription based programs. For example, are changes required with the transaction engine? Does PCI compliance play a role? Can the platform segment and support personalization to accommodate benefits/perks for paid members differently than non-paid members? Can the platform manage all types of currencies?
- The experience of your teams: Do your employees have the experience/knowledge of what it takes to set-up a successful subscription model? It’s important to consult with experienced professionals. When you shift your existing loyalty program to a subscription-based program, it’s a mindset change for your members and employees. Taking a consultative approach to evaluate how to best implement this type of program is essential. Do your research, make sure you have the support from both your internal teams and external (your customers); and demonstrate value early on and don’t forget to test.
- It’s not a ‘one size fits all’ approach – segment: Marketers need to segment and determine the right ‘audience’ for a subscription-based program. As mentioned above, millennials are avid users of subscription-based programs. Try starting with this segment for testing. In a 2017 consumer study, 62 percent of respondents said they’d consider joining a fee-based rewards program if their favorite retailer offered one. This number was even higher among millennials, with 75 percent of 18 to year-olds and 77 percent of 25 to 34 year-olds saying they’d consider joining a fee-based rewards program. Nearly half (47 percent) said rewards in fee-based programs are better than rewards in free programs.
As subscription services take hold in the market, we need to unblur the lines between loyalty programs and subscription-based models. Peel back the layers to determine what matters the most to your customers and work to deliver on that.