Loyalty and subscriptions: the state of play

Peter outlines a comprehensive overview of loyalty and subscriptions, reminding us that just because someone has subscribed to a service, doesn’t mean they’re loyal to it.

Illustration of a green magnet on a black background.

The modern subscription boom was spearheaded by e-commerce and streaming services such as Amazon, Netflix and Spotify. However it didn’t take long before subscriptions began to disrupt other areas from fashion, insurance, pet food and beauty products.

Companies have built entire businesses and ancillary revenue streams around subscription models, enabling them to make long-term plans and even enjoy substantial float from advance payment.

The model is so prominent that even industrial firms are adopting it, as shown by IBM's increasing emphasis on service contracts and General Aviation's exit from the jet engine business and entry into the thrust service business, guaranteeing the on-demand delivery of various levels of power to jet aircraft.

Yet while more manufacturing enterprises are adopting subscription models, it appears some media and communications companies are questioning their use of it.

This redirection opens questions as to whether the subscription model's time has come and gone such as:

And what about loyalty?

Following the covid-19 pandemic many organisations have embraced digital transformation sooner than expected. This uptick in digital has prompted a boom in loyalty programs, with loyalty technologies seeing an increase in adoption with the global loyalty management market set to be valued at $20.44 billion by 2030, registering a compound annual growth rate of 10.5% from 2022. 

Customers interact with loyalty programs in a variety of ways, from mobile apps that track points to browser cookies that personalise experiences across third-party services. Loyalty offerings have also focused on improved functionalities, customer journeys and in-store privileges, as well as access to exclusive offerings and thanks to this overall customer engagement has grown.

What’s happening with subscriptions across sectors 

Banking (Revolut Subscriptions) 

Revolut offers tiers of monthly subscription plans including Metal (£12.99), Premium (£6.99) and Plus (£2.99). Premium increases limits on free ATM withdrawals and foreign exchange. You also get overseas medical insurance, delayed baggage and flight insurance and winter sports coverage. You can also access advanced features, such as disposable virtual cards and Revolut Junior accounts. With a Metal plan, your insurance package is a bit more thorough, with purchase protection and car hire excess. Premium subscribers can also choose between premium card designs. 

Retail (Apple) 

Apple is working on an iPhone hardware subscription service that will shake up the buying process, letting users essentially lease their device and get a new model annually. The average iPhone user upgrades their device every three years. Which is less than the average two years familiar with carriers offering subsidised upgrades. This would differ from the iPhone Upgrade Program or carrier instalment plans which rely on financing spreading out the cost over 24 months. In this case once customers pay off the device, it’s theirs to keep. With the hardware subscription you lease the iPhone, but never fully own it. The company could generate additional money if the program is tied to its high-margin Apple One digital services bundles and AppleCare. 

News & Media (Netflix) 

Netflix stated in April it was considering adding an ad-supported streaming tier at a lower cost. Netflix made the announcement after stating it lost about 200,000 subscribers from January to March — far below the company's earlier projection of a gain of 2.5 million subscribers. This was the service's first drop in subscriptions in a decade. Other strategic directions aimed at increasing subscribers include bundling exclusive mobile games, live broadcasting reality TV, sports and competition shows. The fact remains that many people share their Netflix subscription with friends and family.  Considering which the company has started trialling new password sharing features and “Add a Home” in a bid to capitalise on password sharing. 

Entertainment (Sony) 

Sony Pictures partnered with AMC ahead of the film release of ‘Spider-Man: No Way Home’ by offering around 86,000 free non-fungible tokens (NFTs) to select loyalty members, including those who subscribe to its Stubs Premiere and A-List programs. AMC plans to airdrop discounts and other benefits to holders of the new cinema chain NFT – and AMC will collect a small royalty on all transactions made from the trading of the NFTs. 

Insurance (Vitality) 

Vitality members can access a large offering of partner deals and freebies including up to 50% off monthly membership gym, free Amazon Prime or an Apple Watch. Vitality Plus aims to reward subscribers for positive lifestyle choices (healthy living and good driving). To get rewarded, members must have a qualifying health insurance, life insurance, car insurance or an investment plan. 

Transportation (BMW Car Subscription) 

Subscriptions have been available for features on BMW cars for some time in the UK, but recently the company has started offering heated front seats for £15 per month and heated steering for £10. If they prefer, customers can enable all hardware features for a one-time payment. Other carmakers also offer an enhanced, more connected driving experience for a monthly amount. They're often free at first, but eventually drivers must subscribe to continue receiving premium driving — including some self-driving — and entertainment features. 

Guiding principles for building loyalty 

Subscription offerings are everywhere, although their usage is far from ubiquitous across some sectors, they have a foothold in many. This potentially poses a problem for businesses with customers swimming in a sea of subscription services and loyalty programs.

It’s harder than ever to stand out, as virtually every brand is luring its frequent and best customers with transactional, points-based rewards and discounts incentives. A misguided attempt at formalising recurring revenue and purchase loyalty to an increased overall customer lifetime value.

Structured properly, a successful loyalty program is an incentive to behave in a certain way. It represents a unique pact with your customer, different from any other marketing tool. Considering this, loyalty should be viewed as a desired outcome not just a program; emotional loyalty is integrated, holistic and continuous to your brand. 

However, be careful of mistaking habits, which can be transactional and convenient, for emotional loyalty. To get towards loyalty of this kind, creating more personal relationships with your customers is key. This means stopping treating your customers like numbers. Points create a transactional, not emotional, connection.

Based on our research and experience, these are the things customers really want from your loyalty program:

Do subscriptions increase customer loyalty? 

Consumers basically have two types of subscriptions: “necessities” and “indulgences.” Think of necessities as things consumers perceive they need to live a modern life—their Netflix subscription. 

Whereas indulgences tend to be curated premium products that are emotionally driven—boutique food subscription boxes. While every subscription service has its unique nuances—in both necessities and indulgences—can they truly ensure customer loyalty? 

The businesses of today that wish to capture the attention of customers should adapt their strategies to focus on engagement, tiered program structures and emotional loyalty.  

Metrics such as customer lifetime value (CLTV) tend to go hand in hand with customer retention, satisfaction, and loyalty however, businesses must recognise their transactional nature does not necessarily reflect high engagement.  

Subscriptions as necessities 

What are they: Subscriptions in this category include things like “subscribe and save” items from Amazon, recurring pet food orders, EV home charging, and even satellite radio and TV subscriptions.  

How they keep their customers: Customers enjoy the simplicity of not having to think about renewing their order and then having it just show up on their doorstep when they need it. A key element of these types of subscriptions is that they require customers who opt in to keep these services on autopay. 

Where they fail: Because these brands are often selling staple items, and the competition often also offers auto-ship or auto-renew options. This makes one of the biggest drivers of switching providers' prices.  

How they can inspire greater subscriber loyalty: Reliability, convenience and value are the table-stakes but there are other drivers including…  

Subscriptions as indulgences 

What are they: Subscriptions in this category are highly discretionary purchases such as food and beauty products particular to the consumer's lifestyle like vegan subscription boxes. 

How they keep their customers: By continually offering new and interesting products whilst removing friction and pain-points in their subscribers’ lives.  

Where they fail: When they fail to deliver on their value proposition. Many of these services promise highly personalised experiences and this is often quite difficult to deliver at scale. 

How they can inspire greater subscriber loyalty: Customer attrition is a real risk as the perceived cost can drive subscribers away. Indulgence subscriptions should focus on the following drivers of emotional loyalty… 

The future of subscriptions 

We’re reaching a critical moment in the subscription era. Large parts of the public have different views about ownerships in at least some parts of their lives. However, brands looking to jump onto the bandwagon must realise the ‘one-subscription-fits-all’ model is beginning to fall apart.

Consumers need better choice, aggregation, and control over what and how they subscribe to a brand offering. The nuances in indulgence compared to necessities need to be accounted for in how offerings are designed and delivered to consumers.  

A one-size-fits-all subscription no longer caters for the level of personalisation the internet has made audiences accustomed too. Building new verticals that offer greater value and personalisation, whether that’s via extra content or invitations to webinars and courses, will engage consumers and encourage loyalty. 

Emerging technologies like NFTs could also drastically change how we think of subscriptions and loyalty programs.  In the current business model for memberships, people simply pay for access to a membership. But with an NFT-based membership business model, members own their subscription. If they ever want to stop paying, they can sell the membership to someone else they believe will get value out of it. This is helpful to both the business owner and subscribers. 

Much the same applies for digital currencies, the move back towards RSS feeds as a means of consolidating content and new models of open-source technology for podcasting and video creation. People can use digital currencies to pay on a minutes listened basis, they can also tip people digital currency during their listening of a podcast with this money going directly to those creating the content rather than a provider like Spotify.

The future of loyalty 

Businesses that wish to capture the attention of customers should adapt their strategies to focus on engagement, tiered performance tracking and emotional loyalty. 

Redefined engagement, as well as greater customer willingness to share personal data in exchange for better services other trends include: 

Performance tracking: Measuring ROI can help refine and fine-tune the design of your loyalty program. It helps you better understand your different types of consumers, how much they’re spending, and how valuable they are to you. 

Emotional loyalty: Discounts are now less effective than rewards that have an emotional component to them. Customers want value for money, but they also want brands to go above and beyond in a way that makes them feel personally appreciated.   

For example, blockchain technology will enable instantaneous and secure creation, usage, and exchange of loyalty reward points across programs, vendors and industries through a trustless environment using cryptographic proofs without intermediaries. The key elements of such a blockchain solution are a loyalty network platform, reward applications and tokens.  

In practice this could mean more dynamic loyalty networks where people earn points for passive and active engagement. These points could then be used across a broader range of services and providers that border on the loyalty ecosystem. Points in the future could also become portable and connected to wallets or digital identifies allowing customers to switch to a competing provider and seamlessly transfer their points across the loyalty network.

It’s important to remember subscription and loyalty are not the same thing. Just because someone has subscribed to a service, doesn’t mean they’re loyal to the brand.

Time will tell whether subscription and loyalty services have the staying power to continue the disruption currently underway, but for these brands to continue their success and retain their customers, they will have to capitalise on drivers of personalisation, measurement, and emotional loyalty. 

Today, brands must establish a more human relationship with their customers or risk being forgotten. Understanding your customers’ mindset is more important than ever. Though emerging technologies still have a long way to go, by adopting a strategic approach around data and the customer experience, businesses can drive greater customer value, loyalty, and revenue. 

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