Have you noticed the rising trend of subscription-based loyalty programs? Why are so many brands launching these programs and do they actually work?
While loyalty programs traditionally focused on earn and burn points strategies, more and more brands are offering these programs and for good reason.
The subscription model has been popular in American culture for a long time since consumers use it regularly for things like clothing, food, household goods, personal care items and magazines. It’s no wonder why it has also found its way into the loyalty industry.
Consumers enjoy subscription loyalty programs because they pay a monthly or annual fee to receive value and exciting benefits. Brands get an incremental revenue stream and enhanced customer data.
If you’re considering a subscription element to your loyalty program, read on to learn more about this trend.
Table of Contents
- The Subscription Economy Has Been Growing
- The Evolution of the Subscription Loyalty Model
- More Value for Members
- More Value for Brands
- Special Considerations of a Subscription-based Loyalty Program
- Subscription Loyalty Is Here to Stay
The Subscription Economy Has Been Growing
What started out as magazines and newspapers has turned into a subscription economy of just about every type of good or service. From streaming entertainment to groceries, to even how we drive our cars, everything is a subscription.
And the subscription economy has steadily crept into the loyalty space.
A McKinsey report notes that subscription businesses grew more than 300% from 2012-2018, five times faster than revenue from S&P 500 companies. The report attributed the massive growth to the increasing popularity of online shopping and e-commerce, a growing demand for convenience and personalization and the rise of mobile devices, which makes it easier for consumers to sign up for and manage subscriptions.
This checks out with our own 2023 Paid Enrollment Data Study about subscription-based loyalty that found a staggering 93% of consumers belong to at least one subscription and 68% of that group belongs to multiple subscriptions, clearly stating the subscription economy is here to stay.
McKinsey also found that the average customer lifetime value (CLV) for members of a subscription loyalty program is 30% higher than for non-members, the report says. This means these customers are more valuable to your brand now and in the long run.
The Evolution of the Subscription Loyalty Model
Over the years, more and more brands have launched subscription-based loyalty solutions, whether simple paid enrollment offers or complete premium loyalty programs. Here is the difference between premium loyalty programs and paid enrollments.
Premium loyalty programs include an annual or monthly fee so members can receive enhanced benefits that can be used at any time, like CVS CarePass or Amazon Prime. Amazon Prime, which launched in 2005, was one of the first well-known premium loyalty programs out there.
CVS launched its CarePass program in 2019.
This premium loyalty program costs members $5 per month or $48 per year and allows consumers to receive elevated benefits like instant discounts, free shipping, and 24/7 access to a live pharmacist.
The CarePass experiential benefits complement the transactional benefits and elevate the program nicely.
Best Buy launched three membership options in its loyalty program, My Best Buy Memberships™.
The three memberships are: My Best Buy™, My Best Buy Plus™ and My Best Buy Total™. The first option is free while the other two carry annual membership prices. This program works because it covers every type of customer Best Buy has and offers related benefits for each membership level.
Each membership tier has a different set of benefits, ranging from members-only pricing and deals, access to exclusive sales and events, 24/7 tech support, product protection and free shipping.
The two premium loyalty options respectively cost $49.99 and $179.99 annually.
Paid enrollments are more time-sensitive because they’re available for either a limited time or there are only a limited number of spots. The goal with paid enrollments is to create a sense of urgency and exclusivity by offering these opportunities through your loyalty program, like Taco Bell’s Taco Lover’s Pass.
To celebrate National Taco Day in 2022 Taco Bell’s Taco Lover’s Pass allowed participants to receive one taco each day for 30 days. The price for the Taco Lover’s Pass varied from $5 to $10, depending on the customer’s location.
According to our 2023 Customer Engagement Data Study, 90% of consumers agree they’re more likely to engage with a brand if it offers incentivized engagements.
The Taco Bell Lover’s Pass is a great example of a paid enrollment because the pass was exclusive to Taco Bell Rewards members, gave them an engaging, limited-time offer and encouraged member signups.
They’re a way for the most engaged customers to raise their hands and indicate an intention of loyalty. They immediately gain the benefits, which drive happier customers and higher spend and retention levels.Robbie Kellman Baxter, author of The Membership Economy
Robbie Kellman Baxter, founder of Peninsula Strategies and author of the book, “The Membership Economy,” talked to ebbo about the power of subscription loyalty programs.
“They’re a way for the most engaged customers to raise their hands and indicate an intention of loyalty,” she explained. “They immediately gain the benefits, which drive happier customers and higher spend and retention levels.”
Kellman Baxter doesn’t see subscription loyalty programs going away.
“I think we will continue to see a rise in this type of offering,” she added.
More Value for Members
According to our 2023 Loyalty Programs Data Study, 74% of consumers agree that they would engage more with brands that offered different tiers in their loyalty programs based on how much they spend per year. More than half (56%) of consumers plan to join additional premium loyalty programs in the next 12 months.
Consumers like these programs because of the combination of transactional and experiential benefits.
Unlike points-based programs, subscription-based loyalty solutions like premium loyalty and paid enrollments typically offer benefits like VIP services, exclusive experiences, instant discounts, first-access to products and events and free shipping.
Members of subscription-based loyalty programs enjoy them because of the following attributes:
Better personalization: Brands can use customer data to segment their subscription members from their non-members and send them messages that are relevant to their interests. For example, a clothing retailer could send a message to customers who have purchased a certain type of dress with a coupon for a similar dress.
An improved customer experience: Brands can use customer data to identify areas where they can improve the customer experience. For example, a food delivery service could use customer data to see how long it takes for orders to be delivered and identify areas where they can improve the delivery process.
New products and services: Brands can use customer data to identify new products and services that their customers would be interested in. For example, a streaming service could use customer data to see what types of movies and TV shows their customers are watching and develop new content that is tailored to their interests.
Appreciation: Brands can use customer data to reward loyal customers with discounts, exclusive offers and other benefits. This can help to keep customers coming back and earning their long-term loyalty.
To show how consumers feel about these programs, consider these stats from our 2022 Premium Loyalty Data Study:
- 91% of premium loyalty members said they’re likely to choose a brand over a competitor offering a lower price if they’re satisfied with the special benefits offered by the brand’s premium loyalty program.
- 91% of premium loyalty members said they were likely to recommend a brand to friends or family when the brand offers a program with benefits, they find valuable.
- 83% of consumers said they were likely to invest in a brand’s premium loyalty program if they already belong to that brand’s free program.
More Value for Brands
Because subscription loyalty programs find your best customers, that means they’re exponentially more valuable to you not only in terms of engagement but also for the steady incremental revenue stream they provide. By using a subscription model, you can generate a more predictable income. This greatly enhances your financial situation and helps you plan better.
Members of subscription loyalty programs are drawn to them and have emotional bonds with your brand. When you offer exclusive benefits like discounts, early access to products or personalized recommendations, these two-way relationships get stronger.
Collecting valuable data is always a big part of any loyalty program, but especially a subscription loyalty program. Members interact and engage with your brand more often and are more open to providing you with personal data regarding behaviors, preferences and purchase patterns.
If you have a tiered loyalty program (free points-based program), another benefit is that if a member decides to opt out of the subscription, you don’t lose them and they will remain in your loyalty ecosystem.
Seventy-seven percent of consumers would still want to remain a member of a brand’s free loyalty program if they’re thinking of canceling their premium loyalty membership because they’re not getting enough value out of it.
Special Considerations of a Subscription-based Loyalty Program
A subscription loyalty program is entirely different from a free points-based program because members pay to join. Many brands are not equipped to do this in-house so you need to be prepared to be able to offer a “best of the best” program like this or work with a partner that can help you.
Since your customers are paying for membership, they have the highest expectations. That requires you to implement a different acquisition strategy, different rewards construction (better benefits that are funded by the revenue stream), enhanced security, excellent customer service and a subscription billing engine.
Keep in mind that a membership-based loyalty program is not for all of your customers. Generally, you can expect about 10-20% of your customer base to join, however, these tend to be your biggest brand advocates and most VIP customers.
Subscription Loyalty Is Here to Stay
The subscription economy isn’t going away and you’re going to see more brands offering subscription loyalty programs.
The time to get on board is now because these programs are both highly valuable to consumers and brands — but only if you’re prepared and have the resources to build and manage a top-tier program like this.
If you would like to learn more about subscription loyalty programs, download the 2023 Paid Enrollment Data Study.