Different types of subscription models have different customer loyalty effects.
One of the most fascinating trends over the last several years is the rise of subscription services. The traditional era of traditional newspaper and magazine media was dominated by mail-order services; today’s subscription service is dynamic and disrupting cable television, grocery, and fashion retail.
Driven almost exclusively by e-commerce businesses, the modern subscription boom jumped off with the advent of online streaming services like Spotify and Netflix, and it has come into prominence in areas as disparate as grocery shopping, personal styling, wines, and whiskeys. The subscription e-commerce market has grown by more than 100 percent annually over the past five years; if you have an interest or need, there is a subscription service available for it.
Necessities and indulgences drive subscriptions.
While there have never been more options available for consumers to sign up, set up auto-pay, and receive a product or service on a recurring basis, the reality is that consumers basically have two types of subscriptions: “necessities” and “indulgences.” Think of necessities as things consumers perceive they need to live a modern life—cable, pet food, a smartphone and cell service, or their Netflix subscription.
While every subscription service has its unique nuances—in both necessities and indulgences—can they truly ensure customer loyalty? They’re certainly doing frequent business and, in some cases, even making incremental purchases. But there is less clarity around how much of this behavior is habitual and how much is driven by a meaningful connection with the brand.
Brands in both categories face unique challenges to inspiring and activating customer loyalty. They also have the opportunity to further incite and ignite customer loyalty.
Breaking down necessity-based subscriptions.
What they are: Subscriptions in this category include things like “subscribe and save” items from Amazon, recurring pet food orders, monthly car insurance payments, and even satellite radio and cable subscriptions.
How they keep their customers: There’s a reason we’ve coined this the “necessities” category. For the most part, these products are fact-of-modern-life requirements. Customers enjoy the simplicity of not having to think about renewing their order and then having it just show up on the front step when they need it.
Many of these brands have a price advantage by not having a physical footprint and offer free shipping and returns. An article in AdWeek also notes that subscriptions often offer the products at a flat rate, allowing customers to stay within their budget by predicting their spending. And in general, a key element of these types of subscriptions is that they require customers who opt in to keep these services on autopay. Some of these brands, particularly media and telecom providers have practical monopolies on their category.
Where they fail: Because these brands are often selling staple items, and the competition often also offers auto-ship or auto-renew options, one of the biggest drivers of switching providers is price. Switching takes effort, of course, but the savings can be worth it.
For brands that control the market, like cable and satellite radio providers, consumers can “cut the cord” and go without. But this process can be arduous. Even when a customer chooses to keep their service, promotional pricing often leads to the annual Kabuki dance of renegotiating your rates: the promotional period ends and the ritual theater of renegotiating your rates for the coming year begins.
How they can inspire greater subscriber loyalty: Ultimately, subscription brands selling “necessity” items are generally successful in providing their customers with convenience and value. These are the table-stakes traits of their subscription category type. In short, they are reliable, one of the key drivers of loyalty. However, there are other drivers these subscriptions can capitalize on to drive deeper loyalty with their customers:
- Investment – Amazon does an incredible job building significant value for members of its Prime program. While members may join for access to free shipping, they receive a variety of other valuable services including Prime Video and streaming music. Brands should learn from how Amazon creates additional value for its subscribers.
- Trust – Customers expect a brand to deliver their subscription on time. They trust the brand to be there when they need it. Brands should take great pains to ensure that auto-ship items are sent on time and arrive quickly.
- Appreciation – One area in which many subscriptions fail is in rewarding their customers for their longevity, especially after the trial period has ended. Subscribers spend money with your brand each month and their longevity and consistency should be acknowledged and appreciated, not penalized.
- Empathy – Your customers are busy; it’s why they subscribe. Don’t waste their time with frequent changes to the program, unnecessary communications, or wild price fluctuation. Make it easy for them to update or enhance their order. Understand, respect, and acknowledge that they are choosing you to make their lives easier, and add features and services to continue to do so.
Customers want to indulge.
Subscriptions that fall into this category are highly discretionary purchases: Food and beauty products represent the two largest subscription spending categories. Popular indulgence subscription services like Blue Apron and Birchbox send boxes stocked with premium products, new, high-end brands, and unique items selected for discerning consumers.
How they keep their customers: Subscription services in this category keep their customers engaged by continually offering new and interesting products. They also provide value by removing friction and pain-points in their subscribers’ lives. Personal styling services help customers who don’t like shopping or don’t know what to buy. Meal planning and recipe services pick out interesting recipes, handle the grocery shopping, and even provide some ingredients already prepped to cook. However, these benefits generally come at a premium price.
Where they fail: Indulgence subscription services generally lose their customers when they fail to deliver on their value proposition. Many of these services promise a highly personalized experience, something quite difficult to deliver at scale. When the experience no longer feels personal, the products become repetitive, or the recipes become stale, consumers tend to opt out. Additionally, the perceived cost can drive subscribers away.
How they can inspire greater subscriber loyalty: For indulgence subscriptions, customer attrition is a real risk. Blue Apron, still a thriving service that offers an excellent product, is an example of how customer churn can be a real risk to these businesses. In order to reduce churn, these premium subscriptions should focus on the following drivers of emotional loyalty.
- Reliability – These brands need to focus on consistently delivering quality products. One slip can be all it takes to lose a subscriber. In turn, these customers will be reliable subscribers, and likely will advocate for the brand within their social networks.
- Appreciation – Just like for “necessity” subscriptions, indulgence subscriptions need to reward customers for longevity. Don’t put a formal rewards program in play; instead consider the delivery of unexpected and unadvertised rewards, as this will fit well with what drives these customers.
- Shared Values – Premium subscriptions generally offer niche products to a specific set of customers. These customer segments often share similar interests and economic status. It is fair to assume that they also share many values. Brands should aim to capitalize on these shared values and make an impact in areas that matter most to their customers.
- Investment – While premium subscription brands may be reluctant to offer discounts on their products, they should partner with other brands to offer discounts or sampling opportunities on products or services their customers may like. While they need to be careful not to spam their customers, making an investment in them and providing additional outside benefits can further extend their relationship with other facets of their customers’ lives, while deepening the relationship in the process.
Time will tell whether subscription services have the staying power to continue the disruption currently underway, but it is clear that for these brands to continue their success and retain their customers, they will have to capitalize on drivers of emotional loyalty.