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Is Subscription-Based Loyalty the New Customer Retention Strategy?

There has been an increased interest by customers for subscription based loyalty programs in the recent years, making it an ideal retention strategy by brands .By creating a relationship that transcends beyond transactions, paid loyalty programs are becoming the ultimate customer retention strategy. Read along to find out how.

By

Anjali Pillai

4 Min Read

April 25, 2024

There are many types of loyalty programs out there; one that is currently gaining popularity is the subscription-based loyalty program. According to the Subscription Economy Index (SEI) from Zuora, subscription-based businesses have experienced a growth of over 350% in the last couple of years, indicating the growing trend of subscription-based loyalty programs. 

 

But why would a customer pay to be a part of the loyalty program, especially when there are so many out there for free?

 

The answer to this question boils down to the value customers receive through this subscription which goes beyond mere discounts and freebies while helping businesses lay the foundation for a reliable revenue source. 

 

In this blog, we’ll delve into the potential of subscription-based loyalty programs, exploring how they not only retain customers but also deepen their engagement and foster lasting relationships with the brands.

 

What is a subscription loyalty program?

 

Subscription-based loyalty programs or paid loyalty programs are an extension of free loyalty programs where the customer pays an upfront fee, either a one-time or a recurring fee (monthly or annual) to be part of a loyalty program. Instead of earning points or discounts with each purchase, subscribers receive ongoing perks. Customers pledge their commitment to the brand by paying this fee in exchange for exclusive benefits and rewards. 

 

Subscribers of these programs enjoy ongoing perks that extend beyond mere discounts, such as complimentary products or services, early access to new releases or events, personalized recommendations, and enhanced customer support. Essentially, subscribers pay for a membership that grants them continuous value and a sense of belonging to an exclusive community.

 

Advantages of subscription loyalty over free loyalty

  • They offer a reliable revenue stream for businesses
  • Loyalty created through subscription extends beyond transactional relationships with customers. It converts the financial commitment of the customers into an emotional commitment
  • Unlike in traditional loyalty programs, the customers are highly and continuously engaged with the brand
  • The result of all the above leads to fostering long-term relationships with the customers
  • Executing paid loyalty programs leads to better data collection by providing valuable data about customers’ purchasing habits, preferences, and behavior, which can inform marketing and product strategies. This data can be later used to personalize customer experiences.

 

Why subscription-based loyalty is the best customer retention strategy

 

By cultivating a sense of exclusivity and belonging among subscribers, subscription-based loyalty stands out as the premier customer retention strategy. Here’s exactly how subscription programs make this happen: 

 

1. Reduced Churn Rate: By providing ongoing value and benefits through a subscription model, businesses can significantly reduce churn rates. According to findings by McKinsey, a significant 59% of customers enrolled in paid programs showed a higher inclination towards choosing the brand over its competitors. Additionally, they were observed to be 43% more inclined to make weekly purchases from the same brand.

 

2. High Engagement: Subscription-based loyalty programs promote high levels of customer engagement. Unlike traditional loyalty programs where engagement often decreases after rewards are redeemed, subscribers remain actively involved due to the ongoing benefits and exclusive experiences they receive. This sustained engagement leads to increased interactions with the brand, reinforcing loyalty and driving repeat purchases.

 

3. High Customer Lifetime Value: The continuous nature of subscription-based loyalty programs contributes to higher customer lifetime value. Subscribers tend to make more frequent purchases over an extended period, leading to increased revenue and profitability. Additionally, the predictable revenue streams generated by subscription fees allow businesses to better forecast and optimize their resources for long-term growth.

 

4. Enhances Brand Loyalty: Subscription-based loyalty programs foster deeper connections between customers and the brand. By offering personalized experiences, exclusive rewards, and ongoing value, businesses can strengthen brand loyalty and affinity. Subscribers feel valued and appreciated, developing a stronger emotional attachment to the brand that transcends transactional interactions.

 

5. Emotional Connection: Subscription-based loyalty programs have the potential to create a profound emotional connection with customers. Through personalized communication, tailored offers, and exclusive experiences, businesses can evoke positive emotions and feelings of belonging among subscribers. This emotional connection goes beyond rational decision-making, influencing customer behavior and driving long-term loyalty.

 

Examples of successful Subscription based loyalty programs

 

Amazon Prime

 

With over 200 million members all over the globe, Amazon Prime is renowned for its comprehensive suite of benefits. It follows a membership model offering its members free and fast shipping, access to Prime Video, Prime Music, Prime Reading, and exclusive deals on Amazon Prime Day. The program’s value proposition lies in its ability to provide convenience, entertainment, and cost-saving benefits bundled into one subscription, enhancing the overall customer experience. Amazon Prime employs a robust retention strategy by continually adding new features and benefits to keep subscribers engaged and satisfied, creating a sticky ecosystem that encourages long-term commitment and loyalty.

 

Emirates Skywards+

 

Emirates Skywards+ follows a VIP subscription model for their aviation loyalty program and offers premium benefits to frequent flyers, including priority check-in, lounge access, extra baggage allowance, and bonus miles on flights. The program targets frequent travelers seeking personalized experiences and enhanced comfort during their journeys. By providing exclusive perks and privileges, Emirates Skywards+ aims to cultivate a sense of exclusivity and reward among its members, fostering strong loyalty and encouraging repeat business.

 

Swiggy One

 

Swiggy One is a subscription-based loyalty program offered by the food delivery platform Swiggy, popular in India. Subscribers enjoy benefits such as free delivery, exclusive discounts, no surge pricing during busy periods, and priority service. Swiggy One members also get exclusive benefits on Swiggy’s subsidiary grocery delivery platform Instamart. The instant grocery retail is a competitive space in India and the subscription model has helped Swiggy stand out among their competitors by offering irresistible value to its members. 

 

 

Challenges in Subscription-Based Loyalty Programs

 

  • Initial Investment: Launching a subscription-based loyalty program requires significant upfront investment in technology, infrastructure, and marketing efforts to attract and retain subscribers. This can be a barrier for businesses, especially smaller ones, that may not have the resources to commit to such initiatives.

 

  • Retention: Maintaining subscriber engagement and preventing churn are ongoing challenges for subscription-based loyalty programs. It’s essential to continuously innovate and refresh the program’s offerings to keep customers interested and loyal over the long term.

 

  • Creating a Value Proposition: The value proposition you create is everything that will get businesses new customers and help retain existing ones. Hence it is very important to have a unique value proposition that sets the program apart from the competition and adds more value and meaning to the customer’s life. 

 

  • Operational Complexity: Managing a subscription-based loyalty program involves handling a range of operational tasks, such as tracking subscriptions, delivering rewards, and providing customer support. Ensuring smooth operations and a seamless customer experience requires careful planning and execution.

 

How Capillary Can Help You Create The Right Subscription Loyalty Program

Capillary offers a comprehensive suite of solutions to assist brands in creating tailored subscription-based loyalty programs across various industries, including Fashion Retail, Fuel Retail, Supermarkets, and E-Commerce. With Capillary’s advanced technology, brands can seamlessly manage subscription programs across channels, continuously engage their customers, and refine their programs to match customer expectations. 

 

With Capillary’s expertise, brands can confidently create best-in-class subscription-based loyalty programs that not only attract new subscribers but also cultivate lasting customer relationships.

 

Get in touch with our experts now. 

 

Anjali R Pillai
Anjali Pillai

With a knack for creating engaging content and crafting effective social media campaigns, Anjali wants to make it her mission to leverage the power of content as a strategic marketing tool for businesses. While she is not working, she is either binging movies or writing about them on her blog.

Aauthor Name

Anjali Pillai

With a knack for creating engaging content and crafting effective social media campaigns, Anjali wants to make it her mission to leverage the power of content as a strategic marketing tool for businesses. While she is not working, she is either binging movies or writing about them on her blog.

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