What Subscription Models Tell Us About Driving Loyalty and Revenue

By David Bilicic Senior Vice President , Magid | December 30, 2018

Consumers are subscribing to an ever-growing diverse set of categories and services – and at greater rates. There is easy access to everything from meal delivery kits to clothing and beauty products. Several automobile companies are even testing and making progress on their own subscription-based models including Porsche, Volvo and Mercedes. But gaps do remain in many industries jumping to offer and capitalize on subscriptions.

Where are the subscription offerings in travel, hospitality and leisure?

The subscription e-commerce market has grown by more than 100% percent a year over the past five years, with the largest retailers generating more than $2.6B in sales in 2016, up from $57.0M in 2011. As a whole, the subscription economy is growing at a rate nine times faster than the S&P 500. The subscription business is booming, but it appears there is a unique potential for hotel and travel brands to take advantage of this growing market and tap into a new revenue source.

Despite the potential opportunities, the travel and hospitality business seems hesitant to offer subscription offerings (with some well-known exceptions – AAA, Uber and Lyft, to name a few). Perhaps it's due to concern that offering subscriptions could somehow diminish or detract from existing loyalty programs. However, it's common for frequent travelers to be enrolled in multiple hotel, airline and rental car loyalty programs. And there is already significant cross-over between members of subscription services and loyalty program members. It's comparatively easy for travel companies to get people to sign up for their loyalty programs – much more of a challenge to get them to remain engaged.

Hotel Loyalty Members and Their Engagement With Subscriptions

Recent research conducted by Magid indicates varying degrees of consumer engagement in subscriptions, with some particularly interesting insights about loyalty program members. For people belonging to travel-based loyalty programs like hotels and airlines, there is comparatively higher levels of subscriptions and interest compared to people not belonging to travel loyalty programs. Nearly half (49%) of individuals who have at least one subscription also reported being a member of at least one hotel loyalty program.

Nearly half of individuals who have at least one subscription also reported being a member of at least one hotel loyalty program
On the barrier side, consumers dislike subscriptions when they feel they don't need anything that the subscriptions offer
This chart shows current subscriptions compared to future purchase intent broken out by category.

This points to a developmental opportunity which gives travel and hospitality-focused companies opportunity to better understand subscriptions and how this model can drive loyalty and revenue.

Understanding the Subscription Landscape

The research from Magid was conducted through an online study of 3,000 individuals who have an active subscription within one of 14 business verticals (including meal kits, fitness, music, beauty, clothing and more). The study sample, gathered from an online panel, was designed to be nationally representative of generation/age, ethnicity, region, and income.

The research suggests the following:

1. Drivers and barriers to subscriptions are similar to those of loyalty programs

Consumers like subscription services because they're convenient, save them money, and make their lives easier – many of the same reasons they participate in loyalty programs. On top of that, subscriptions are fun. Subscribers like the feeling of being surprised, even if it's a product or service they're already familiar with. This is especially true of offerings in the beauty and fashion space. It's like giving a gift to yourself, with people valuing the 'curated serendipity' it provides.

On the barrier side, consumers dislike subscriptions when they feel they don't need anything that the subscriptions offer, they don't see the value in them to justify the cost, and when they don't want to feel locked in to a certain product, service or brand.

2. The future outlook for subscriptions looks bright, when looking at subscribers' current subscriptions vs. their intent to enroll in a new subscription in the next 6 months

In the study, we found that 25% of subscribers have more subscriptions today than 6 months ago. And when considering the future outlook for subscription categories, we found another interesting and compelling insight – momentum is inherent to some categories, while others seem to be more static.

3. Subscriptions represent a growing trend in the economy, attracting relatively affluent consumers

Two-thirds (65%) of subscribers in the study had a college degree and were much more likely to fall in the household category of earners of $100,000 or more of annual income.

The research also presented potential opportunities for a few new revenue sources, particularly for hotel and travel brands:

4. Loyalty members often overlap in the programs they participate in – offering fee-based subscriptions could provide a barrier to switching

It's not uncommon for frequent travelers to be enrolled in multiple hotel programs. Hotel loyalty programs offer perks like free internet access, early check-in and other benefits that might be offered at even the most basic level of membership. And since enrollment is free, travelers have no real skin in the game. On the other hand, the study shows that subscribers who pay for fee-based subscriptions feel obligated to get the most benefits possible to justify their investment.

Offering a fee-based subscription may be a way to create a barrier to switching – and therefore encourage much more consistent loyalty on the part of the subscriber. This can also help brands to better and more quickly integrate into the routines and life patterns of consumers.

5. The popularity of subscriptions presents potential partnership or affiliation opportunities

Even if travel or hotel brands do not see providing subscription services directly as a worthwhile venture, presenting subscriptions to popular services as a rewards option potentially adds to the attractiveness of an existing loyalty program to its members. There may also be revenue opportunities associated with finders' fees as subscription-based companies are eager to reduce customer acquisition costs. This could be a good way for travel companies to monetize their loyalty programs while at the same offering access to goods/services members view as valuable and support the brand's positioning.

6. Subscriptions also offer gift opportunities

Offering subscriptions as gifts provides another potential source of revenue for travel and hospitality companies to take advantage of. With this approach, like with other gift cards, subscription costs are paid upfront, offering a better cash flow opportunity for companies.

While the research suggests that hotel brands can find new revenue sources through subscription offerings, there are challenges to the subscription model. For one, it seems that it's more difficult to retain a customer in subscription models than it is to acquire a new customer.

Magid looked at different subscriber segments in the study. One of the segments was the "guilty follower" of subscriptions. They have a subscription or multiple subscriptions because they were looking to save money or saw the appeal of the convenience of it, but they end up not using it and feel guilty about that – which may lead them to ultimately cancel or choose not to renew the subscription service.

Another segment in the study represented consumers who research subscriptions frequently, often trying multiple subscription services in the same category before fully committing. This group is also more likely to be interested in what celebrities are promoting. These subscribers like that subscriptions make them feel important and unique, perhaps influenced by the star power of celebrity-endorsed subscriptions like FabFitFun, a box that offers full-sized beauty, fashion and fitness items.

Although churn is a concern, some brands may find success using a subscription as a vehicle to gain awareness, with the potential to gain longer-term loyalty. "Subscription lovers" seek out subscriptions because they feel rewarded, and are then loyal to the brands they subscribe to. They enjoy surprises, and see subscriptions as a treat or a great gift, and will recommend them to others. By enticing consumers to sign up for subscriptions and to make them feel that is worth the price, brands will find that they are driving deeper loyalty and influence.

While retention is challenging with subscriptions, the upside is that subscriptions make it easier to calculate the lifetime value of a customer – once the offering has had enough time to start predicting aspects like retention, churn and upsell probabilities. This provides a unique benefit for companies using the subscription business model: the opportunity to build a base of customers upon which you can test retention and re-acquisition techniques.

Despite the overall benefits that a subscription offering can bring to a brand, hotel and travel brands have a few key marketing challenges that can make adoption difficult. First, there is a plethora of choices – often in the same category, making it challenging to differentiate from competitors. And as mentioned above, this can result in some subscribers trying different subscriptions without choosing to fully commit to one, or opting not to renew. Second, the novelty of subscriptions wears off and it becomes a challenge to consistently deliver a curated set of offerings that drive interest and value, and ultimately customer retention.

While there are challenges yet to be worked through, the benefits of subscription models are clear – they represent a unique opportunity worth exploring for hotel and brands looking to strengthen brand loyalty and generate incremental revenue.

Mr. Bilicic As Senior Vice President, David Bilicic leads new business development for Magid, a consumer-centered business strategy company delivering courageous thinking that shapes better experiences, products and services. Mr. Bilicic brings impressive research and consulting experience to his work across several verticals including Travel/Hospitality, Healthcare, Financial Services, Retail, CPG and Automotive. In the past year alone he has been instrumental in the development of proprietary research specific to the consumer behaviors surrounding subscription-based services, as well as a deep dive into the private label space. Standing on their industry-defining service, Magid is grounded by a rare combination of tailor-made research, a deep understanding of human behavior and operational expertise. David Bilicic can be contacted at 215-740-7337 or dbilicic@magid.com Please visit http://www.magid.com for more information. Extended Biography

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.

Choose a Social Network!

The social network you are looking for is not available.


Hotel Newswire Headlines Feed  

Coming up in February 2019...

Social Media: Getting Personal

There Social media platforms have revolutionized the hotel industry. Popular sites such as Facebook, Twitter, Pinterest, Instagram, Snapchat, YouTube and Tumblr now account for 2.3 billion active users, and this phenomenon has forever transformed how businesses interact with consumers. Given that social media allows for two-way communication between businesses and consumers, the emphasis of any marketing strategy must be to positively and personally engage the customer, and there are innumerable ways to accomplish that goal. One popular strategy is to encourage hotel guests to create their own personal content - typically videos and photos -which can be shared via their personal social media networks, reaching a sizeable audience. In addition, geo-locational tags and brand hashtags can be embedded in such posts which allow them to be found via metadata searches, substantially enlarging their scope. Influencer marketing is another prevalent social media strategy. Some hotels are paying popular social media stars and bloggers to endorse their brand on social media platforms. These kinds of endorsements generally elicit a strong response because the influencers are perceived as being trustworthy by their followers, and because an influencer's followers are likely to share similar psychographic and demographic traits. Travel review sites have also become vitally important in reputation management. Travelers consistently use social media to express pleasure or frustration about their guest experiences, so it is essential that every review be attended to personally. Assuming the responsibility to address and correct customer service concerns quickly is a way to mitigate complaints and to build brand loyalty. Plus, whether reviews are favorable or unfavorable, they are a vital source of information to managers about a hotel's operational performance.  The February Hotel Business Review will document what some hotels are doing to effectively incorporate social media strategies into their businesses.