The relationship between brand and customer relies on the value that brands create. And marketers are always looking for ways to prove that their products and services are valuable enough to purchase. What do customers gain from my brand, and how can I show them we are worth the investment? Subscriptions allow brands to provide customers with their products and services on a regular payment and delivery schedule. Newspaper deliveries or streaming services like Netflix might come to mind when you think of subscriptions. But really, everyone from airlines to social media platforms are giving subscriptions a try.
“A subscription business model is a recurring revenue model in which customers pay a weekly, monthly, or yearly fee in exchange for your products or services.” 1
Subscriptions can be profitable and can increase customer lifetime value. 2 Businesses that use this revenue model can “improve buyer retention” and “develop stronger relationships with [customers] over time.” 3 Customers generally like subscriptions because of “the convenience of automatically repurchasing a product or service that you know you’re going to need in the future,” 4 as well as the prices. Often times, paying for a monthly subscription is less expensive than making the same individual purchase over and over again at full price.
Value is determined by the customer’s perception of the benefit to cost ratio. Are the benefits of acquiring this service worth the costs? Companies with strong value propositions – or the strategic tool businesses use to communicate the value of their business to their customers – gain customer loyalty. High customer loyalty, in turn, increases customer retention and decreases customer switching. Subscriptions allow companies to attract and keep customers in exchange for providing customers with convenience, lower prices, and other benefits.
Technology has played a huge role in the growing popularity of subscriptions as companies have the ability to move from a one-time purchase business revenue model to recurring purchases. 5 However, easy access to a variety of subscriptions online makes it easy for customers to switch to competitors. For this reason, the subscription model can also be problematic.
“The higher the churn rate, the more difficult it becomes for subscription e-commerce companies to cover their acquisition costs and to scale their revenues.” 6
Based on 2018 research, subscriptions can actually increase churn rate, especially for “services that don’t deliver superior end-to-end experiences.” 7 Some marketers offer discounts or deals such as a free 1-month trial with the hope that customers will like the service and pay for it into the future: “Now, more companies in various sectors are trying out the subscription model, sometimes by providing discounts, like salad chain Sweetgreen.” 8 But this may not always have its intended effects. Marketers should be wary of offering deals on subscription services to acquire customers “unless these promotional investments have a clear payback.” 9 High churn rates, easy cancellation processes, and easy access to competitors can cause more harm than good as “[m]ore than one-third of consumers who sign up for a subscription service cancel in less than three months, and over half cancel within six.” 10
Among industries testing subscriptions for their services are airlines. This year, Alaska Airlines joined others like Delta and American Airlines to offer their own flight subscription. The plan “appeals to college students and business travelers who know they need to fly and want to lock in rates.” 11 Interestingly, the subscription cannot be cancelled until after the full 12-month period, 12 diminishing chances of high churn rate within the first few months but also repelling potential customers who feel 12 months is too long of a commitment.
“Keep in mind that each airline does things differently, and that the subscription concept works best if you can plan to travel almost exclusively on one airline.” 13
The issue with airline subscriptions is twofold: it only works for customers who travel frequently and exclusively with one airline. Depending on the airline, customers may already be enrolled in frequent flier programs where they get deals on services like flights, baggage, or Wi-Fi. Think back to value and the benefit-cost ratio. If the cost is higher than the rewards when comparing frequent flier and subscription programs, customers will not see the value of making the additional purchase if they already pay for one plan.
For now, airline subscriptions work best for certain customers. As the travel industry continues to pick up, however, “Airlines, rental car companies and a growing number of hotels and resorts are introducing or expanding their subscription plans to attract the work-from-anywhere workforce and the growing number of leisure travelers who want to go to more places and stay longer.” 14 Marketers see these upward trends and the success of subscriptions in other industries and believe it can benefit the travel industry as well.
Also adding subscriptions to their services are social media platforms like Instagram and Twitter. Content creators and influencers already have the option to earn extra revenue from followers through other platforms like Patreon or TikTok’s Creator Fund and Tips. 15 Instagram’s Subscribers and Twitter’s Super Followers are part of attempts to make their own platforms “the most attractive avenue for content creators,” despite the fact that they would not directly receive revenue through the subscriptions. 16 Their motivation comes instead from the value that content creators give social media platforms and brands they promote. 17 The more benefits creators receive for using a platform, the more likely they are to use it.
“As an idea or belief increases in popularity, we are more likely to adopt it.” 18
It seems that the travel industry and social media platforms are the latest groups to succumb to the bandwagon effect. This effect can be defined as a “cognitive bias [that] refers to people’s tendency to do something simply because other people do it.” 19 Usually, marketers are the ones exploiting this “tendency to follow trends and fads” and “desire to conform.” 20 As subscriptions have multiplied in number over recent years in everything from pet toys to crime-solving kits, 21 the bandwagon effect has taken hold of both marketers and customers. Because so many companies now offer their own subscriptions, those without must adopt subscription plans to their businesses in order to remain competitive. In the same way that an Instagram user will feel left out if they don’t have a subscription to their favorite influencer, companies without subscriptions are missing out on the opportunities that subscriptions offer.
Questions that marketing managers would consider:
- What are the advantages and disadvantages of using a subscription plan in your business?
- How can you communicate the value your brand offers customers?
References
1 Fontanella, C. (25 February 2022). What’s a Subscription Business Model & How Does It Work? HubSpot, Inc. https://blog.hubspot.com/service/subscription-business-model
2 Tarver, E. (30 May 2021). Subscription Business Model. Investopedia. https://www.investopedia.com/ask/answers/042715/how-do-subscription-business-models-work.asp#:~:text=What%20Is%20a%20Subscription%20Business,customer%20retention%20over%20customer%20acquisition
3 Fontanella, C. (25 February 2022). What’s a Subscription Business Model & How Does It Work? HubSpot, Inc. https://blog.hubspot.com/service/subscription-business-model
4 Fontanella, C. (25 February 2022). What’s a Subscription Business Model & How Does It Work? HubSpot, Inc. https://blog.hubspot.com/service/subscription-business-model
5 Tarver, E. (30 May 2021). Subscription Business Model. Investopedia. https://www.investopedia.com/ask/answers/042715/how-do-subscription-business-models-work.asp#:~:text=What%20Is%20a%20Subscription%20Business,customer%20retention%20over%20customer%20acquisition
6 Chen, T., Fenyo, K.,Yang, S., & Zhang J. (9 February 2018). Thinking inside the subscription box: New research on e-commerce consumers. McKinsey & Company. https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers
7 Chen, T., Fenyo, K.,Yang, S., & Zhang J. (9 February 2018). Thinking inside the subscription box: New research on e-commerce consumers. McKinsey & Company. https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers
8 Alcántara, A. (30 March 2022). Airlines, Restaurant Chains Join the Subscription Bandwagon. The Wall Street Journal. https://www.wsj.com/articles/airlines-restaurant-chains-join-the-subscription-bandwagon-11648675513
9 Chen, T., Fenyo, K.,Yang, S., & Zhang J. (9 February 2018). Thinking inside the subscription box: New research on e-commerce consumers. McKinsey & Company. https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers
10 Chen, T., Fenyo, K.,Yang, S., & Zhang J. (9 February 2018). Thinking inside the subscription box: New research on e-commerce consumers. McKinsey & Company. https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers
11 Alcántara, A. (30 March 2022). Airlines, Restaurant Chains Join the Subscription Bandwagon. The Wall Street Journal. https://www.wsj.com/articles/airlines-restaurant-chains-join-the-subscription-bandwagon-11648675513
12 Alaska Airlines. (2022). Alaska Flight Pass FAQ – Subscription. Alaska Airlines, Inc. https://www.alaskaair.com/content/gifts-and-products/flight-pass/faq-subscription
13 Peterson, B. (24 April 2019). Can Airline Subscription Plans Save You Money? Consumer Reports. https://www.consumerreports.org/airline-travel/can-airline-subscription-plans-save-your-money/
14 Baskas, H. (30 March 2022). Travel subscription plans from airlines and hotels are expanding. NBC News. https://www.nbcnews.com/business/business-news/travel-subscription-plans-airlines-hotels-are-expanding-rcna20557
15 Bula, A. (16 February 2022). Are paid subscriptions the next step for social media? SHARE Creative. https://sharecreative.com/news/paid-subscriptions-social-media/
16 Millar, A. (21 January 2022). Why Instagram is climbing aboard the subscription bandwagon. MIDiA Research Ltd. https://www.midiaresearch.com/blog/why-instagram-is-climbing-aboard-the-subscription-bandwagon
17 Bula, A. (16 February 2022). Are paid subscriptions the next step for social media? SHARE Creative. https://sharecreative.com/news/paid-subscriptions-social-media/
18 Adcock, P. (5 October 2021). The Bandwagon Effect in Marketing. Adcock Solutions. https://www.adcocksolutions.com/post/the-bandwagon-effect
19 Adcock, P. (5 October 2021). The Bandwagon Effect in Marketing. Adcock Solutions. https://www.adcocksolutions.com/post/the-bandwagon-effect
20 Adcock, P. (5 October 2021). The Bandwagon Effect in Marketing. Adcock Solutions. https://www.adcocksolutions.com/post/the-bandwagon-effect
21 Baskas, H. (30 March 2022). Travel subscription plans from airlines and hotels are expanding. NBC News. https://www.nbcnews.com/business/business-news/travel-subscription-plans-airlines-hotels-are-expanding-rcna20557
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