Why subscription loyalty can be gold dust

The travel industry faces challenging times due to the long-term impact of the pandemic. As we see signs of recovery, it’s time to rebuild customer relationships. Emirates recently launched its Skywards+ scheme – a subscription loyalty programme enabling customers to benefit from additional baggage allowance, increased points earning rates – and lounge access. Whilst not new as an engagement concept, it is a first for an airline frequent flyer programme. I’m sure we will see several changes as the Emirates proposition matures, mainly towards greater value and reward for active members.

As travel brands re-engage consumers, is asking them to pay for such a programme the way to go? My short answer is: Yes, but the proposition must be compelling and aspirational, and the programme sensibly embedded in the underlying loyalty strategy.

Make it a win-win:

Customers must perceive that what they’re paying for is well worth the fee, while brands must gain material benefits from the programme activity.

Two major psychological traits come into play when getting a loyalty programme right. Firstly, humans like to be rewarded for ‘good’ behaviour. Secondly, we are programmed to strive for elevated status. People are willing to adjust their behaviour and pay for both of these things.

Subscription loyalty programmes cannot simply be fee-based versions of existing ‘earned’ loyalty tiers; that would create a ‘bypass’ to existing incentives and lessen the overall programme impact. Customers need clear reasons to buy into the programme, such as instant access and improved utility of benefits. An unattractive scheme with no evident payoff won’t survive past the first membership year.

Good loyalty strategies pay handsome dividends for a brand. What more should companies offer customers to make reward engagement while supporting their own commercial objectives? How does a paid programme fit into the strategy?

Going for gold on the consumer side:

Building a programme that is a win for consumers needs to address both the above mentioned psychological response, and any loyalty programme must respond to the different ways members interact with your brand. This means offering aspirational value, and rewarding for ‘good’ commercial behaviour of transacting with your brand.

Some will join for the prestige alone, but fundamentally the perceived benefits that people get from the programme will need to outweigh the costs demonstrably.

One approach is to give something back for repeat custom. Cue the free night at a hotel or an airline upgrade voucher. Research shows that people speed up their repeat custom with a brand if they know there is a ‘prize’ at the end. This is the basis of all loyalty programmes.

Even if you can’t provide overt ‘rebates’, you can offer engaged customers more convenience – late check-out, free hotel upgrades, line-skipping, luggage allowance, and premium seating. These things serve two purposes: they tend to be highly valued services at a low marginal cost, and they make your members feel prestigious – especially if these features aren’t available otherwise.

Going for gold on the brand side:

Subscription loyalty also needs to benefit the brand beyond any direct membership revenue. Programme design is obviously critical. Your company must derive wider commercial value from the programme while making members feel rewarded and recognised.

The reasons to launch any loyalty programme is to increase core revenue, drive brand awareness and, in some cases, create a currency that is attractive to commercial partners. CFOs are starting to recognise what loyalty practitioners have known all along: Loyalty is a profit centre. What this means for a subscription loyalty scheme is that it’s not just about the fee income and funding of the direct benefits. It’s an incentive accelerant to the customer to buy frequently, be a brand advocate and generate long-term value.

Look at the UK sandwich chain Pret a Manger’s coffee subscription. The idea isn’t just that customers pay a fee for generous access to coffee. Most members will be sure to be ‘in the money’, at the risk of drinking too much coffee. For Pret, this is a footfall acquisition scheme: customers are going into Pret rather than, say, Starbucks and are more likely to buy other things while there – a pastry with their coffee, maybe lunch as well. It’s an incentive scheme to grab a bigger share of the wallet.

Amazon Prime is another example. People join Prime for free next-day delivery. Even though this in isolation is loss-making, Amazon is happy because the membership removes a barrier to frequent ordering and creates a bias towards Amazon. Their members are proven to order 4x more than those without the subscription. The subsequent addition of media content obscured the economics for customers, making the whole programme stickier and reducing churn.

You might want to consider the fees you charge against such derived benefits, rather than just how much the programme benefits will cost. To do this, you need to look at your programme within the larger commercial context.

A perfect chemistry:
Subscription loyalty programmes can be great for travel firms, especially in post-pandemic recovery. Launching a programme of this calibre requires a clear targeting strategy. An organisation launching a subscription loyalty programme needs to make sure they’re getting all of the incentives right to attract and retain customers, while ensuring business-wide profitability. Programme design is critical to success, but paid-for strategies are not in most loyalty managers tool kit yet, so engaging with experts to help execute a subscription loyalty strategy is a smart shortcut to success.

Getting subscription loyalty right is a bit like mixing volatile chemical elements, but if you can get the alchemy right, it’ll be long-term gold.

Peter Gerstle is the head of travel products at Collinson