The subscription economy has grown by more than 300 per cent between 2012 and 2019. And it’s continuing its meteoric rise thanks in large part to Amazon Prime making subscriptions a part of everyday life for many Australians. In fact, according to Telsyte data, Amazon Prime had 4.5 million subscribers in Australia as of June 2023.

“This is a huge amount of people who are opting for additional convenience with a recurring order. And that convenience is key. It’s creating the sense of brand loyalty, giving subscription businesses a recurring touch point with a subscriber on a cadence versus relying on a one-off purchase,” says Carl Nightingale, Head of Product for Chargebee Retention.

“That committed relationship creates a partnership and allows brands to be more personalised in how they engage subscribers, which leads to healthier unit economics overall.”

The relationship between subscriptions and loyalty

Many loyalty programs include a subscription element, and many subscription services incorporate conventional loyalty principles. Both of these approaches provide value to customers, whether members or subscribers, in return for something valuable to a brand or retailer.

In the context of loyalty programs, the exchange is data which can be used to generate deep customer insights which enable better, customer-centric decision making across all areas of the business. For subscription programs, it’s the predictability that comes with recurring revenue. At a time when consumers are encountering higher prices and adjusting their spending patterns, this value exchange is becoming paramount.

Consumers want discounts and other benefits to reduce the overall cost of their purchases. At the same time, brands – especially, retailers – need strategies to retain and attract new customers, especially as inflation-driven brand switching runs rampant. The good news is that subscription and loyalty programs, as well as hybrid programs that combine elements of both, excel at boosting customer retention. They create dependable, ongoing and expanding revenue streams and significantly greater customer lifetime value when executed well.

Subscription and loyalty programs boost customer retention by:

  1. Leveraging the psychology of affiliation and community
  2. Offering tangible value and convenience to members and subscribers
  3. Creating more opportunities and interaction points for customer engagement and marketing
  4. Enabling more sophisticated personalisation and insights into customer behaviour

Supercharging customer retention

The relationship between value and loyalty can go a long way toward boosting retention rates. But subscribers are inherently easier to retain than customers who require constant reacquisition efforts. The rationale for this is straightforward: a subscriber has to proactively cancel the subscription and until they take that step, the company has opportunities to prevent or dissuade cancellation.

How significant is the potential impact for retail brands to increase their retention rates through subscriptions? According to Bain & Company, a mere 5 per cent increase in customer retention rates can lead to as much as 25 per cent profit growth. A similar study by McKinsey found that subscription-based businesses grow at a rate five times faster than traditional businesses, on average, and also demonstrate higher profitability, with an average EBITDA margin of 25 per cent.

Subscriptions present a substantial opportunity that retailers can leverage. Businesses can track activity across various channels and tools through automated workflows to optimise retention rates. Customers who slow their activity are at a higher risk of churning than those who progressively increase their activity over time. By collecting, tracking and analysing customer data, companies can gain insights that inform the actions needed to retain more customers, including those identified as the most valuable to the brand.

Subscription success: The role of technology partners

Brands often require technology partners to help them gather, manage and execute these engagement strategies, utilising the customer data available through their systems, such as point of sale, CRM and loyalty program databases. Eagle Eye, for example, enables companies to leverage this digital opportunity by providing real-time omnichannel customer connectivity, seamlessly integrating with all points of purchase and the retailer’sdata analytics capabilities.

Through this connection, Eagle Eye enables the implementation of all a retailer’s data-driven decisions to reach the end customer using a comprehensive digital marketing toolkit. This toolkit encompasses real-time digital loyalty programs, personalised promotions, subscription services, gifting and cashback initiatives, charitable donations, third-party partnerships, coalitions and more.

Many brands and retailers can face challenges with the technical and payment infrastructure required to accelerate the implementation of full-featured subscription programs. Partnering with platforms like Chargebee enables companies to rapidly launch and iterate subscription-based plans and products through freemium, trial and paid offerings. Helping companies provide tailor-made offers for long-time subscribers and those most likely to churn, Chargebee also mitigates cancellations.

Companies receive actionable insights and analytics on those customers who do churn to sharpen and refine future customer retention strategies. They also benefit from the automation of collections and revenue recovery. Together, these tools provide brands and retailers a powerful way to merge loyalty and subscription programs, ultimately reducing churn, upselling to existing customers and increasing customer lifetime value.

Jonathan Reeve is vice president for APAC at Eagle Eye.