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The Rise of the Subscription Economy and Its Potential in the Lodging Industry

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October 29, 2018
Internet | Customer Relationships
Dr. Rick Garlick

Subscriptions are often associated with video streaming services like Netflix and Hulu, but consumers can pretty much subscribe to anything they want these days – clothing, snacks, wine, beauty products, cleaning services. And subscribe they do. 

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 $2.6 billion in sales in 2016, up from $57.0 million in 2011. As a whole, the subscription economy is growing at a rate nine times faster than the S&P 500.
Subscription Services Offer Consumers Attractive Features And Benefits
like Amazon Prime’s free two-day shipping, free movies and music downloads. And unlike more traditional business models focused on one-time transactions or single-product purchases, subscriptions are built around ongoing services that better meet consumers’ needs – putting an emphasis on building a relationship with the consumer. Given the importance the travel and hospitality sector places on building personal relationships and generating loyalty, offering subscription services would seem a natural fit for the industry. Yet, the industry seems surprisingly reluctant to catch up – with a few exceptions in travel. 
One very well-established subscription service is offered through the American Automobile Association (better known as AAA). This subscription service offers everything from towing to discounts on hotels and attractions. Similarly, Uber and Lyft have developed subscription ride sharing services. One such plan, the all-access plan, offers a set number of rides for a discounted up-front price. A newer subscription plan locks in set pricing between two routes for a monthly fee. For $7.99 a month, you can guarantee unlimited rides for a set price per ride between two locations you choose. Likewise, Surf Air offers a subscription model for regional air flights – offering ‘all-you-can-fly service’ for a monthly fee. 
Despite the potential opportunities, the hotel business has been slow to offer similar subscription offerings. Perhaps it’s because there is concern that offering subscriptions might somehow detract from existing loyalty programs. However, it’s quite common for travelers to be enrolled in multiple hotel loyalty programs, so there is already some question as to how committed guests are to any particular brand. And there is already significant cross-over between those who have subscriptions and loyalty program membership. 
Recent research conducted by Magid shows that nearly half (49 percent) of individuals who have at least one subscription also reported being a member of at least one hotel loyalty program. The data also showed that those belonging to hotel loyalty programs were more engaged in subscription activity than subscribers who were not loyalty program members. On average, hotel loyalty program members held a greater number of subscriptions, were more likely to renew their current subscriptions and had more interest and enthusiasm in subscription services than other subscribers. 
This research was conducted via an online study of 3,000 individuals who have an active subscription within one of 14 business verticals (including food, music, fitness, fashion and more). The study sample, gathered from an online panel, was designed to be nationally representative of generation/age, ethnicity, region and income.
Subscriptions represent a growing trend in the economy, attracting relatively affluent consumers.
Two-thirds (65%) of subscribers in the Magid 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.
Hotel loyalty program members seem particularly predisposed toward subscription opportunities.
Perhaps there is something in the makeup of a loyalty program member that recognizes the value of an ongoing relationship with a brand rather than focusing on single transactions. Or perhaps the relationship is a bit more spurious as frequent travelers are more likely to be more affluent people, and affluent people tend to be more likely subscribers. Whatever the case may be, there is overlap between the two, which is important for hotel brands to recognize.
As there is a lot of loyalty program overlap, offering paid subscriptions represents a barrier to switching.
It’s common for frequent travelers to be enrolled in multiple hotel programs, often, if for no other benefit than to get free internet access or other perks that might be offered at even a basic level of membership. Since enrollment is free, travelers have no real skin in the game. However, the Magid study shows that subscribers who pay for fee-based subscriptions feel compelled 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 drive much more consistent loyalty on the part of the subscriber.
Subscriptions represent gift opportunities.
Offering subscriptions as gifts represents one more potential source of revenue. The nice thing about this approach is that, like other gift cards, subscription costs are paid upfront, offering a better cash flow opportunity. Also, since gifts often go unredeemed, gift subscriptions may be quite profitable for the hotel brands.
The attraction toward subscriptions represent potential partnership/affiliation opportunities
Even if hotel brands do not see offering subscriptions directly as a worthwhile venture, presenting subscriptions to popular services as a rewards option potentially adds to the attractiveness of the loyalty program to its members.
Still there is much to learn
While the Magid data strongly suggests that hotel companies can realize greater revenue through the power of subscriptions, there are still some questions that need to be answered. The first is to determine which features and benefits create the most value for the potential subscriber: curated serendipity, tailored choices, removing friction in their life. There are many subscription services that are not thinking through what consumers really want or need in a way that justifies a monthly or annual subscription fee when it comes due. 
Just as Amazon Prime developed a very attractive subscription package of diverse benefits, the first step in developing a hotel subscription offering would be to create the package that finds the optimal balance of value for a particular hotel brand’s target consumer and financial return to the brand. For hotels, is it last-minute deal offers? Upgrades? Early check-in/late check-out? 
Just as important is the need to find the right price point. Movie Pass, a subscription service that gives access to new movies in theaters nationwide for a monthly fee, found itself to be popular with consumers, but struggled to find the right model and price point to be profitable as a business. Often, consumers are interested in new concepts until they find out the price at which the new offering is being sold. Similarly, businesses may not price their offering appropriately to make a fair profit. Once an attractive subscription offering is developed, the next immediate step is to test potential price points needed to both attract consumers and represent a good deal for the hotel brand. 
The last concern is how to appropriately market a new subscription concept. Many good ideas fail due to ineffective marketing. The Magid data suggests there is great opportunity for hotel brands to realize untapped revenue, but in addition to having the right offering and price, the subscription concept must be presented properly in the marketplace. Hotel brands that have spent countless dollars developing established loyalty programs in which members can enroll for free, don’t want to do anything to disrupt the success they’ve worked hard to build. Subscription programs would need to be presented as an upgrade with very clear benefits that go beyond what you can already earn through frequent visits to the brand. 
While there are challenges yet to be worked through, hotel brands have a chance to jump on board a train that seems to be rolling down the tracks and picking up continual steam. Subscriptions represent a chance to both strengthen brand loyalty and generate new revenues.

©2018 Hospitality Upgrade 
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