Can a retailer’s loyalty program drive customer loyalty and become a source of revenue? Some retailers and grocers are already leveraging the idea of augmenting a loyalty program with a paid membership, and, by the numbers, they have very good reason for doing so.
UBS Global Wealth Management has pegged the subscription economy to become a $1.5 trillion market by 2025, with ecommerce subscriptions being the leading sector. In the last decade (and more), subscription services like Amazon Prime, Stitch Fix, Birchbox, and Hello Fresh have significantly grown the subscription market. Their success has paved the way for traditional retailers to explore and introduce subscription formats.
Yet, introducing a subscription model presents distinct challenges for omnichannel retailers and grocers, especially those with thriving brick-and-mortar operations. With consumers already discontented over escalating food prices, the prospect of incurring additional monthly fees may not be appealing. Some shoppers may resist change and not immediately recognize the value a subscription program can deliver.
As retailers consider adopting a subscription model, they must design it to strengthen customer loyalty and retention. A successful paid program should offer substantial value in return for participation. Below are three key strategies for creating a subscription model that generates recurring revenue and encourages brand loyalty.
1. Cultivate a Committed Relationship
A successful subscription program requires recognizing a loyal consumer’s financial commitment to the retailer. In response, the retailer must reciprocate by offering rewards and added value to support the shopper.
A subscription program must offer subscribers value beyond what they receive from enrolling in a free rewards program with just an email and phone number. Retailers should understand that it’s more than offering free delivery; it involves providing relevant rewards that maintain subscriber engagement, activity, and frequency.
In March, Target unveiled an updated version of its Target Circle program, introducing a monthly paid membership named Target Circle 360. The program enhances traditional loyalty programs by incorporating free same-day delivery through Shipt, among other perks. It up levels traditional loyalty initiatives by giving subscribers benefits like delivery in under an hour, extended return periods, personalized promotions, and more, engaging them in ways that drive valuable KPIs such as frequency and creating a new community of brand advocates through winning the hearts of customers by offering new levels relevance and convenience.
Target’s strategy clearly aligns with broader industry trends. Our research found that nearly 60% of professionals managing retail loyalty programs are intensifying their promotional efforts to enrich the value proposition of subscription-based loyalty programs for customers.
2. Personalize Programs by Utilizing First-Party Data
Retailers and grocers possess a tremendous advantage with their exclusive access to shopper data. By leveraging a subscriber’s loyalty and purchase data, retailers can tailor promotions and member experiences to add even more value to their subscription programs. According to a study by Chargebee, a revenue growth management platform that helps brands manage subscriptions, personalizing offers for new subscription members using purchase data led to a 40% reduction in churn rate among these members.
Subscription models that engage members personally are more likely to drive customer retention, banking on consumers who perceive greater value in such programs. Personalized promotions that resonate with a member’s preferences or specific attributes, such as dietary restrictions like being gluten-free, make loyalty members feel recognized and valued — and these targeted promotions are more likely to be used, enhancing value for the member, too. In the current marketplace, retaining customers within a subscription program is paramount, overshadowing the goal of increasing trial memberships.
The Chargebee study also revealed that nearly 90% of subscription leaders consider customer retention as crucial or even more critical than acquiring new customers. This prioritization could explain why, in a 2024 Deloitte study, over half of the retail executives identified enhancing their loyalty programs as a critical growth opportunity for the year, ranking it above all other strategies.
3. Connect the Omnichannel Experience
On the surface, an omnichannel retailer’s subscription model may seem like a way to tie consumers into a monthly delivery fee. Yet, a retailer that focuses its subscription model on the total omnichannel rewards experience will reiterate the program’s larger value to its paid members. Making sure the loyalty and rewards come through inside the store is an integral part of a loyalty-based subscription model.
When shoppers are in a physical store, they should still be able to experience the value of the rewards, receive customized offers, and see greater value. For instance, if a product isn’t in stock, the member can order right there in the aisle and get a same-day delivery from a different location. Another example is a retailer tapping into technology that delivers personalized notifications to members while shopping in-store to enhance the omnichannel experience.
One great example of an omnichannel subscription program going beyond the “free delivery” model is Woolworths Australia’s Everyday Extras. This program rewards customers by offering them a 10% voucher off any shop they choose every month, in-store and online, across their grocery and department store banners. When subscribers are on-premise, they are also often gifted free local products to try, which enhances their in-store experiences and connects them to their online interactions with the subscription program.
The Woolworths Australia, Everyday Extras example, shows that when subscription program members experience immediate, enhanced value from the program both online and inside stores, a retail brand will enjoy increased customer retention and revenue growth in excess of recurring subscription fees.
Subscription Models Must Embrace the Value-for-Participation Exchange
Like Target, with its revamped Target Circle 360 programs, retailers are upgrading their subscription offerings. They’re bringing in more ways to encourage loyalty, including personalized offers and exclusive deals, and hitting the sweet spot of offering convenience, like saving on delivery. In this model, retailers see a boost from the membership fees, while subscribers get to enjoy tailor-made benefits. It’s about creating a “rewarding” experience for both sides.
Companies that focus on the importance of this relationship will create programs that help consumers feel much closer to their brand and become a bigger part of their customers’ community. Traditional retailers and grocers can expand their growth with membership models by concentrating on providing real value for their customers’ participation.
Subscription models that put the customer at the heart of their strategy are more likely to improve and build customer loyalty and keep customers coming back. Put another way, when true value is delivered inside a paid membership program, customer loyalty is gained, and customer retention is sustained.
