Unlocking Consumer Loyalty: Navigating Membership and Subscription Models in E-Commerce
Membership and Subscription Models
Businesses are building up strategies that aim at providing a seamless shopping experience across all mobile channels, online, and stores through membership and subscription models. The membership and subscription models enable reliable access to products, services, or full enjoyment seasonally. Membership, the sense of belonging to a group, creates a contractual relationship between the customers and the business retailers where the customers pay a fee in exchange for content and services from the retailer. On the other hand, through subscription, a member or customer pays a recurring fee to gain continuous access to content, products, or services (1). Netflix and Wi-Fi are examples of subscriptions. These models control the challenges in managing members and payments (2). This article breaks down the different membership and subscription models by highlighting how they work and operate in e-commerce and the related pros and cons.
Membership models
Membership promotes customer loyalty due to the sense of belonging to a given industry. Most online e-commerce retailers, for example, Amazon, offer membership programs that ensure benefits like free shipping, good discounts, early access to sales, and personalized recommendations (3). The Membership models include the following:
Tiered Membership
Here, there are different levels of membership attached with its own set of benefits, thereby catering to a wider range of customers with diversified consumer needs and budgets. Therefore, a customer gets to choose what level they want to align with their market requirements (4). By creating exclusivity in the market, tiered membership attracts a wider audience with different budgets since the market is flexible. The limitation is that it requires management and differentiation across all the tiers.
All-Inclusive Membership
In this membership program, there is unrestricted access to online content, products, and services, unlike customers in different tiers. Customers, therefore, enjoy an extensive package that includes everything the retailer or business has to offer (3). With all-inclusive membership comes a sense of value and completeness. However, the retailer may offer more value than the customer actually needs since they cannot differentiate the membership levels.
Limited-Access Membership
The customer gets finite or restricted access to content, products, and services. This membership best serves customers who need a more thoughtfully organized experience due to the scarcity of retailers in the market and the uniqueness of the various benefits (3). Moreover, membership limits the potential customer base, and there is a need to balance limited access enjoyments carefully.
Subscription Models
Recently, subscriptions have been adopted by many businesses and industries. Subscription takes recurring payments in exchange for continued access to content, products, and services. Among the benefits that come with subscription models are cost efficiency, continuous value, and updates, or the convenience and accessibility of products and services (5). Subscription is mainly adopted by food delivery industries, streaming platforms, news, and media, among others. The three main subscription models are:
Fixed-Term Subscriptions
This model operates on a predefined period and appeals more to the customers who prefer being committed for a given period. It is often adopted by businesses that offer time-limited access to content and products of the services offered (5). The customer has to renew their subscription at the end of the subscription term. This model aligns with seasonal and timely benefits and has the potential for higher customer loyalty and retention. However, customers could turn it off at the end of the subscription if their expectation is not met.
Use-based Subscriptions
This model charges customers based on their consumption of a product or service. Pricing is therefore done in line with values the customers derive, like usage volume, data transfer, or the number of active users (5). Industries like telecommunications and cloud computing adopt use-based subscriptions. Challenges in pricing and potential complexities for unpredictable revenue fluctuation are some of the limitations of this model.
Recurring subscriptions
This is the most common subscription model where customers pay a fee regularly, say weekly, monthly, or annually, to access a product continuously. The model provides convenience and predictability for the customer and business (5).
Conclusion
A business or customer can choose between membership and subscription models depending on their understanding of the distinction between the models. Both membership and subscription models engage customers and foster their loyalty, and, in the long run, generate revenue for the business. These models are aligned with various benefits for the customer. The business has to consider the effective membership and subscription management for the different models.
References
Wagner, L., Pinto, C., & Amorim, P. ( 2021). On the Value of Subscription Models for Online Grocery Retail. European Journal of Operational Research. 294 (1). https://www.sciencedirect.com/science/article/abs/pii/S0377221720304392
Zhubi. V & Shamoli. M. (2021). Membership Application Subscription Based. University for Business and Technology. https://knowledgecenter.ubt-uni.net/conference/2021UBTIC/all-events/407/
Uscreen. (2019, Aug 21). Subscription Business Models Types You Should Know [Video]. YouTube. https://www.youtube.com/watch?v=hYG0tuYuzKU
Hu, L., Zhang, Y., Chung, S., & Wang, L. (2022). Two-tier price membership design based on user profiles. Electronic Commerce Research and Applications. Vol 52. https://www.sciencedirect.com/science/article/abs/pii/S156742232200014X
Marr, B. (2022, Mar 9). The Best examples of Subscription Business Model [Video]. YouTube. https://www.youtube.com/watch?v=lUrg11q0
