Are “Rundles” the Loyalty Programs of the Future?
Brands are constantly working to envision new and interesting ways to keep their customers engaged, retained, and loyal in a world full of choice and competition for consumers’ attention, time, and dollars. In this constant pursuit, the traditional loyalty program models are becoming outdated—too transactional, too stale, and not effective in significantly changing consumers’ perception or behavior. In turn, brands are looking to new models for improving loyalty, pairing subscription models with bundled offerings to increase brand stickiness. Major brands like Uber, which is testing an offering of a monthly subscription that melds food delivery, e-scooters and car rides, are making moves to launch these recurring revenue bundles – or “rundles”, a phrase used by NYU Professor Scott Galloway.
As companies launch these programs, they’re setting the stage not only for the future of subscription services but also for loyalty program design. The recurring revenue bundle offers forward-looking loyalty marketers a way to push the boundaries of how they drive deeper engagement with customers, focusing on the added-value of services, experience, and convenience as opposed to traditional tactics like points, discounts and rewards.
What’s a rundle?
Customer loyalty is an outcome achieved by brands through the delivery of experiences, products, and services that add value for customers, and there is no “one way” to get there. While recurring revenue bundles are aimed at creating a monogamous relationship with the customer, they’re distinctly different from what most loyalty marketers are used to.
The rundle strategy offers a new take on the monthly subscriptions popularized by the Software as a Service (SaaS) business model. At its core is the building of an ecosystem of products and services that make the brand stickier. The trend of turning products into subscription services, whether clothes (like Stitch Fix), groceries (such as Blue Apron) or entertainment (like Netflix), is reinvigorating legacy markets. Products alone are often limited in how they create emotional attachments with customers. This is because from the customer’s perspective, many product markets are commoditized and no longer add enough value to create a meaningful relationship with a brand. Companies are now looking to differentiate through the customer experience while finding ways to expand what brands can offer to turn one-off shoppers into die-hard loyalists.
Where subscription services draw the customer into a monogamous relationship, bundles themselves excel at creating a sense of perceived value. Think of the McDonald’s Happy Meal from your childhood, which offered the promise of a free toy with each meal. The bundle gives you something more than just a hamburger and fries. Customers are conditioned to the reward system of getting something “free,” and eventually, the free offering becomes that thing they can’t live without. Amazon Prime is another classic example of a wildly successful subscription bundle, where the company has constantly evolved the included products and services to optimize the customers’ perceived value and resulting loyalty.
Combine the perceived sense of added value with a SaaS-like monthly subscription model and you have a potent tool for revenue generation and brand loyalty. Recurring revenue bundles are at the frontier of where the customer loyalty space is headed, upending traditional models within industries. They’re being invented as we speak – here are a few ways that brands may apply this evolving concept:
- A media entertainment company could offer a package that includes a streaming service subscription, theme park passes, movie tickets, cruise discounts and more all for a single subscription price.
- A national big box clothing store could bundle a monthly clothing box subscription, early in-store try-ons for seasonal clothing, stylist sessions and early access to sales.
- A hotel group could offer a number of nights at its hotels, spa services, restaurant experiences, room upgrades like wine in the room, a number of golf passes and a kids’ pool package.
The result is a subscription model that is so ingrained in the day-to-day lives of your customers that cancelling their subscriptions would be the equivalent of refusing to email or not using a cellphone. It’s just something the average adult wouldn’t do.
How do I deploy a subscription?
People responsible for generating customer loyalty within a brand need to wrestle with how a recurring revenue bundle could fit within their holistic loyalty strategy. Most loyalty marketers have never run a subscription service, let alone a bundle, so they need to start asking themselves some serious questions.
How do we avoid the typical pitfall of subscription businesses: the “leaky bucket” problem?
Simply put, that drip, drip, drip you’re hearing is the sound of customers slowly draining from your pool of subscribers. Subscription services are all about “Net Adds”, which means you need to add more customers to your bucket than you’re losing. You can do this by acquiring new customers, but it will put a dent in your bottom line because new customers are expensive to acquire. That’s why subscriber churn is the determinant of whether a subscription service survives. It’s far more cost-effective to patch the leak in your bucket and retain your existing subscribers than it is to go out and funnel new ones into your bucket—but retention in a subscriber business is a new game for many traditional businesses
What’s my strategy for reducing subscriber churn?
Now that you know you have a leak in your bucket, you need to address how you’ll plug it. Early lifecycle subscriber engagement is key. Because there’s a low barrier to cancellation, subscribers can use the service for a short period of time and then bail if they no longer feel the recurring payment is worth the service they receive. One way to drive value realization early in the lifecycle is to ensure that subscribers are taking advantage of all the offerings within a bundle. Customers’ benefits utilization rate needs to be high for your subscribers to stick around, and there are strategies and tactics that can improve usage.
How do I develop the right subscription performance management muscle?
You need to put your analytics on steroids. If you’re coming from a product or retail background, your analytics are going to look much different with a recurring revenue bundle. You’ll need to consider product and service usage as well as engagement and a deep lifecycle-based marketing strategy. You also need a way to measure who’s flowing out of your leaky bucket and why they’re leaving. Ingesting and analyzing the right data and visualizing it in a compelling and informative manner is critical to telling the story of the cost of acquisition and how you’re maximizing subscriber tenure.
What does this mean for loyalty marketers?
Sophisticated brands understand that loyalty is an outcome and not just a marketing discipline. The strategic role that subscription models, bundles and traditional loyalty marketing can play will vary by brand, but many will find an increased sense of blurred lines between these models, as all can help improve customer lifetime value.
To answer the big questions, you must understand your customer and set clear strategic direction for the brand. Understanding how your bundle of products and services will fit with your traditional loyalty practice is a unique proposition for every brand. Should you retire your existing loyalty tactics? Or should your loyalty program live alongside your bundle? Maybe an integration with a subscription service, where your paid subscription is a tier within the loyalty program is the best approach. Like loyalty itself, the answers won’t come overnight, and a strategic approach to answering these questions through an analytic process, deeply informed by customer feedback and testing, is the only way to know what is “right” for your business.
Learn more about how PK is leading in loyalty and gain exclusive access to the Forrester report on Loyalty Service Providers.
About the Author
Clay Walton-House helps Fortune 500 companies create and implement new customer engagement strategies that accelerate growth and build loyalty. His expertise lies in understanding consumer behavior and translating it into actionable customer insights. Clay has a proven track record of successful program design and optimization, helping uncover ways to build retention and loyalty strategies into a company’s broader business model.