Excerpt from Econsultancy
What will it take to make a subscription-based business model work in travel?
Subscription-based business models are gaining traction in all types of verticals, from fashion and FMCG to streaming on demand, fitness and beauty.
But can subscriptions work for every single industry – including ones where purchases are made much less frequently, like travel? Over the past couple of years, the idea of travel subscriptions has attracted increased interest, with Skift naming subscription travel one of its Travel Megatrends for 2020, calling it the “next frontier of loyalty”.
When the Covid-19 crisis hit the travel industry, ideas for innovative revenue models were put on hold in favour of simply surviving. But as the impact of the crisis has eased and businesses have once again turned their eyes to the long-term future, travel subscriptions are gaining momentum again – with some brands believing they will be key to the new era of travel that emerges from the crisis.
At virtual travel conference Phocuswright Europe Online 2021, Lorraine Sileo, Senior Analyst and Founder at Phocuswright Research, chaired a panel to discuss whether and how subscription models could work for travel. Her guests, Kanika Soni, Chief Commercial Officer at Tripadvisor, and Lennert De Jong, Chief Commercial Officer at CitizenM Hotels, discussed the subscription packages launched by their respective brands, why now is the right time to launch subscriptions in travel, how subscriptions can improve customer loyalty in travel, and how travel companies can make subscriptions pay off.
Why now for travel subscription models?
Moderator Lorraine Sileo opened the panel by posing a fundamental question: what makes now, when the travel industry is still recovering from the effects of the Covid-19 pandemic, the right time for businesses to explore subscriptions?
“I think it’s an exciting time for travel companies to really embrace innovation,” said Tripadvisor’s Kanika Soni. After a tough year for all travel businesses, including Tripadvisor, the brand is using the opportunity to “think very carefully about what we focus on and why, how we prioritise our resources and investment, and … step back and take stock of what our brand truly stands for. How do we re-energise our company mission, and then ensure that everything we do is in service of that mission, and in service of our travellers?”
Tripadvisor’s subscription service, Tripadvisor Plus, was first announced in November 2020, before entering beta for a small section of US users in December, and opening up to hotels in March. Earlier this month, the service launched fully in the United States. The Plus programme, said Soni, has allowed Tripadvisor to think about, “how we want to work with our partners, new ways that we can support them in their path to recovery – while also allowing us to connect with our consumers who are looking to travel again in a meaningful way, and a deeper way than they ever have in the past.”
Soni believes that subscription models have the potential to succeed in travel because “consumers have already adapted their spending patterns and their behaviours – they’ve taken onto subscriptions as a business model that works for them, and that’s particularly true for Gen Zs and Millennials.
“There’s really, in my mind, no reason to believe that travel is not going to be just as successful at subscriptions as other industries have; in fact, it’s one of the very few remaining service industries that doesn’t have a high-value, affordable programme operating at scale today – we hope that Tripadvisor Plus is going to help bridge that gap for us, and for the industry.”
Lennert de Jong of CitizenM noted that it can be quite challenging for hospitality businesses to go from a more “transactional environment”, which is normal for the industry, to the “customer relationship environment” of a subscription model. CitizenM had been working on developing subscription models for “quite some time” before the pandemic hit, and getting the business’s systems ready for subscriptions was a challenging process.
However, with the onset of Covid-19, “We said, ‘Okay, this is now a great time to do a proof of concept, and fast-track a couple of ideas for post-pandemic.’ We never became post-pandemic, but in September, we went to talk to our corporates about a corporate subscription.” With many companies moving out of their offices due to the pandemic and employees working remotely, CitizenM saw an opportunity: “How about a subscription to a hotel company where you can work, meet, sleep and play in one place?”
This formed the basis of CitizenM’s corporate subscription plan, which allows subscribers to work from the ‘living room’ area at any CitizenM hotel (normally priced at $20 per day) throughout their subscription period, stay for three nights per month in any CitizenM hotel, and use meeting rooms at any CitizenM hotel for three hours per month, with the option to add more nights or meeting room hours at a discounted rate. The company is also currently in the midst of testing a B2C subscription model with a “closed group” of consumers.
“For us, subscriptions are the ultimate form of commitment,” said de Jong. “The moment that you buy Amazon Prime, you’re committed to buy at Amazon, and you’re not in market any more for anything else. I’ve seen it throughout my own life – a subscription to a theme park means that part of my free time with my kids is now destined for that theme park, that I would normally only visit once every two years – and now I’m going there three times a year.”
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