Subscription Pricing for the Travel and Hospitality Industry: A Holistic Analysis
In recent years, subscription-based pricing models have gained significant momentum across various industries. Transitioning from the traditional fee-for-service approach, this pricing strategy provides customers with unlimited access to a range of products and services for a predetermined fee. This article examines the applicability and potential advantages of subscription pricing within the travel and hospitality industry.
Introduction
Amidst the rapid pace of change in today's world, industries are redefining their revenue strategies to harmonize with evolving consumer preferences. The travel and hospitality industry thrives on innovation, constantly striving to elevate customer experiences, optimize revenues, and establish enduring customer relationships. In this pursuit, the adoption of subscription-based pricing models has emerged as a promising avenue for industry stakeholders. This article embarks on a comprehensive journey through the realm of subscription pricing, delving into its viability and the potential transformation it could bring to the travel and hospitality sector.
What is Subscription Pricing?
Subscription pricing has gained momentum from software, media, and eCommerce to fitness industries in the recent past.
In a subscription pricing model, customers essentially "subscribe" to gain ongoing access to a product or service. This approach often provides customers with benefits beyond a single purchase, such as continuous updates, access to new features, and exclusive content.
The key elements of subscription pricing are:
- Recurring Payments: Customers pay a regular, predetermined fee on a recurring basis. This regularity ensures a steady stream of revenue for businesses.
- Continuous Access: Subscribers gain continuous access to the subscribed product or service as long as their subscription remains active.
- Flexibility: Subscription models can offer various tiers or plans, allowing customers to choose a level of access that suits their needs and budget.
- Value-Added Services: Subscribers often receive additional benefits, such as updates, customer support, and exclusive content, that enhance the overall value of the subscription.
- Customer Engagement: The ongoing relationship between the business and the customer encourages engagement and fosters loyalty, potentially leading to long-term customer retention.
- Predictable Revenue: For businesses, subscription pricing provides a more predictable and stable revenue stream, which can aid in financial planning and investment.
- Personalization: Subscription models allow for tailored experiences and recommendations based on customer behavior and preferences.
Subscription Pricing in Travel & Hospitality
Subscription pricing within the travel and hospitality realm deserves careful consideration. The underlying principle for subscription pricing is to create continuous, mutually beneficial customer relationships, promoting loyalty and generating predictable revenue streams for providers.
Benefits of Subscription Pricing
- Enhanced Customer Retention: Subscription pricing helps foster long-term relationships by providing customers with ongoing value, incentivizing them to continue their subscriptions rather than explore alternatives. This results in higher customer retention rates and reduced customer churn.
- Predictable Revenue Streams: Unlike traditional transaction-based approaches, subscription pricing enables travel and hospitality providers to forecast revenue streams more accurately, facilitating better financial planning and sustainability.
- Personalization Opportunities: By capturing customer preferences and behavior patterns, subscriptions enable providers to offer tailored experiences, leading to increased customer satisfaction and loyalty.
- Improved Customer Lifetime Value (CLV): Subscription models allow businesses to maximize customer lifetime value by upselling additional products, services, and upgrades throughout the subscription period, thereby increasing overall revenue and profitability.
Risks Associated with Subscription Pricing in Travel & Hospitality
- Structure & Value Proposition: Determining the appropriate pricing structure, balancing affordability, and value for both customers and providers, is critical to success. Companies must carefully consider what offerings justify a recurring fee and differentiate their subscription services from existing options.
- Market Segmentation: Understanding the specific target audience and their preferences is vital for designing compelling subscription packages that cater to diverse customer needs, increasing market share and competitive advantage.
- Operational Adaptations: Implementing subscription pricing may require operational adjustments, such as optimizing inventory management, service capacity, and resource allocation, to accommodate increased demand and expanded service usage.
- Technological Infrastructure: The implementation of the subscription model necessitates robust technological infrastructure for efficient subscription management, personalized customer interactions, and automated billing and renewal processes.
Case Studies
There are some pioneer industry players who are leading the charge in bringing subscription pricing to Travel & Hospitality space.
HOSPITALITY - Inspirato
In 2019, Inspirato launched one of the first subscription-based luxury hospitality offering with their Inspirato Pass.
Inspirato pass is an all-inclusive monthly subscription that provides access to over 1.5M Pass Trips in 100+ destinations around the world. It provides subscribers access to vacation homes, top hotels and resorts, cruises, and bucket-list travel experiences. This pass is aimed at luxury travelers who want flexibility in their travel plans.
Over the years, Inspirato has launched two additional subscription plans, Inspirato Club and Inspirato Select.
HOSPITALITY - Selina Colive
Selina launched a monthly subscription based co-living program for digital nomads to work and travel anywhere around the world. The subscription starts at $330 per month and includes accommodation, co-working space, wellness classes and more.
AIRLINES - American Airlines
Subscription pricing is not new to American Airlines. American launched their AApass membership in 1981. This program offered unlimited flights and lounge access to passholders for five years or lifetime. As of Nov 2022, American Airlines sunset their AApass program.
AIRLINES - Alaska Airlines
Alaska Airlines launched their Flight Pass in 2022 allowing subscribers to select a plan based on the number of flights they take in a year. Alaska also introduced a premier plan, Flight Pass Pro that allows travelers to book up to 2 hours prior to departure, at a 300% price premium to attract the last-minute traveler.
AIRLINES - Frontier Airlines
Frontier launched its GoWild! All-You-Can-Fly Pass in July 2023 with four different offerings, catering to season passes for summer or fall/winter travelers as well as the traditional Monthly and Annual subscription passes. Though, Frontier added substantial fencing around how these passes can be used included unavailable during blackout dates.
CAR RENTALS
Major car rental providers are experimenting their own versions of monthly subscriptions with Hertz Multi-Month, Avis’ Long Term Car Rental and SixT+ car subscription.
Conclusion
With the potential to unlock new dimensions of customer loyalty, engagement, and satisfaction, subscription pricing has a potential to reimagine the travel and hospitality experience. By aligning with the modern traveler's desire for tailored adventures and continuous value, this model can not only enrich the traveler's journey but also propels the industry into an exciting new era.
As travelers seek ever more meaningful and personalized experiences, and businesses strive for sustainable growth, subscription pricing in the travel and hospitality industry is undoubtedly a trailblazing path that points towards a future where both sides emerge as winners, forging connections that transcend the transactional and enriching the essence of travel itself.
