Is Deliveroo's subscription model a recipe for success in loyalty?

Following “successful trials” in the UK, Deliveroo has launched its Deliveroo Plus service in Singapore, a new monthly subscription service which provides unlimited free food deliveries at a monthly fixed rate of SG$10.90. Currently, users pay around SG$3 per order for food delivery.

According to Deliveroo, the decision to launch the service comes on the back of insight that more than half of Singapore's food delivery app users order-in more than three times a month.

To drive sign ups, Deliveroo is also waiving the cost of the subscription for the first month. This is while allowing subscribers to have access to exclusive monthly promotions which will be rolled out over the next few weeks.  Siddharth Shanker, Deliveroo's general manager in Singapore added that the company looks to enhance the service with additional promotions, rewards and discounts from favourite Deliveroo restaurants.

The food delivery space in the region has seen a rise in entrants over the past year, with the entry of new players GrabFood and Honestbee, on top of Foodpanda. As such, the competition is cut throat and more than ever a having a loyal base of customers is necessary. However, will consumers take to a subscription service such as this?

Kelvin Koo, managing director of FALCON, said the move will allow Deliveroo to “lock in confirmed revenue”, while encouraging users to order more often from Deliveroo to ensure their subscriptions are worth their while. It is also catered for an existing loyal base of customers who already order more than three times a month.

“The move will also allow Deliveroo to persuade users who currently switch between different competing food delivery providers to stick to the brand because it is already paid for,” Koo said.

He added that it would not be surprising to see other competitors rolling out similar subscription plans so Deliveroo needs to capture the market as quickly as possible in this time period. That being said, the initial “first month free” strategy will help lower the barrier for entry for consumers, allowing Deliveroo to potentially capture a greater market share.

Agreeing with Koo is Cameron Richards, CEO of CPR Vision, who explained that offering free trials for a month is a "classic" strategy used by companies to drive a wave of recruitment. The strategy is also a “honey pot” to bring in the masses, creating a “honeymoon period” for the brand to build a base and get people on the subscription.

“Most users who get the subscription may even forget they are getting charged later for the service due to inactivity and did not remember to cancel. Hence, the brand wins, and the customer potentially loses out,” Richards said.

The free service is similar to Netflix's model of paying a flat monthly recurring fee to have unlimited access. Calling it an effective business model, he added that in reality, majority of people will not use it as much.

“It’s the classic 80/20 principle, where 20% will be extremely active and the rest will fall into moderate, lapsed, dormant, lost,” he said.

He also compared this principle to gym memberships. Gyms have people signing up for free trials in a bid to drive recruitment and sees highly active members for the first few months. However, as time passes, the number of members frequent at a gym slips into moderate or lapsed status.

The business makes their money and the customer loses out.

Ensuring customers stay loyal after the free trial

To ensure customer loyalty, Richards said that ideally, Deliveroo should not automatically charge customers after the end of a free trial. Instead it should only do so if it’s selected as an option by the customer.

Deliveroo can also provide reminders to customers active on the app to drive engagement. Similar to TripAdvisor’s strategy, he said that social badges and gamification are some methods Deliveroo can utilise to drive customer engagement to achieve a status or badges of honour on the platform.

“[To build brand longevity], it is also important for Deliveroo to start with its people. This is followed by service, quality and value for money as well as choice for users who are on the app,” Richards added.

Also weighing in was Brendon Chase, group strategy director, McCann Worldgroup, who added that perhaps a rewards mechanism to unlock free delivery would make more sense long term. This is instead of having to pay to achieve the free delivery or unlock discounts.

"I’m not sure if paying for a premium service upfront will be an immediate winner to drive loyalty, it’s just slightly cheaper delivery if one uses the service regularly. If one doesn't, he/she loses out," Chase added.