Subscription - what are the new choices offered to retail customers?

Ben Waller

Publication Number: Management Briefing 147

Author: Ben Waller

Date: August 02, 2018

Tags: New vehicles, Mobility trends

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Subscription has been hailed as a new segment for automotive retail customers, most obviously in the US where several OEMs are piloting new services – even if the term subscription is used to describe a range of retail offerings. In the broadest sense, subscription offers customers access to product as service. The term ‘Servitisation’ has been used to describe a broader long-term and cross-industry trend away from selling products to the provision of product as a service. The aviation industry is often cited as an example where sale of engines to the aircraft owner has been replaced by power-by-the-hour provision of aircraft engines, a service only billable when the aircraft is actively in use by the owner. In the IT sector, high bandwidth connectivity has allowed a shift from selling software, via licence, to a full, on-demand software and service maintenance offering in the form of cloud computing, and whilst many corporate customers of systems and software could clearly locally host and manage their own IT requirements, many value the convenience of contracting the entire service. The language of subscription can be seen to have emerged within this wider economic shift from ownership to use, and in this context, subscription can be described as the right to access a service for a given period of time.
There are two broad types of service currently being marketed as subscription to automotive retail customers. The first group of offerings are best described as a car-pooling service; this offer gives the customer exclusive access to a car until the customer wants to hand it back, much like car rental, and with most costs except fuel included as is typical for a fully-managed lease in the fleet sector.  However, unlike car rental, the customer pays a flat monthly fee and is free to swap the car for another within the ongoing contract period, and unlike leasing, the customer has no long-term contractual commitment. The second group of offerings are those that we would describe as bundled leasing, where the customer commits to a long term leasing contract, a contract that includes the provision of insurance, replacement vehicles, breakdown recovery, service and repair; Volvo, Hyundai, and LeasePlan all offer this type of lease to retail customers.  The term subscription is also commonly used in many press headlines to describe both types of offer.  However, we would define subscription, in as much as it represents a new segment and service, as more closely linked to the car-pooling model.  We would then consider bundled lease to be a better description of the second type of offering. The imprecise use of the term subscription, where the same language is used to describe very different types of offer, may currently be causing unnecessary confusion in the customer’s mind, but as the different types of offer mature, we can expect a clearer common language to evolve.
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