The millennials, generally described as the generation of people born between 1980 and 2000 has given rise to a brave, new, digital world of pricing models that require minimum commitment and maximum flexibility. The crave for freedom, convenience as well as hesitance towards personal interaction made Netflix a success, a prime and common example of price versioning, subscription based pricing model. But what happens when you combine Netflix versioning and subscription pricing models in the automotive industry? The answer is car subscription services.
In the present, the most widespread way of using a car is by owning and leasing. While leasing a car from a leasing company is more flexible than owning one, it requires minimum of 6 months contracts and sometimes insurance costs for the leaser. Car subscription services on the other hand, are offered as a third party as well as a first party service from manufacturers, require 1 month minimum subscription, include insurance and maintenance costs, home delivery and give the subscriber the option to switch cars in that period of time. Companies like Mercedes-Benz, BMW, Audi and Porsche offer price versioned subscription plans and enanble customers to switch into different vehicles in a day’s notice. You can choose for instance to daily commute in a luxury sedan while if you need a trip a sunny weekend, you can order through an application a day before a sporty convertible.
It seems that the demand for personalisation, flexibility and less commitment is an immense force that drives old industries to change decades old strategies in fear of being obsolete. Automotive industry could not stay unaffected and responded with car subscription to suit the agile lifestyles, tailor made personalisation and frictionless digital transactions that the millennial generation dictates.
Sources: https://www.edmunds.com/car-leasing/what-are-car-subscription-services.html
https://www.express.co.uk/life-style/cars/991265/car-subscription-service-Netflix-finance-lease-Drover
https://www.forbes.com/sites/sarwantsingh/2018/07/30/your-next-car-could-be-a-flexible-subscription-model/#42f5f27e4ffa
Hi Marios, thanks for uploading your blog! As I am interested in the automotive industry, I really liked that you wrote about this transformation in the automobile industry. In addition to your blog, I thought you may be interested in some of my findings about this topic. I think car subscription services can really make a change in the automotive industry, as in developed markets like the US and the Netherlands, subscription-based ownership models have already crossed 10% of monthly household incomes. Mostly, a car is a considerable cost item for a household, causing the most households will be interested in a sharing service.
Nowadays, there are actually a lot of companies experimenting with these services. The vehicle subscription market in North America and Europe has eight platform providers, such as Canvas. Some car manufacturers also see opportunities in this market, for example Book by Cadillac, Care by Volvo, and Flexperience by Mercedes-Benz and Porsche’s Passport. Especially the last one is already further in the development phase. I think you would be interested in that service: https://www.porschepassport.com .
https://www.forbes.com/sites/sarwantsingh/2018/07/30/your-next-car-could-be-a-flexible-subscription-model/#7b2091344ffa
Thank you Joran for the comment.
Interesting facts about the percetage of the income!
This is an interesting article. Chrysler has introduced a similar experience, Mercedes Benz (MB) Me Flexperience followed by launching their own service in spring this year. Mercedes Benz (MB) Me Flexperience is basically a subscription based model that allows you to choose a new type of car every month. The type of car and its configuration is dependent on the chosen subscription model. I was lucky enough to speak with Susanne Hahn, who is the Global Head of MB’s Lab1886, which is also where the idea was developed and was able to ask her about the business model and the financials. For obvious reasons, drivers will have shared preferences in summer like driving convertibles and SUVs in winter. So the question emerges, whether they will park all the convertibles during off-peak times like winter and how the financials work. The key is that by predicting the demand based on previous seasons, the MB Me Flexperience unit will buy them at an internal transfer price, which is obviously less than mainstream market prices and after the demand for a certain vehicle in a certain season has ended (i.e. convertibles in autumn), MB was sell them internally to their ‘Young Stars’ unit, which sells used cars not older than one year with a checkup, maintenance contracts and guarantee. Another crucial element to consider when thinking about the business model are the depreciation models that allow the unit to write off reductions in the worth of a car as expenses, thereby reducing the actual tax rate of the MB Me Flexperience unit.
Thank you Claudius for the great comment! Your insight was really useful and i am glad you had such a chance!
Hi Marios, thanks for the interesting article! With the shared economy trend, the subscription business model is becoming ever more prevalent. Although sharing is as old as human civilization, not until recently is it commercialized and brought to an all industry buzz with the emergence of disruptive technologies. I began to notice the trend when I was living in Shanghai a few months ago, and it appeared first in the online car rental industry. With a considerably low subscription fee, people are now able to enjoy luxury cars that they’ll not be able to afford normally. The subscription model enables the urban citizens to explore maximum efficiency with shared costs, and it also allows the companies to better design their models and keep track of customers’ preferences. I look up to the future perspectives of the model.
Dear minxin,
thank you for your comment! Shanghai is indeed an interesting city and i believe that in the future we will see many interesting business models coming from china. Your thought about the design of the cars is really promising.
Hi Marios, thanks for sharing the blog! It would be interesting to see how car rental companies respond to this business model, and how car manufacturers will develop it in the future. For the manufactures, if this model works out, they will be able to largely expand the size of their user group based on their global network. It will not be difficult to imagine that, a user who has this subscription could switch cars in any location where the manufacturer runs an office. For someone who lives in London, travels to NewYork and needs a car in NewYork, he/she just needs to return the car that has been used in London and get another one at the office in NewYork upon arrival. And the users are able to flexible cancel the subscription at any time. This new model could be disastrous for the car rental companies.