Subscriptions are fuelling the future of the automotive industry

Tuesday, June 25, 2019 - 08:11
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Sam Jordan, Executive Vice-President at Manifesto Growth Architects

Subscription models are already making mega bucks across the media, finance and entertainment sectors, with companies like Netflix and Spotify demonstrating how businesses can create a unique member offering to secure long-term revenue and loyal customers. Whilst Enterprise, Zipcar and BMW are already starting to explore the benefits of membership models, the automotive sector is still lagging behind and businesses should be looking to take advantage of the opportunities in the market.

Digital vs. traditional

The new wave of digital platforms and a change in attitude towards ownership has given consumers the option to move away from traditional car ownership and towards flexible renting, with millennials and Gen-Zers expected to be the biggest users of vehicle subscription services.

More than 16.3 million new and used cars are expected to be part of the vehicle subscription universe by 2025, and research Manifesto carried out into the opportunities for the membership economy in the sector found that three quarters (72%) of business leaders within the automotive sector see significant potential in subscription models. But with only 3% of respondents saying they actually generate more than 50% of their business through commercial customer models, it’s vital that brands act now to take advantage of the opportunities in the market.

Traditional manufacturers including BMW, Volvo and Porsche are already leading the way in offering subscriptions for members, offering an alternative to leasing, with the option to switch across multiple vehicles throughout the year. In June 2018, Jaguar Land Rover launched Carpe (Latin for ‘seize’), offering an all-inclusive car subscription service providing customers with hassle-free access to brand new Jaguars and Land Rovers, whilst BMW launched its Access service, a subscription allowing customers to rent a series of models for $2,000 a month. Automotive giants are rebranding themselves as ‘mobility’ companies and see subscriptions as a way to turn customers into a recurring revenue stream, as opposed to one-time buyers.

And it’s not just marques taking advantage of the opportunities in the sector. Zipcar was an early pioneer of the subscription model in 2000, and now has more than 2,600 rentable cars parked the UK, used by more than 250,000 members. It has paved the way for companies such as Turo, Drivy and HiyaCar, that give customers a more convenient car rental alternative.

Enterprise has recently announced its own car subscription service, its first venture into the mobility-as-a-service space and a direct challenge to dealerships in the industry, whilst rival Hertz’s My Car subscription service gives consumers access to a range of vehicles for under $1,000 per month, including roadside assistance, vehicle maintenance and insurance.

The influence of rentable models is not the only factor disrupting the automotive sector – Uber and Lyft revolutionised the taxi service industry and are now introducing subscriptions with their community membership. Businesses can avoid surge prices through the use of fixed-fare membership schemes, which are currently being introduced by Uber. The service, called Ride Pass, is an Amazon Prime-style subscription service that allows users to lock in flat rates when using the service.

Car Club Membership

The future of automotive subscriptions

So what does it mean for the industry? Convenience is king when it comes to automotive, regardless of whether this is in digital or traditional rental providers, car sharing or large manufacturers. Technology has led to increased competition and a customer’s ability to switch between brands, with the introduction of 5G, data sensors and telematics allowing companies to track their fleet on the road all helping to accelerate membership opportunities.

Manifesto Growth Architects have developed Membership Economics™, a report into how to best make money out of memberships and subscriptions. A key factor is keeping customers engaged through offering attractive products and great customer service.

The rise of the sharing economy combined with the success of tech platforms has transformed the industry with customer-centric technology, creating a rush to subscription models which achieves greater stability, market share and profitability for businesses.

As the automotive industry continues to drive forwards and develop its own unique, customised subscription offerings, it is predicted that by 2025-26 vehicle subscription programmes will account for nearly 10% of all new vehicle sales in the US and Europe, so it’s essential brands take note now to avoid being left behind.

Author: Sam Jordan, Executive Vice-President at Manifesto Growth Architects

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