The subscription model in the automotive industry: a tool for co-creators identification

Vehicle subscription offers are currently at their early stage. Companies are still setting up pilot projects both to refine the service formula and to observe the market reactions. Although the concept of is offering access to a car with a monthly fixed payment at the base is the same, huge are the differences among the different options. However, the supply could be clustered mainly either as convenience-driven or experience-driven subscription offers.

In a convenience-driven vehicle subscription (CDVSS), the value proposition is based on providing the easier, more convenient and more affordable access to a car. The main players in this segment are Canvas by Ford, Clutch Atlanta and Fair. They provide usually all-inclusive offers that allow the subscriber to drive a car for a predetermined period of time – in some cases giving the possibility to reduce the monthly fee when committing for longer periods. Insurance, maintenance, and taxes are included in the payment that could vary between $250 to $900 (Edmunds, 2018). The providers in this segment are usually start-ups or dealers offering either low/mid-range and in some rare cases premium cars.
However, the providers can adjust their offers around the trade-off between the novelty of the car and the possibility to change it. With some exceptions, this segment is featured with cars between 1 to 6 years of life and a limited 1 to 5 vehicle swaps per year allowed. Indeed, this specific cluster offers cars that have already passed the initial phase of depreciation, when the value drops significantly, allowing the customer to access it with no commitment and a lower fee (Gao, 2018). Behind this apparently simple system, providers are undertaking a capital investment operation such that the fee paid by the customer exceeds the sum of the monthly depreciation, the expectation in extraordinary costs and the monthly rate of ordinary costs of the vehicle. That means generating a certain percentage of profits each month for each client, that becomes higher as the business scale up – being the rate of overheads per client lower.

Experience-driven vehicle subscription services (EDVSS) play a completely different game. They aim at providing a unique luxury service, top-tier vehicles, usually mono-brand as the service is offered mainly by OEMs, such as in the case of Passport by Porsche, Book by Cadillac and Access by BMW. The monthly fee range between $1500 up to $3700 in the all-inclusive formula (Lachnit, 2018). They entail unlimited car changes per month, a personal concierge service that delivers the booked car within a few hours and unlimited mileage. Cars are offered in their medium to high tiers, with the as tailored as possible equipment for the client and period of life of the vehicle that is included between 1 to 6 months (Lachnit, 2018).

In this specific segment, OEMs are mainly interested in enhancing the relationship with their clients by offering the pure essence of the brand. As a matter of fact, customers increasingly demand brands to live meaningful experiences with their product instead of looking for the product per se (Cooper, 2016). Thus, an emerging segment of customers would be willing to access the specific model from the OEMs of their dreams, but only just for a road trip alongside the sea or just for a day spent on the track. Therefore, it becomes increasingly important to focus on developing meaningful occasions that would fit the use of that specific vehicle, so that would be possible to preside over, allowing the brand to reinforce its lead over competitors. Concisely, EDVSSs represent for the OEMs an opportunity to satisfy directly a form of latent demand that is willing to pay a premium to access both exclusivity and flexibility in living their everyday experiences (Fingas, 2017).
A self-standing border-line category is represented by the one-car offer, currently provided only by Care by Volvo (Lachnit, 2018). This option entails the possibility of accessing a brand-new car, as in the case of leasing, while still including in the monthly fee all the additional expenses - namely maintenance, insurance, and concierge service. The contract includes a mileage limitation, though, and bind the customer for a minimum of 24 months. Every year, it is given the possibility to change the vehicle, both upgrading or downgrading the offer, an option that could attract more clients as the fleet expands. To some extents, this option, more than being a subscription-based service, could be considered as an extension of traditional leasing.