3 Important Considerations for a Successful Car Subscription Program
[Originally published on the Center for Auto Finance Excellence Blog]
Vehicle subscriptions have continued to capture the imagination of consumers, the auto industry, and the media over the past few months. With all the activity and announcements of the last year, it feels like we are on the cusp of the next evolution in mobility services. If we look back to the last few decades, a new and successful business model has been introduced to the auto industry about every 10 years. The late 90’s and early 2000’s brought us car sharing, pioneered by Zipcar in the United States. Then, about 10 years ago, ridesharing completely transformed the mobility ecosystem by providing a simple and affordable alternative to transportation.
It appears 2017/18 is the start of the next evolution in mobility services with the quick expansion of subscription programs. This time around, the auto industry is paying a close attention to the development, with several OEMs taking a leadership role in offering products early on. This development has been augmented by a number of different startups that have focused on the subscription space.
We are still in the early days of vehicle subscriptions. There will be many lessons to learn, and many adjustments to be made to the business model. However, based on our experience of powering subscription programs in multiple metropolitan areas, we would like to share some of the key elements that operators should consider when planning a subscription program.
Clear Value Proposition
Vehicle subscriptions mean different things to different people. For a Cadillac enthusiast, the Book by Cadillac program is an ideal opportunity to drive a variety of Cadillac models. On the other hand, the Care by Volvo program emphasizes all-in-one convenience, although it is very similar to traditional leasing. The Canvas program by Ford Credit focuses on flexibility, giving customers an ability to commit to a month-to-month contract. One of the first considerations for a potential subscription program should be clearly defining the value proposition to customers, and how that fits into the current business activities of the organization. For example, an auto finance organization should probably have a different approach to subscriptions than a dealership group.
Based on the subscription strategy selected, the next important consideration is selecting the ideal fleet for the subscription program. Often, this follows from the value proposition for customers. The Book by Cadillac program promises to allow customers to exchange their vehicle up to 18 times a year (or once every 3 weeks or so). For a program like this, it is necessary to have a wide selection of vehicles as customers are paying a premium for the privilege of swaps. Customers are also likely to expect new or like-new vehicles. On the other hand, a program focused on flexibility can potentially use off-lease inventory to build its subscription fleet. Even within the parameters of the program, it is important to have a clear understanding of residuals and after-program disposal to maximize the return on subscription programs.
The third important consideration is building a streamlined process for the subscription program. This involves both the end-user experience, as well as the operations of the business. Technology plays a key role in creating a streamlined digital process. Consumers expect a smooth, digital experience with vehicle subscriptions, similar to their experience with comparable products like Netflix or Amazon Prime. Finance is another key element that has to be streamlined. From customer qualification and underwriting practices to asset management and disposal, a subscription operator should build a streamlined financing process for subscriptions.
These are just a handful of important considerations to make in building a successful subscription program. As a new and emerging business model, best practices are only beginning to emerge, and there will be many lessons to learn. However, the most effective way to learn is by doing, and some of the organizations that are now experimenting with subscription programs will emerge as the leaders in the new world of vehicle subscriptions.