April 22, 2021

Don’t count subscriptions out yet

Two years after launching with huge fanfare, vehicle subscription services have been proclaimed a failure, as consumer response has been lukewarm at best. Nonetheless, I predict automakers can innovate to create a subscription model that will help them grow revenue over time.

The reality is that getting subscription offerings right is difficult. Selling them means learning new skills and reengineering your lead-to-revenue infrastructure.

Consumers often see vehicle subscription offerings as nothing more than a reduction in lease time to 12 months, without any additional value. The critical innovation automakers must tackle is the value proposition — a shorter lease labeled as a subscription is not enough.

The hallmark of a subscription is that it’s a relatively low price point with huge flexibility — the ability to cancel easily, or preferably, upgrade, extend and buy more services.

Two things would make a subscription an actual subscription: First, the ability to change vehicles without negotiations and new contracts. Second, the ability to easily upgrade from a lower-priced vehicle to a higher-priced one, or vice versa. Consider tiered offerings — bronze, silver and gold packages, for example — with corresponding classes of vehicles and the ability to move easily among the tiers.

For automakers and dealers, moving to subscriptions will require a great deal of transformation. They will need to think through new ways of working with customers, including major changes to communication, improving customer relationship management and enterprise resource planning software and they have to figure out how to manage the classic problem in auto finance: depreciation.

We know that when a customer drives off with a new vehicle, there is little effort spent on that customer until it’s time for servicing.

Often in traditional sales, customer relationship management and enterprise resource planning work in silos. There is a distinct hand-off of an order to finance, which manages the billing and production through enterprise resource planning. But in subscription sales, they have to be joined and communicating well with each other. That means makers and dealers probably will have to invest in new platforms and technologies that keep them close to their customer and increase the ease of buying and upgrading.

Finally, automakers face another huge challenge — depreciation. It will require a lot of work, but I’m bullish that there are ways to innovate sales, service, delivery and finance to create a program that minimizes the negative impact.

Ultimately, a subscription service that is flexible and frictionless will bring recurring revenue — and give consumers the value they expect. To get it right, companies have to think through the necessary changes.