t3n 15 April 2020: It’s the subscription model’s finest hour: There is hardly any sector that hasn’t tried to offer its goods and services through a subscription. Find out what it’s all about and what you have to pay attention to when getting started in the subscription business.
As is so often the case, the USA is the trailblazer here. Subscription services there have grown by more than one hundred percent in the last five years. But so-called subscription-models are becoming more and more popular in Germany, too. The idea behind them is not new. As early as the seventeenth century, book publishers were trying to determine their print-runs with long-term contracts and advance sales. Things really got going with subscription models in the mid-1990s, when the telecommunications sector brought its first intelligent pricing to the market. Suddenly it was possible for customers to pay a particular amount for a specific number of free units, instead of having to fork out for each individual call minute and each SMS sent.
Models of this kind have continued to develop in the last twenty years. Now it is not only telecommunications providers that are attracting customers with intelligent pricing – nowadays listening to music (Spotify und Deezer), watching films and series (Netflix und Amazon Prime), and even shopping (Hellofresh und Foodist) can be paid for by subscription. This concept has many advantages – on both sides. For consumers it’s often cheaper to access products or services via subscription, instead of really buying them. At the same time, they profit from a much wider choice and are highly flexible. In addition, subscription providers offer test phases at a discount or even for free. And why do they do all of this? Because the providers also profit from subscription customers. When customers have purchased a subscription, they stay loyal to the company for the time being. This saves time and money in in customer acquisition and prevents migration to competitors. Long-term customer relationships also enable the gathering of valuable customer data. Thanks to fixed membership numbers companies have a much higher cost control than would be the case with spontaneous purchases, and they can thus plan much better and budget more effectively.
People have now become accustomed to no longer owning certain things and instead only being able to use them. And if you listen to music via subscription, what is to stop you from driving a car via a similar model?
Something that might sound absurd to many ears is already reality. And, above all for the young target group that has grown up with subscription models, it’s something that’s entirely natural. More and more automobile manufacturers are now experimenting with subscription models in which users can hire vehicles for a monthly fixed amount.
In the USA, for example, there is the “Porsche Passport” programme: for between 2,000 and 3,000 dollars a month, users can get their hands on a car – and, depending on the price, can even change the model on a daily basis. For a weekend at a holiday home, a Cayenne with enough storage space might be needed. For the short distance to the lake after work, the 911 Carrera Cabriolet will do the trick. In Germany, too, similar programmes are already available from Porsche, Mercedes, BMW, Volvo, and other carmakers.
But how do these subscription models work in contrast to classic leasing or financing? This will be explained in the following with regard to automobiles, but of course can be applied to any number of products or services that are available via subscription.
Leasing involves a type of long-term automobile rental. Here too, monthly instalments are paid, but to the car dealership itself – in most cases with a term of two or three years. On expiry of the leasing term, you can decide whether to return the car and, if needed, lease a new one, or wheter you want to keep the car – in which case the already paid amounts will be deducted from the purchase price.
Because for many – above all young people – owning a car is becoming less and less import, automobile subscription models are appearing on the market in increasing numbers. These are sometimes referred to as all-inclusive leasing models and are characterized by their extremely high flexibility and comprehensive service. The users pay a monthly amount, which is typically rather high, but in return they have almost nothing else to take care of – everything is already covered by the subscription, both financially and in terms of organization. For instance, if the car has to be repaired, a call to the provider suffices. All insurance policies and taxes are also already included in the monthly fee. The customers only have to do the refuelling themselves – and, depending on the price, can decide in favour of another model on a daily, weekly, or monthly basis.
But there are not only differences between subscriptions and leasing contracts. As almost any product can now be subscribed to, different subscription models have naturally also been developed: from rental subscriptions, as in the case of cars, to beauty or food boxes, all the way to club membership, as with Netflix or software providers. Incidentally, SaaS (software as a service) is also a major buzzword of the day. Since the triumph of the cloud, more and more software providers have been selling their products remotely and via subscription (well-known examples include Microsoft Office and Adobe Creative Cloud). Companies profit here particularly from the ability to subscribe to SaaS offers as required and to install them on their own devices, instead of having to acquire costly software licences and necessary hardware. Further advantages include updates to the software being automatically included in the valid subscription; if any problems arise, there are support services to address them.
So though it’s clear that the subscription model is not new, it has developed rapidly in the last few years. While there may some truth to the notion of “old wine in new bottles”, “cool shit” also still rings true, given the countless advantages that subscriptions provide for customers and companies alike.
If you want to get more acquainted with this area, or if you’re thinking about using a subscription model for your own business, make sure to take a look nexnet’s free White Paper on the subject.