The Emerging Auto Subscription Opportunity

September 10, 2018 Mike Hastings

Consumers are driving the car ownership market in a new direction: automotive subscriptions. The impact this concept has had—and will continue to have—is proof that successful product and marketing management requires constant attention to the route customers want to take in life. And it requires creating multiple routes to get there.

Historically, most drivers would buy or lease a vehicle with a three- to six-year commitment based on their wants, needs and budget. However, as more Millennials and Gen Xers climb into the driver’s seat, their in-the-moment, à la carte shopping habits have turned the entire concept of car ownership on its head. Why the change in direction? According to an August 2018 article in the Washington Post, several primary reasons emerge:

  • They have delayed getting driver’s licenses longer than previous generations.
  • They tend to take fewer trips and those trips, are shorter, preferring instead to travel by foot, bike, public transit or services like Uber or Lyft.
  • Student loan debt is at an all-time high, making ownership challenging.

But there’s an additional factor for those who do value automobile access that is affecting how they view the purchase of nearly everything, including cars. This Millennial generation is more interested in getting what they need and want now, rather than settling for a universal offering designed for the masses. Many don’t want to bother with navigating financing options or dealing with securing car insurance quotes. They want immediate access to the goods they purchase, even if it’s a car—historically, the second most expensive purchase after a home. They want simplicity.

In this era of instant gratification, automotive subscriptions are simple and flexible, removing the long-term commitment, cumbersome purchase process and rigid ownership approach of being tied to one vehicle for five or six years. Consumers today are frustrated when they must keep their iPhone or Galaxy for even 24 months before they can switch, so the idea of being tied to one vehicle for three or more years is equally irritating.

Consumers today are frustrated when they must keep their iPhone or Galaxy for even 24 months before they can switch, so the idea of being tied to one vehicle for three or more years is equally irritating.

Automotive subscriptions are a fresh approach that allows consumers a financially palatable option for a reliable ride, in contrast to the traditional depreciation-based leased or owned car model.

Transportation is becoming more transactional—mostly about moving from point A to point B—and is challenging auto manufacturers to find ways to get people back into cars.

Auto manufacturing takes a turn

In recent years, there has been a push toward increased manufacturing of top-selling trucks and SUVs. Some manufacturers have stopped production on cars to simplify production lines and prevent having unpopular vehicles sit on dealer lots. Chrysler now only sells one car—the 300. Dodge now only sells the Charger and the Challenger, both performance-based cars. Ford recently announced it will also stop selling cars (except the iconic Ford Mustang) and focus their efforts on trucks and SUVs.

However, customer preference for station wagons is making a big, unexpected comeback. Subaru built their brand on the Outback station wagon. While it has not historically been a big selling vehicle, the station wagon has always been part of the North American lineup for Volvo, BMW, Audi and Mercedes. Buick, Porsche and Jaguar are now in the wagon market. Buick has been here before, although the last Buick Roadmaster wagon was discontinued in 1996. But Porsche and Jaguar? This trend speaks to changing wants from a product development standpoint—at least for now. But, manufacturing models that cater to today’s preferences can be a risky and expensive business for OEMs.

Auto subscriptions are an opportunity for manufacturers to continue offering more vehicle options with less risk. With auto subscriptions, consumers do not have to fit a vehicle choice into their current lifestyle and hope it still feels right several years down the road. And buyers are willing to pay top dollar to get exactly what they want, when they want it.

As automotive subscription services spread across OEMs, marketers have an opportunity to follow the data to better predict what drivers want and need now, offer the flexibility and ease that attracts them, and rethink their offerings for the future.

...marketers have an opportunity to follow the data to better predict what drivers want and need now, offer the flexibility and ease that attracts them, and rethink their offerings for the future.

The mechanics of auto subscriptions

Auto subscription services are now being offered or tested by nearly every major automaker. Subscribers simply swap vehicles when their needs and wants change. Need a minivan for a family weekend getaway? Swap out the regular economical sedan that gets you through the work week. Want to hit the town in a red sports car? No problem. Just open the app and order up your next choice of wheels.

While most plans still require a baseline contract, a single monthly fee covers the rest: use of the car and a flat-rate for insurance, service and maintenance. Everything except gas is included. These bundles of services eliminate the hassles that traditionally come with ownership. Some plans include minimal one-time start-up fees, but they are typically less than the down payments required to buy or lease a vehicle. This gives consumers access to vehicles that they might not otherwise be able to afford, especially for Millennials and Gen Xers with less disposable income but highly finicky tastes.

A new model for manufacturers

As manufacturers compete for customer attention, the subscription model gives them a lucrative opportunity to offer a larger variety of inventory at various price points.

Care by Volvo was one of the first automakers to offer subscriptions, introducing the XC40 SUV, its city-hopper car. It has now expanded to include the S60 sedan and is a national program.

Lincoln and Cadillac started with subscriptions for their premium brands in select markets, aimed at customers who are willing to pay more for flexibility and choice. Competition is fierce. BMW recently lowered its entry-level subscription fee to only $4 more than the Mercedes plan.

And it’s not only luxury brands who are hitting the road toward subscriptions. Ford recently announced its subscription service called Canvas. The model has some requirements: vehicles are pre-owned and package pricing is based on monthly mileage range. The package comes complete with registration, warranty, insurance, roadside assistance and maintenance. Unused miles rollover into the next month.

As the public’s familiarity and interest in subscriptions increases, other OEMs are expected to follow en masse at a national level and with more affordable car models.

A good deal for dealers

OEMs aren’t the only ones capitalizing on the subscription trend. Dealers have also created subscription programs at the regional and local levels. Dealers can offer a mix-and-match subscription, giving customers variety across brands. Doing a home project? Get a Chevy Silverado 3500 for two weeks. Headed to your high school reunion? Swap out for a Mustang Bullitt for the weekend.

By creating their own subscription programs across brands, dealers are no longer at the mercy of a single OEM for inventory. Those with multiple franchises could be compared to a cell phone service provider. Verizon, T-Mobile and Sprint don’t care which brand of cell phone customers purchase, so long as they subscribe to a plan.

However, dealers and manufacturers will always need to maintain a healthy relationship, so we will likely see more partnering between the two on even more innovative ownership models in the future.

What auto subscriptions mean for marketers

As auto subscriptions go mainstream, the potential marketing impact is intense. Here are some considerations, not only for automotive marketers but for those in any industry that will be shaped by the demands of a highly contrary generation.

Follow the data route

We live in a data-driven world and auto subscriptions are clearly a data-driven strategy. Harness and use dynamic data about your customers to predict what they are going to want in their transportation choices in the next weeks, months and years. By closely observing their activities and life events, automakers and dealers alike can offer relevant services and amenities to best meet customer needs, even before the customers know they need or want them.

Understand that buyers drive decisions

A car is the second-largest purchase most adults make in their lives. Some take months to research cars and even longer to get to a dealer for a test drive. Others who lease vehicles may be too busy or overwhelmed by the renewal versus buy-out decision and feel cornered or out of time to make an informed choice.

Auto subscriptions can feel like a lower risk to consumers because the decision they make today isn’t as permanent as it has been in the past. With a subscription, drivers can make more of an in-the-moment decision and easily swap out their vehicles as life events require.

This model changes the buyers’ journey—allowing customers to move from feeling stuck with a vehicle to giving them freedom of choice. Car rental may offer the opportunity to swap vehicles, but the subscription model outshines rentals’ high prices, cumbersome paperwork and limited inventory. It’s clear that buyers are sitting comfortably in the driver’s seat.

Give customers a premier experience

Consider offering premium services to improve the customer experience.

Prime Flip, a subscription service rolled out in July by a large dealer near Boston, offers above-and-beyond perks to its customers, making it a standout in the subscription world. Those top-tier perks include:

  • The option to pause services with no monthly fee
  • Concierge services that include programming the driver’s seat and connecting the customer’s phone to Bluetooth in new swaps
  • Collapsible welcome bags filled with branded swag that ease vehicle switches
  • Help to new members with selling their old cars

Book by Cadillac’s white-glove concierge service delivers cars gassed up and detailed. But the details that make the biggest impact are sometimes the little things—their cars come stocked with mints and water bottles. Sure, the value of a few mints and bottles of water is minimal, but the perception to Cadillac drivers when they first sit behind the wheel is that they are important and valued.

Sometimes the customer experience is enhanced by what you don’t do. Porsche Passport removed limits on both exchanges and miles for its subscribers.

Marketers must continue to look for the currency that speaks the loudest to each of their buyers and promote benefits accordingly.

Subscriptions are here to stay

The public already lives in a subscription-based world. Subscriptions for phones, streaming media, meals and even clothing are mainstream. Taking the model to the automotive world simply caters to how today’s consumers view, use and buy cars.

Armed with only an app on a smartphone, auto subscribers can create a personalized, virtual fleet to meet their individual needs and tastes. Changing a car choice is almost as easy as changing a song on a playlist. Auto marketers who are embarking on this journey that challenges tradition stand to gain a lot, so long as they continue to hold the door open for customer preferences.

You might also enjoy this piece: The Top Issues—And Opportunities—Facing Auto Marketers in 2018.

About the Author

Mike Hastings

As VP and Group Account Director in Harte Hanks' consumer and automotive practice, Mike balances instinct with analytics to build strategies that deliver results and drive revenue. He specializes in marketing strategy, digital marketing, CRM, analytics, insights, segmentation, consumer acquisition and retention. Mike also has experience working in retail, financial services and subscription services/telecommunications.

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