In our last article, we shed light on the concept of subscription models in general and described how product access and use across a large variety of industries has emerged. Building on this, we will now focus on the market for private vehicle subscriptions.
A global trend
Over the course of the last year, we followed the market for vehicle subscription offerings, and noted the strong growth of subscription models and strategic geographic hot spots globally. Currently, there are more than 70 purely subscription-based mobility offerings in 14 markets. The US, UK, and Germany account for the highest number of offerings, but there is also notable market growth apparent in Asia, with Chinese OEMs (e.g. Geely) in particular entering the subscription market. Despite the global spread of subscription models, it is significant that most offerings are found almost exclusively in metropolitan areas and the majority of providers still find themselves in the pilot and concept-refining. However, we noticed several offerings are being extended to other areas as the initial pilot scope is expanded. Porsche serves as an example here, extending its Passport offering to four additional cities in the US and China after having successfully operated an Atlanta- based pilot for more than one year.
From purely electric to performance combustion cars, and highly flexible to rather long-term commitments, there is a high degree of variation in existing subscription offers in the automotive industry. In this respect, it does not differ much from other industries. The following illustration shows the key dimensions of automotive subscription models with exemplary offerings and the respective range of each dimension.
Our research shows that customer preferences for access to and use of mobility products can differ widely depending on demographics. Hence, there is no one-size-fits-all subscription solution and providers need to conduct customer-centric research to define key dimensions. Despite this wide range of design possibilities, we identified several key traits that are valid across several subscription offerings:
- Flexible conditions: More than 50% of the offerings analyzed offer a minimum contract length of one month
- Pricing: Around 50% of providers charge customers an upfront activation fee, which varies greatly depending on the vehicle segment. After activation, customers are charged an all-inclusive rate, usually including all service fees, insurances, taxes, road side assistance, etc.
- Used car utilization: Around two-thirds of offerings provide customers with subscriptions for used cars, promising a recent model year or maximum mileage
- Premium subscriptions: Around 25% of identified subscription models are offered within the premium/luxury car segment
Vehicle subscription providers
We recognize a high degree of diversity not only in the design of subscription products, but also in the different types of providers. These providers are introducing subscription models as their core business models or complement their existing product portfolio. To better understand the supply side of subscription products, we defined four main categories of providers:
- OEMs: Several manufacturers are offering subscriptions for their vehicle brand directly or via subsidiaries (e.g. Access by BMW).
- Captives: Representing the traditional provider of financing or leasing products, several subscriptions are being offered through the manufacturer’s captive organizations (e.g. abo-a-car by Volkswagen FS, Care by Volvo).
- Rentals: Several rental companies are extending their product portfolio to offer subscription offerings for their existing multi-brand fleets (e.g. SIXT Flat Seasons).
- Independents: A growing number of independent providers or startups are introducing mostly multi-brand offerings through their own platform (e.g. Fair).
Specifically, OEMs and captives face the challenge of integrating subscription services into their mostly traditional financial services product portfolio (e.g. leasing, financing) as well as their existing processes and infrastructure, including their dealer networks. Therefore, providers need to carefully evaluate how subscription models can fit into their current ecosystems. In addition, they need to determine how to design the dimensions of subscription offerings, answering several key questions: Which features and elements are most important? Which combination of features and conditions best satisfies the desired target group? These are the questions that will be addressed in the next episode of our blog series, which will be fueled by our subscription survey with customers in the US and Germany. In addition, we will present success factors derived from our market analysis, including learnings from successfully established subscription models such as Spotify or Netflix.