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The idea of car subscription is becoming increasingly popular among start-ups, rental companies, OEMs, and dealers. Hence, it is essential to understand the 5 broad steps in the value chain of the car subscription market. Some providers will handle one or only a few of the steps, while other providers take all the responsibility and risk.
This step consists of buying, financing, and insuring vehicles. As a subscription provider, the business owns the car and is responsible for maintenance and insurance. Hence there are vital considerations to make when sourcing vehicles to retain a level of profitability.
As with online sales, subscription providers must create a user-friendly interface and experience comparable to or better than the leading e-commerce businesses. Offering an engaging experience is especially important in this still nascent market, and it's important to note there is no correct version. We see macro differences between fleet providers, such as the end customers being B2B or B2C or if the pre-existing model is rental or lease-based. In addition, there is a myriad of micro differences in fleet providers who target the same customers, where the more specific details vary from business to business.
Companies must also build the core back-end software and tools for operations and administrative processes for efficient booking and asset management. The nature of a car subscription model drastically increases the number of transactions per vehicle and the number of actions per booking compared to lease or rental models. The transaction type changes from 2 or 4-year fixed contracts, to on average six-month-long flexible relationships.
The higher frequency and complexity of transactions means technology must be deployed well and not rely on people-based processes. Businesses that don't solve these problems early are then forced to expand the customer service team before sales, marketing, and operations, limiting their growth.
This step includes providing a seamless onboarding journey with features that help retain customers. If treated right, a customer who signs up is a customer for life, moving between vehicles and services when their lifestyle changes. The KPIs then shift from units sold to the length of the booking, and operations focus on maintaining the relationship. Customer requests during the subscription period must be handled through technology and not over the phone, an important detail that creates the speed service needed to maintain the relationship. Companies must strive for the highest average contract duration to ensure a high contribution margin per customer.
This step includes processes as wide-ranging as customer service, auto maintenance, utilisation, and vehicle delivery and return.
A blended approach of technology and people operations, where customer requests are handled through their account section/ app, managed by a single administrator in the back-office system, and then fulfilled by a team of operators or 3rd party service providers.
Operators must consider when to take a vehicle offline to perform preventative inspections and balance that with buffer periods for quick turnaround times.
A less-spoken-about issue with the subscription model is underutilisation. If vehicles aren't out with subscribers, then they are only a depreciating asset that isn't generating revenue. Utilisation is, therefore, critical to creating a profitable subscription business. What many of our customers do, and what the JRNY platform is built to do, is offer the same fleet to more than one audience in a different package. This could be as simple as pushing the same fleet to business and private customers or under entirely different brands. For example, one of our customers has 1000 vehicles and 4 distinct channels, all within one operational platform and team.
Once businesses are happy to give a potential subscriber a vehicle, they will need to integrate a delivery & return fee or allow the customer to collect the vehicle. From experience at Tomorrow's Journey, it's best to incorporate the fee into the monthly pricing rather than show it to the customer.
Once vehicles are too used or too old to continue offering, they must be sold to secondary buyers: dealers, B2B or B2C marketplaces, auctions, or consumers through alternative models such as car sharing or short-term rental. The proceeds from re-marketing are necessary income for companies with asset-heavy models. Hence, providers must be adept at sourcing and re-marketing vehicles at the end of their life as subscription assets.
