Subscription commerce

Posted by Flux on 

22 August 2022

What’s trending? 
A new subscription model for motoring is gaining ground, where car companies offer a variety of high-end features as optional extras. For example, you can buy Tesla’s Full Self Driving package when you purchase the car, or pay for it as a monthly subscription, with regular updates. THE FSD offers advanced features plus the standard autopilot functionality and you can cancel if you find you’re no longer using it. Recently, BMW started selling heated seat subscriptions for $18 a month in a number of countries including South Africa. Here it costs R250 a month. Microtransactions like these look set to proliferate in the automotive industry.

Why is it important? 
The global subscription market is expected to increase from $72.91 billion in 2021 to $120.04 billion in 2022. This model could have a big impact on the auto industry if more retailers begin to adopt it. It allows car retailers to extend their revenue beyond the initial transaction which could earn the company more income over the long term than if the customer were to pay for the feature upfront. For consumers it allows them to control what features they want and when they utilise them. However critics regard this way of doing business as greedy and exploitative. Nonetheless, it appears that the auto industry is moving towards a future full of microtransactions.

What can businesses do about it? 
The subscription economy has seen record growth and profitability of late. Over the past decade, the SE Index has grown almost five times faster than the S&P 500 which represents more conventional product-based businesses. Companies in the automotive industry should consider this business model as it provides a predictable revenue stream. However they should proceed with caution as noted above, as critics view it with a jaundiced eye. A subscription-based business model could be beneficial not just to companies in the automotive industry. We are already seeing it in the entertainment industry with the proliferation of streaming services. Consider whether your product or service can include a subscription component. 

By Faeeza Khan

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Image credit: Jenny Ueberberg

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