1、1 DRIVING SUCCESS IN CAR SUBSCRIPTIONSNot so long ago,the idea of car subscriptions was,to many automotive industry observers,a passing fancya product in search of demand.Naysayers questioned whether the market for subscriptions could ever reach critical mass.OEMs were wary that if it did,it might c

2、annibalize new car sales.So far,the failures have outnumbered the successes.The fundamental challenges this business model entailsheavy assets that require significant upfront capital,big marketing expendituresare daunting.Even so,subscriptions have gone from a fringe idea to a legitimate,growing bu

3、sinessparticularly in western Europe,where notable success stories include UK-based Onto and Germany-based Finn as well as more established players such as MeinAuto and Fleetpool.And while most car-subscription providers are still relatively new and mod-est in scale,a clearer picture is emerging abo

4、ut what it takes to win.Recently,Finn shared with us aggregate data on customer patterns and demographics,which,along with our own research and client experience,sheds light on the enabling factors and key practices that lead to success.This inside look at a subscription provider also highlights the

5、 misconceptions and constraints that have held some providers back.Why Some Providers Struggle In its brief history,the subscription business model has evolved considerably.Consumer trends have been advanta-geous:the general shift from ownership to usership and from offline to online transactions;th

6、e growing interest in sustainability;and the constant pursuit of greater conve-nience.Direct-to-consumer selling is also becoming more commonplace.So,what makes subscription providers stumble?Mainly,the following:An ambiguous value proposition.Without a clear sense of the most promising customer seg

7、ments,some companies have tried to be all things to all customers.They offer flexibility and features that are economically unsustainable,such as month-to-month subscription periods or the ability to swap a vehicle.For some OEMs,concerns about strategic conflict.Its not clear to OEMs where subscript

8、ions fit in their overall strategic agenda.They worry about cannibalizing sales or jeopardizing longstanding dealer relationships.However,all OEMs and auto financing providers are cur-rently investigating how to best integrate subscriptions into their overall consumer offering.Driving Success in Car

9、 Subscriptions By Nikolaus Lang,Daniel Schellong,Philipp Sadek,and Alexander Wachtmeister Finn graciously shared data on consumer patterns and demographics for this article.BOSTON CONSULTING GROUP|CENTER FOR MOBILITY INNOVATION 2 Underestimating value chain complexity and vehi-cle life-cycle require

10、ments.From procurement and sales to fleet management and ultimate remarketing,these requirementsand their costsare crucial con-siderations for making the economics of subscriptions work.Overlooking the fundamentally digital nature of a subscription business.A seamless,intuitive digital user experien

11、ce is a prerequisite of any online business.Many providers not only underestimate this require-ment,but they also overlook the need for a well-de-veloped digital infrastructure to support operations.It takes a largely automated platform to integrate service providers for delivery and logistics,manag

12、e customer service and car maintenance,and run such strategic and back-office functions as pricing optimization,financing,and reporting.Neglecting remarketing.The sale of each vehicle at the end of its subscription lifespan is essential to healthy economics and profitability.Companies need to define

13、 a remarketing strategy as early as the procurement stagerealizing that the value may differ at the end stage,especially in a volatile market environment.In the face of these challenges,many ventures have failed,faltered,or been paused for a rethink.From our analysis,weve identified three important

14、considerations that can help providers frame their approach,along with three rules to set themselves up for success.20182021n/an/a55552018n/a1515Bipi3ViveLaCarFerry Cluno3Autonomy2Drover3Onto2Carvolution ImoveFinnGermanyUKGermanySwitzerlandUSUKSpainNorwayGermanyUS202017n/an/a3302017140441

15、84207262020n/an/a832015n/a343426n/aFoundedHQCompanyDebt funding(M)Equity funding(M)Total funding1(M)886M316M1,615MExhibit 1-The Top Subscription Startups by FundingSources:PitchBook;Crunchbase;TechCrunch;BCG analysis.1As of October 2022.List only includes independent startups with more th

16、an 5 million in funding;subscription programs funded by OEMs,dealer groups,car rental and car sharing companies,leasing firms,or car marketplaces were excluded.2Split between debt and equity not disclosed.3Company acquired.Drover and Cluno were acquired by Cazoo in December 2020 and February 2021,re

17、spectively;Cluno was halted in 2022.Bipi was acquired by Renaults captive arm,RCI Bank,in 2021.Over the next few years,the boundaries between subscribing,renting,and leasing will become even more blurred.BOSTON CONSULTING GROUP|CENTER FOR MOBILITY INNOVATION 4Three Ways to Conceive of Subscriptions

18、A handful of independent providers continue to attract funding,with total funding approaching 2 billion.(See Exhibit 1.)These companies have managed to ride out the turbulence caused by the pandemic and are thus far navi-gating disruption in the auto industry.Adapting to a changing environment is,of

19、 course,central to survival.Beyond that,a proactive posture is crucial to success.We believe that these three fresh perspectives should inform the thinking of any subscription provider:Subscriptions are a point on the ownership continuum.Rather than an end-all,be-all,standalone offering,subscrip-tio

20、ns are best thought of as a point on the ownership spectrum.Conceiving of them this way unlocks constraints while opening up marketing possibilities and economic benefits down the linefor startups and OEMs alike.Subscriptions can thus be an integrated element of a fully digital offering,alongside bu

21、ying,leasing,and financing.Integrated providers specifically sell subscriptions and later turn those assets into young used cars for salea core business model element that drives everything from pur-chasing power and product offerings to profitability.1 For OEMs,subscriptionsfar from cannibalizing e

22、xisting salescan expand the customer base,as they often at-tract those who have never owned a vehicle.Subscriptions are a way to ignite car e-commerce.As a digitally sold product,subscriptions represent an important gateway to e-commerce for the retail auto indus-try.They expand retail by offering a

23、 new and convenient alternative to leasing and ownership online.They also pave the way for a scaled-up online sales market that,apart from used car sales,has yet to take hold:in Europe and the US,car sales have the lowest e-commerce penetration rate of any major industry(in the single digits for B2C

24、 sales).For industries with high customer acquisition costs,the benefits e-commerce offerslowering sales costs,enabling scale growthcan be game-changing.Thats not to say that car sales will or should go completely digital.But now,a reluctant buyer can sign up for a subscription;at the very least,the

25、 seller still acquires a customer,and one who may ultimately buy.Either way,subscriptions can cement cus-tomer or brand loyalty.And beyond giving vendors an ex-panded sales platform,e-commerce gives them a rich repos-itory of customer knowledge in the form of digital data.Subscriptions help promote

26、EV ownership and sales.For existing or first-time car owners,a subscription gives the user a solid opportunity to try out EV ownership,which for many is still an unfamiliar experience.At the same time,manufacturers can hedge their risks by making EVs available to subscription providers,thus reducing

27、 the un-certainty surrounding production volumes.At Finn,for example,EVs currently account for 26%of subscription sales;in contrast,EVs accounted for 13%of overall new-car sales in Germany in the first six months of 2022.Subscrip-tion providers serve to promote EV adoption by lowering the barriers t

28、o entrya particular benefit for new OEMs.(See the sidebar“Finn at a Glance.”)Three Rules for Subscription SuccessLets consider the emerging best practices that our analy-sis uncovered.Rule#1:Probe Customers Product Priorities Convenience matters,but these are the most important priorities weve ident

29、ified:Price counts more than contract term.Short contract terms require too high a price tag,which limits profitability as well as the selection a provider can offer.As we observed in our July 2021 report,swapping vehicles and month-to-month terms were not a big selling point;8 out of 10 con-sumers

30、put price above flexibility.Among Finns customers,85%go for a 12-month subscription period.Product variety drives conversions.Choice of vehicle matters more to consumers than short-term subscription options.The ability to offer choice comes from forging direct relationships with a variety of OEMs.Mu

31、ltiple rela-tionships,in turn,provide a hedge against supply risk and serve as a competitive differentiator.The greater the choice of cars they offer(especially those available on shorter notice),the higher the conversion rate.1.Integrated providers orchestrate all steps of the subscription value ch

32、ainsourcing,technology,customer acquisition,fleet management,and remarketing.They differ from marketplace or SaaS providers,who offer only customer acquisition and technology.5 DRIVING SUCCESS IN CAR SUBSCRIPTIONSCompany profile:Headquartered in Munich,Germany Annual recurring revenue:more than 120

33、million Has serviced more than 20,000 subscriptions in Germany Offerings run from 329 to 1,739,with an average net price for all active and signed subscriptions of 645 in Germany and about$750 in the US Entered the US in 2022,rolling out to metropolitan areas in 10 eastern states and Washington,DC P

34、lans to expand into key European markets in 2023 or 2024,including France,Spain,Italy,Switzerland,Norway,and SwedenCustomer characteristics:Target customers:families with heads of household in their 30s and 40s 78%of its customers did not drive a new car before subscribing 85%choose annual subscript

35、ionsFleet portfolio:Features more than 30 vehicle brands,based on direct OEM partnerships Currently offers about 40 models from 25 OEMs(avail-ability can change on a daily basis)30%of its fleet is fully electric Provides CO2 offsets for all vehicles in its portfolioFinn at a GlanceVehicle type outwe

36、ighs brand.Customers are practical.First and foremost,they want the right kind of vehicle for the job,whether its an SUV for grocery shopping and family excursions or a 4x4 for weekend getaways.Most customers choose the type of vehicle before they decide on a model or brand.Customer experience is pa

37、ramount.Consumers today have high expectations for a reliable,engaging online experience.For a big-ticket transaction in particular,sharp-ly designed websites and apps(offering visual appeal and ease in navigating)are essential.So are streamlined pro-cesses.Subscription offerings oriented around e-c

38、ommerce allow customers to book a car in five minutes,reach cus-tomer service 24-7,and set up car delivery,return,and exchange easily.Above all,a provider must have available inventory.Cus-tomers do not want to wait.Fast delivery is crucial,and during supply shortages(which,post-COVID,have become in

39、creasingly common)its an important selling point.Rule#2:Know the Subscription Customer Early on,people assumed subscriptions would appeal only to young,hip urbanites from major metropolises.OEMs in particular viewed subscriptions as a luxury offering,imag-ining that maximum flexibility and premium s

40、ervice would be customer priorities.These assumptions proved wrong,as Finns customer base suggests.(See Exhibit 2.)Customers are younger than buyers,but the age range is broader than expected.In reality,subscriptions appeal to a far broader audience,and one largely made up of newbie owners.Half of F

41、inns customers are younger than 40(versus the average age of the new-car buyer,at 50).Younger customers are desirable because they tend to be more receptive to digital buying,new brands,new tech-nology,and sustainable mobility.Within the past 12 months,for example,26%of the firms subscriptions were

42、for BEVs.(As mentioned above,26%of Finns subscriptions over the past 12 months were for BEVs;another 8%were for PHEVs,although that share could shrink if gas prices remain high.)Perhaps an even more promising sign for providers is the fact that 78%of Finns customers did not drive a new car prior to

43、subscribing.Although subscriptions are a low-er-margin business for OEMs than their dealer business,they offer OEMs the opportunity to acquire new,previously unreachable customers.Customers are value-minded.While its important to offer a variety of vehicle options,subscription customers tend to opt

44、for the best deal.Finns offerings run from 329 to 1,739,but its most popular car costs 540 a month.In customer surveys,value was cited as the most important of five key purchase criteria(by 50%of respondents),with simplicity taking second place(by 33%).BOSTON CONSULTING GROUP|CENTER FOR MOBILITY INN

45、OVATION 6Exhibit 2-The Typical Customer Is Not Necessarily Who Youd ExpectSources:Finn,BCG analysis.Note:While the demographic information above was shared by Finn,BCG research has found that it is largely representative of the industry as a whole.50%are below theage of 4062%live in places with fewe

46、rthan 500k residents78%did not drive a new car before subscribing26%subscribed to a BEV in the past 12 monthsSubscriptions present a more realistic picture of ownership costs:unlike a monthly car payment,the monthly subscrip-tion fee is all-inclusive,covering insurance,taxes,licensing,and maintenanc

47、e.So,when a customer compares a monthly subscription cost to the cost of purchasing a new car,the subscription becomes attractiveassuming the customer has done the math on total cost of car owner-ship.(See the sidebar“Cost Transparency Is a Dou-ble-Edged Sword.”)Customers arent just big-city dweller

48、s.Providers that can capitalize on digital and scale operations effectively are well positioned to reach a broader market.Finn,for exam-ple,serves customers from more than 1,000 cities and towns throughout Germany.Only 27%of its customers reside in cities with more than 1 million people,and the majo

49、rity of their customers(62%)live in cities of under half a million.Theyre not just consumers.Although less oriented toward handling transactions online,B2B customers account for a fair proportion of the subscription market and are fertile ground for expansion.B2B currently represents 21%of Finns bus

50、iness,for example,and the firm is aiming to grow that share by targeting small-to-medium enterprisescompanies typically overlooked by large leasing organizations.Be mindful of regional differences.In the US,for exam-ple,consumers are less familiar with the concept of car subscriptions,so providers n

51、eed to educate and engage them.The regulatory environment is another hurdle for subscription companies looking to crack the US market:franchise law prohibits OEMs from selling directly to con-sumers,whereas in Europe,options exist that allow OEMS to bypass dealers and sell direct.And because insuran

52、ce is regulated on a state-by-state basis in the US,providers must determine where they can offer an all-inclusive prod-uct and where they must decouple insurance.Still,its a market with a huge appetite for vehicles,and the countrys advanced state of e-commerce and consum-ers general distaste for th

53、e car-buying experience both work in subscription providers favor.For new OEMs(those not subject to a regulated sales structure),subscriptions can be an important lower-threshold access point for US consumers,giving them an opportunity to try out their product with no risk.Rule#3:Master the Unit Eco

54、nomicsIs the business model for subscriptions financially sustain-able?The experience of Finn and a handful of other inte-grated providers shows that it can be.But while all players strive for profitability,the leading ones give themselves a deadline.Some are targeting profitability within the next

55、one to two years.What practices must companies adopt in order to make the economics viable?7 DRIVING SUCCESS IN CAR SUBSCRIPTIONSStudies show that most people do not accurately estimate their total cost of car ownership.They know their monthly car payment and fuel costs,but they tend to significantl

56、y under-estimate insurance,licensing and registration,maintenance,and repair costs,which increase over time.Thus,in seeing a monthly subscription fee thats higher than their perceived total cost of ownership,they might conclude that a subscription is too expensive.For many,this serves as a deterrent

57、 to subscriptions.On the other hand,this knowl-edge gap represents an opportunity:providers can educate prospective customers with comparisons that make the cost of car ownership as transparent as the cost of a comparable subscription.In turbulent economic periodsthrough much of the pan-demic,for in

58、stance,or as with high inflation todayconsum-ers are more price sensitive.The need for a lower buy-in threshold for big-ticket items becomes more important.For that reason,usership models can have an advantage:500 per month for two or three months is far more attractive than 500 per month for a year

59、 for the occasional driver.Cost Transparency Is a Double-Edged SwordBOSTON CONSULTING GROUP|CENTER FOR MOBILITY INNOVATION 8Pursue scale.Profitability depends on scale.We now understand that sufficient scale in the subscription busi-ness amounts to roughly 20,000 to 30,000 customers for an independe

60、nt,integrated provider.(The number can be lower for those with an existing infrastructure or that offer additional mobility services.)Apply key levers of profitability.Companies can acti-vate five levers to build profitability(see Exhibit 3):Vehicle sourcing.Companies need to set up their pur-chase

61、agreements wisely.As a new strategic distribution channel for OEMs,subscription providers can negotiate attractive discounts in their bulk purchases.Discounts are limited amid the current supply shortage,but once the current bottlenecks are resolved(most likely in late 2023),discount levels will sta

62、rt to recover.Ultimately,when the auto industry is back to its normal state of oversupply,subscription providers will benefit from greater availability and selection.Pricing and vehicle utilization.Providers must strike that sweet spot for pricing that ensures they remain competitive while reaching

63、the right level of vehicle utili-zation for each model and unit.Fleet management and operations.Providers should seek efficiencies in maintenance(which is,after all,minimal with new cars)and tire purchase and care.With the many other operational processesthe logistics of delivering vehicles to the c

64、ompanys facility and later to the customer,key replacement,and so oncompanies need to be rigorous in finding efficiencies without cut-ting corners that ultimately devalue their assets or the customer relationships.Exhibit 3-Five Levers to Profitability(Typical monthly unit economics,in)KeyleversFlee

65、t management and operationsMarketingPresubscriptionSubscription periodPostsubscriptionRemarketingExample:Compact car with a book value of 30KResell vehicle at 25K book value5K asset value depreciation Buy low Optimize during deploymentSell highVehicle sourcing1Pricing and vehicle utilization2345Cust

66、omeracquisitioncostsOperationsand other selling costsTotal grossmargin Leasing rateEffectiverevenueMaintenanceand tiresInsurance400-50060-8015-2050-6025-3540-8010%15%150-300Source:BCG analysis.9 DRIVING SUCCESS IN CAR SUBSCRIPTIONSA subscription gives existing or first-time car owners a great opport

67、unity to try out an electric vehicle.BOSTON CONSULTING GROUP|CENTER FOR MOBILITY INNOVATION 10 Marketing.Professional online marketing tools and techniques can help companies optimize click-through conversion rates and target their spending effectively.Remarketing.Leading subscription providers have

68、 demonstrated that resale prices are the strongest deter-minant of profitability.For companies,it is imperative to have multiple elaborate remarketing sources in order to optimize earnings per sale.Manage risks.When set up right,an integrated provider can potentially scale up to thousands and tens o

69、f thou-sands of cars.But preordering cars in large volumes also creates inventory risk.Companies need to have mitigation strategies in place at the front and back ends.Leading players post inventory on their website as far in advance as three months before cars arrive at their storage facility.Among

70、 leading players,more than 90%of car offerings are subscribed to before they even hit the compound.To mitigate residual value riskthe risk that future value for later sale is not accurately forecasteda provider can presell all of its cars early in their subscription life.It can even lock in presale

71、offers from large dealership groups or online used car platforms before the transaction even begins.If it refines its reselling process sufficiently,this can eliminate middlemen(B2B auction platforms,for example)and help subscription providers realize an even better return.Clearly,as the volume of s

72、ubscriptions grow,so does the pool of sellable cars to retire from the fleet.Finally,there is the capital intensity risk:the need for significant capital to buy a large supply of vehicles.Credit facility is a vital tool.An ample facility,with a substantial advance rate,can reduce or eliminate the ne

73、ed for equity to finance the fleet.What Will the Market Look Like in 2025?The consumer trends we cited earliersuch as the shifts from ownership to usership and the move to EVshave been tailwinds for the subscription business,and they will continue.For those reasons alone,we believe that sub-scriptio

74、ns will become an important part of the market in the future.Still,subscription providers need to do their homework and offer an attractive product to consumers in a way that is sustainable.Over the next few years,the boundaries between subscrib-ing,renting,and leasing will become more blurred.Each

75、will be just another way of accessing a vehicleanother point along the ownership continuum.Indeed,we foresee OEMs adopting this mindset and offering a choice of sub-scription,lease,financing,and direct purchase in their e-commerce stores.Along with the shift toward an agency sales model(in Europe es

76、pecially)and owning a bigger share of the vehicle lifecycle,OEMs will own customer dataa powerful asset.Multibrand integrated providers such as Finn will play an important role in the subscription marketbut only if they can prove their value to OEMs.Only a few will grow to scale,because few will be

77、able to build the brand awareness,operations,and financing capability necessary.And only a few will win positions at the top of browser search pages.Consolidation is therefore inevitable.For independent,multibrand platforms,the winners will be fewand large.With usership,EVs,andonline purchases all g

78、rowingin popularity,the tailwinds forsubscriptions will continue.BOSTON CONSULTING GROUP|CENTER FOR MOBILITY INNOVATION 12Acknowledgments The authors thank Max-Josef Meier and Pia Hsl of Finn for their contributions in providing access to data on cus-tomer patterns and demographics.For Further Conta

79、ctIf you would like to discuss this article,please contact one of the authors.About the AuthorsNikolaus Lang is a managing director and senior partner in the Munich office of the Boston Consulting Group.He leads the firms Global Advantage practice worldwide.You may contact him at .Philipp Sadek is a

80、 project leader in BCGs Vienna office.You may contact him at .Daniel Schellong is a partner in the firms Berlin office.You may contact him at .Alexander Wachtmeister is a managing director and senior partner in the firms Singapore office and leads BCGs automotive and mobility work in the Asia-Pacifi

81、c region.You may contact him at .Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it was founded in 1963.Today,we help clients with total transformati

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