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Subscription Economy

In the following article, you'll find out how the subscription model works, using the automotive industry as an example, and much more.

Old wine in new bottles or horny shit?

t3n: It is the golden age of subscription models: there is hardly an industry that is not currently trying to offer its goods and services by subscription. Here you can find out what it’s all about and what you need to bear in mind when entering the subscription business.

As is so often the case, the pioneers are the USA – where subscription services have grown by more than 100 percent in the last five years, but subscription models are also becoming increasingly popular in Germany. The idea behind it is not new. As early as the 17th century, book publishers tried to determine their circulation strength with permanent contracts and advance sales. In the mid-1990s, however, subscription models really took off. At that time, the telecommunications industry launched the first offerings with smart rates. Suddenly, customers were able to pay a certain amount for a certain number of free units each month instead of having to pay individually for every minute they called or texted.

Being able to use instead of wanting to have

A win-win situation

Over the past 20 years, models of this type have continued to evolve. Telecommunications providers are no longer the only ones offering smart rates – we can now also listen to music (Spotify and Deezer), watch movies and series (Netflix and Amazon Prime), and even shop (Hellofresh and Foodist) with a subscription. This concept brings many advantages – on both sides. For consumers, it is often cheaper to subscribe to products or services instead of actually buying them. At the same time, they benefit from a much wider choice and are super flexible. Many subscription providers also offer discounted or even free trial periods. And why are they doing all this? Because providers also benefit from subscription customers. Once a customer has taken out a subscription, he or she remains loyal to the company. This saves money and time in customer acquisition and prevents customers from leaving for the competition. Long-term customer relationships also enable the collection of valuable customer data. Thanks to fixed membership numbers, entrepreneurs have much greater cost control than would be the case with impulse purchases, and can therefore plan much better and budget more effectively.

Do you want to have the Porsche in the garage

or be able to drive with it?

In the meantime, people have become accustomed to no longer owning certain things, but only being able to use them. And if you can listen to music on subscription, what’s wrong with driving a car with a comparable model?

What may sound absurd to many at first is already a reality. And it’s entirely plausible, especially for the young target group that has grown up with subscription models. More and more automakers are currently experimenting with subscription models that allow users to rent vehicles for fixed monthly amounts.

In the U.S., for example, there is a program called “Porsche Passport.” For an amount ranging from $2,000 to $3,000 per month, users can snag a car via app-and depending on the rate, even change models daily. If you’re going to a vacation home for the weekend, you book the Cayenne with plenty of storage space – for the short trip to the lake after work, you can use the 911 in the Carrera Cabriolet version. Similar programs are already in place in Germany from Porsche, Mercedes, BMW, Volvo and other manufacturers.

Financing, leasing and subscription

what are the differences?

But how do these subscription models work as opposed to traditional leasing or financing? This is explained below using the example of a car, but can of course be applied to various products or services available by subscription.

If you can’t put the money for the car purchase directly on the table in cash, you can finance your car. Financing basically involves taking out a loan from a bank in order to be able to use it to pay the price of the vehicle directly to the dealer. The money is then paid back to the lender in monthly installments. Advantage here: At the end of the term, you actually own the car. Disadvantages are partly high interest rates and hardly any flexibility.

Leasing is a type of long-term car rental; here, too, monthly installments are paid, but to the dealership itself – usually over a term of two or three years. At the end of the leasing period, you can decide whether to return the car and lease a new one if necessary, or to keep the car – in which case you will be credited for the premiums you have already paid.

Since for many – especially young – people owning their own car is becoming increasingly less important, more car subscription models are currently coming onto the market. They are sometimes referred to as all-inclusive leasing and are characterized by enormously high flexibility and all-inclusive service. The user pays a usually quite high monthly fee, but also has to take care of almost nothing – everything is already covered by the subscription, both financially and organizationally. For example, if the car needs to be repaired, all you have to do is call the provider. All insurance and taxes are also included in the monthly fee. All the customer really has to do is fill up himself – and depending on the tariff, he can opt for a different model on a daily, weekly or monthly basis.

Not all subscriptions are created equal

But there are not only differences between subscriptions and leases. Because almost every commodity can now be subscribed to, different subscription models have naturally developed. From rental subscriptions, as with cars, to beauty or grocery boxes, to club memberships, as with Netflix or software providers. By the way, SaaS (Software-as-a-Service) is also a hot buzzword these days. Since the triumph of the cloud, more and more software providers are selling their products remotely and as a subscription (well-known examples are Microsoft Office 365 and Adobe Creative Cloud). Companies benefit especially from the ability to subscribe to SaaS offerings on demand and install them on their own devices, rather than having to deploy costly software licenses and necessary hardware. Other advantages: Updates of the software are automatically included in the valid subscription, if there is a hitch somewhere, there are support services that take care of the matter.

So it turns out that the subscription model is not new, but it has evolved rapidly in recent years. Admittedly, the subscription economy is a bit of “old wine in new bottles,” but “cool shit” still applies, with countless benefits for customers and companies.

If you want to delve deeper into this topic, or if you are an entrepreneur thinking about selling your own products by subscription, you should definitely take a look at nexnet’s free whitepaper.

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Stephanie Timm
Stephanie Timm

Seit rund 3 Jahren Redakteurin und Content Creator bei nexnet GmbH. Geschult in den Themen Billing, Payment und Finanzmanagement recherchiert und verfasst sie Texte, die dem Leser nicht nur die spannende Welt von Billing, Debitorenmanagement, Payment Clearing und Co. näherbringen, sondern sie berichtet auch über Änderungen zu den Regularien in diesen Bereichen.