Car Makers Want to Sell You a Subscription

Volvo is simplifying its powertrains. Now it wants to simplify the way it sells vehicles.

The iconic Swedish carmaker with the Chinese parent has a new plan to get millennials into its cars: subscriptions. Sort of like the way telecom carriers sell iPhones, except with cars.

It makes sense. And it’s sweeping through the marketing world.

The root of Care by Volvo is reducing friction. The company will take care of the pesky stuff like insurance, maintenance and repairs. Then customers can design their own packages around their individual needs.

Want a concierge service? Check. Refueling and cleaning? Check. Want to impress future in-laws next weekend with the new XC-90? You can do that, too.

There is even a service pack that includes a new upgrade every two years, naturally.

For its troubles, Volvo would get a monthly subscription fee that rises with the level and complexity of services selected. It’s innovative. It’s also entirely necessary. The corporate world is wrestling with how to market to a generation that would much rather spend income on restaurants and travel than durables.

Millennials were born into the sharing economy, and they like it.

They don’t buy music or DVDs. There is a smartphone app for that. Spotify, the leading music-streaming service, now has 140 million active users. Fifty million pay a monthly fee.

They don’t buy cars. There is an app for that, too. Uber, the leading ride-hailing company, operates in 84 countries and served 2 billion rides in 2016.

Brian Chesky, founder of Airbnb, a home-sharing company, put it best: “Access is becoming the new ownership … our bling isn’t our house or our car, it is the theatre of Instagram and the experiences we are having in the world.”

Care by Volvo is an attempt to bring the auto industry into the age of access. Image Credit: volvocars.com.

Care by Volvo is an attempt to bring the auto industry into the age of access.

It comes as the industry deals with declining sales and the prospect of innovation, like self-driving technologies, may kill the ownership business model altogether. Car companies are getting ready.

BMW is trialing a ride-sharing service called ReachNow. General Motors bought an automated driving technology company, invested $500 million in Lyft, Uber’s largest rival, and is starting its own car-sharing service. Companies from Fiat Chrysler (FCAU) to Ford (F), Volkswagen and Mercedes have similar deals in the works.

It’s a crazy, mixed-up time, fostered by changing societal values and emergent technology.

For investors, it does not have to be perilous. Opportunities abound. Companies are building vibrant new business models around access.

For example, Amazon Web Services (AWS) started when the online retailer decided to sell access to its spare compute and data storage capacity, on a pay-as-you-go basis. That access allowed Netflix (NFLX) to transform itself from a sleepy mail-order DVD rental company into a behemoth. Today, AWS is headed toward $20 billion in sales, and Netflix is the first global entertainment network.

AWS and Netflix are not the only success stories. Numerous companies have made the transition to successful subscription business models. Others are in the process. You just have to know where to look.

Apple is the world’s largest company by market capitalization. It logs the bulk of its sales through lucrative annual contracts with wireless carriers. In 2015, it began pushing its own upgrade program to people shopping online and at its stores. It turns out that selling subscriptions is easier than convincing them to buy an expensive new phone each year.

Volvo is hoping to catch a bit of the magic.

Ultimately, the jury is still out on Care by Volvo. Getting a new car is expensive, even when the longer-term costs are hidden in monthly lease payments. However, the program is important because it shows where marketing is headed, and why.

Best wishes,

Jon Markman

P.S. Amazon has benefited from the subscription model thanks to its Prime membership option. And so have investors. In fact, my subscribers are sitting on a nice 41.4% open gain in the stock as of this writing. And there are plenty more profit opportunities like these coming down the pipeline. Click here to get in on the action now.


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Comments 4

  1. Dean Acheson September 27, 2017

    Ohhh . . . the problem always arises when a business gets confused about customer identification and exactly what the product is that the customers are interested in purchasing. I predict that the potential buyers of Volvo cars will be most certainly reticent to pay for a subscription presenting how this particular potential car development is progressing.

    During my career as an organization consultant, I became acquainted with a company originated to set up to produce a movie. Their stated product was the movie. Making a movie can be a goal, but cannot be a product – a movie making company produces lots of movies, not “a” movie.

    Volvo produces cars

    The attempt to get people to pay for an obvious marketing ploy will be quickly sensed and the result will be lowered, rather than increased sales, with a publication that will totally fail.

    Netflix sells subscriptions granting access to movies . . . they do not sell subscriptions about their planning and development.

    Amazon Web Services sells subscriptions to server access . . . they do not sell subscriptions to information about Amazon’s product development.

    Reply

  2. James September 28, 2017

    Uber is definitely a great invention. Millennials don’t want the hassle of paying car parking fees, they also don’t the hassle of all the other hidden costs that come with driving. They want convenience its not convenient having to pay a couple of hundred dollars to get a car serviced every year. Uber gives freedom to human beings who want to travel places come as they please. It combines certainty with low cost. There will be less single occupancy vehicles in the future. More possibly dual occupancy vehicles. Electronic toll charging and automatic vehicle identification will be the future of private and public transport. We are on our way to a boom, a boom in transport economics too.

    Reply

  3. Rob September 28, 2017

    One small company in China pioneered the Car Share system a few years ago. As you know the Chinese love to rent bikes. Now they can rent cars (electric) by the hour/day/week/month/year..
    Just call it on your cell phone. Their models range from economy to luxury and at last count, I believe, were operating in about 20 different cities. They have support, including subsidies, from various levels of government and are a beneficiary of the drive to reduce pollution in the smog choked cities.
    So who is this small company. Well, surprise, surprise, they do have a connection to Volvo and are listed on the Nasdaq.
    Kandi Technologies (KNDI)

    Reply

  4. Steve September 29, 2017

    So they have re-branded the lease into an all-inclusive subscription service to entice younger vehicle “buyers”. Not a bad marketing gimmick if the Volvo dealers can keep up with it. Wondering when time share vehicles and self-driving cars enters the equation.

    Reply