How to realize the maximum revenue benefits from automotive subscription services
I open the oven door and smell the delicious scent of a freshly baked pie. “Mmmm, pie!” Whether sweet or savory, who doesn’t love pie? As I start to cut slices and serve them out, it makes me think of the automotive industry as a whole because although the pieces won’t be equal, all automakers and their subscription providers want a slice of this service revenue.
A future as nice as pie?
My last blog, “Shifting Buying Patterns and the Future of Automotive Retail", focused on how OEMs like you can take advantage of a digital-first approach by tracking your customer’s journey through the purchasing process – and more easily learn what types of incentives and sales promotions have the greatest impact, which options and trim levels have the largest uptake and at what point prospects will likely bounce to a rival brand.
You can use and benefit from data analysis to fine-tune all touchpoints and improve the experience for your customers, not to mention reduce waste and improve your operating margins on new vehicle sales.
A triple win for the automaker, dealer and consumer. Wouldn’t that be as nice as pie?
It certainly would be until you start to factor in the rising trend of selling additional features, services and upgrades via subscription. Automakers are scrambling to make sure they get a slice of the subscription pie and aren’t left with an empty plate at the table.
A revenue stream as easy as pie
As an automaker, you’re already discussing and preparing for the significant future revenue that will surely come from subscriptions and upgrades of vehicle features and services that are not included with the purchase price or commonly referred to, “as purchased.”
Tesla is considered a leader in vehicular connectivity with over-the-air (OTA) vehicle updates, and the rest of the industry is accelerating similar initiatives such as upgraded engine horsepower and torque or lane departure warning systems. The OEM’s goal is to be able to switch these types of features on and off remotely, allowing the car owner to subscribe to Features on Demand (FOD). Stellantis, Ford and GM each aim to generate at least $20 billion in annual revenue from software services by 2030. However, collecting on this future revenue stream may not be as easy as it looks.
According to a recent survey conducted by Cox Automotive, vehicle consumers are generally not in favor of the idea of subscriptions, with only about 25% of shoppers saying they’d consider paying subscription fees. As a vehicle manufacturer, this is obviously not good news if you’re counting on subscriptions to drive additional revenue growth in the coming years. So, what can you do to entice customers to buy features on demand? From a revenue management standpoint, complex product costing strategies, pricing strategies and incentive programs have traditionally been required to compete in the automotive market. Success with subscription-based services will require similar incentive-based strategies, such as rebate programs and free trials.
Manual processes will make you eat humble pie
For your company, managing vehicle incentives such as rebates may currently involve manual-based processes, spreadsheets, third-party solutions, and unintegrated and inflexible mainframe-based solutions. These systems are cumbersome, complex, prevent effective planning of offers and incentives and bring a considerable risk of errors.
To create lucrative opportunities in the modern automotive landscape, your ability to handle the manufacturing process as well as forecast demand for models and variants will be critical, as will your partnership with service providers. Good analytics and data-driven solutions will be key to understanding what individual customers value and which features to build and offer to different customer segments.
If your existing data is siloed in different parts of the organization or not being tracked, you’ll need to upgrade to capture and integrate data at every touchpoint. Diversifying your business model beyond car sales will require automated solutions that equip you to efficiently manage incentives, vehicle rebates, promotions and claims, special pricing and gain end-to-end visibility into revenue and Gross-to-Net profit.
To fully realize the potential revenue benefits from subscription services, a more streamlined approach to incentives and revenue management processes - along with optimal data utilization - will be the drivers behind getting a piece of the most delicious profit pie.