Our consumption preferences are ever-changing. If you look back a decade, the way people consumed information drastically differed from the present new-age social media world. Likewise, people’s purchasing preferences have evolved. We no longer live in the mortar brick world where there is a shop for every fixed purchase. The current times have witnessed a change in this trend.
The culture of ownership has moved to the culture of usership.
Nowadays, there are many options beyond a store for the consumer and the provider. The most popular ones are leasing, renting, and subscription business model. Earlier, people were inclined towards leasing and renting products through a solid contract for a set period, but this kind of model, had a gap.
The gap was finally filled by subscription models – the upcoming consumption preference.
A survey of around 1500 automotive consumers found that 64% of Chinese consumers chose the option of opting for a car subscription. In addition, 30% of US consumers and 21% of German respondents said the same thing (Bain & Company). This indicates that the market of subscription-based consumption is booming with a lot of promise.
Let us first understand the three preferences before we draw any comparison.
Rentals are not new to the market. For a long time, traditional rental methods have been used by landlords for giving space to a temporary resident in exchange for a recurring payment for a set time period. With the digital transformation, many companies emerged with a rental product model, like Zoomcar. Zoomcar rented out cars for a set number of days in exchange for a rental fee (and a refundable deposit fee in some cases). The rental model proved successful in metropolitan cities, especially on weekends when the large portion of the population had the time to roam around.
In the case of traditional rentals, there’s usually a contract that includes certain dos and don’ts to be followed by the consumer.
A significant limitation of the rental model for the consumer is the rigid contract and the limited services covered.
Like in the case of Zoomcar, the company would not be responsible for any additional service for the car. The consumer often must go to the location to pick up and drop off the car. The consumer must take care of the car and be wary of its maintenance for the rental contract period.
People preferred the rental model because it did not require an up-front cost, like buying a car now might be a considerable investment and rent, on the other hand, is manageable. The rent became a part of the budget of consumers. So, the rental model targeted affordability by providing a product at a much smaller amount as compared to its purchasing price.
Leasing is another type of rental model. Compared to the rental, leases are longer, usually more than a year. The contracts are signed between the lessee and lessor – and sometimes the lessor is not the seller; they are merely the financer. The lease contracts are even less flexible in contrast to rental agreements. Terms and conditions are strictly mentioned and followed in a lease contract that often allows minimal benefits to the consumer.
In the current trends of consumerism, leasing sounds a bit outdated. The evolving products do not always fit well within a rigid long-term contract. With innovations around us, leasing seems like a roadblock. Consumers cannot change the products if there are changes in trends or preferences before the lease ends.
Mostly, leases are preferred for businesses involving property and heavy assets. Most companies offering long-term contracts prefer leases to forego the worry of an asset. Interestingly, Tesla had a leasing arm to promote its electric cars to customers.
The subscription model is the most promising of the three preferences. The model popularised with software as a subscription model, with major names like Netflix, and Hulu. Customers could subscribe to software with regular payments, providing more flexibility and convenience to the customer. You can also consider the case of Prime, which provides many subscription-based services under a blanket.
Now, the subscription model has been extended to a product as a subscription. This means that a consumer can subscribe to a product, paying an amount on a regular basis based on the time duration. There’s a long list of products that a person can subscribe to, like
- Vehicles, like cars and bikes – including electric cars and electric bikes
- Baby Goods
- Home appliances and more
The subscription model is also an advocate for conscious consumption. A lot of products that people use are temporary – fitting to a particular life event.
Let's look at a few examples. As the baby grows old, the consumption patterns change. There is a constant need for evolving baby products, from different sizes of baby seats to different bedding settings. In such a case, a subscription of (let’s say) baby stroller is a smarter and more conscious choice. Also, it is interesting to note that the present generation is more vocal about green choices and sustainable lifestyles – something that the subscription model stands for too.
We’ve established that subscription models fit the needs and demands of the current generation – let’s compare subscription models with the other preferred models.
Comparing the subscription and rental model
In a rental model, there is less power in the hands of the consumer. They must select from the available options and stick with it for a set time. Consumers choose the subscription model because they have far more control over selecting and updating their choices. Once a consumer has rented a product, they might only have the option to make changes once the rental period is over. In a subscription model, the consumer can always opt for a better product and update their subscription.
Also, a subscription model details down everything – from the model number to the colour, specifications and whatnot whereas the rental agreement might just include a vague term for the product. So, a consumer is more informed of the features of their selection in the subscription model. They are also in power to show their preferences for certain features, like a colour.
In many subscription models, consumers have the advantage of customizing the plan. It could be personalizing the payment cycle, setting a service-maintenance system and more. Such a level of customization is not offered in the rental model. Rental agreements are mostly universal and do not offer a lot of modifications.
Additionally, in a rental product model, all the extra services are exclusive. The consumer is responsible for maintenance, insurance, and similar other expenses. On the other hand, in a subscription model, generally, these services are inclusive. The main cost considers all the maintenance charges and insurance. The vendors are also more responsive in a subscription model as they are in constant touch with the consumer. If there is any issue with a product, the service is timely.
Comparing the subscription and leasing model
As mentioned before, leasing is mostly for a long period of time and if the consumer wants to terminate the lease, there is usually a fee for it. This is not the case in subscription models. Firstly, the subscriptions are not binding for a long duration – there are amenable runs. Also, when a consumer has subscribed to a product, they can easily change the product from their next subscription – without paying any extra fee.
Leasing does not cover any additional service related to the product unlike the subscription model. The subscription model generally offers many additional services, including covering additional costs related to the product. Some of the lease deals might be comprehensive, without covering things like insurance and maintenance. Many subscription-based products offer these in the main cost. Like, if a consumer has subscribed to a car and they need to service the car. They can simply ask the vendor to pick up the car and get it serviced. Such services are not usually seen under a lease model.
During a lease contract, the consumer can not change the product whereas in a subscription model, there is an opportunity for the consumer to change the product. If a consumer presses the need to change the product on lease, there is often a penalty to be paid. No such penalty is charged in the subscription model.
Why choose the subscription model?
There are many benefits of choosing a subscription model over others. The main reasons that one should opt a subscription model are:
- A subscription model is flexible
- A subscription business model is a light decision
- A subscription business allows access to the latest products and services
- A subscription business model improves buyer-seller relationship
A subscription model is flexible
A major plus point is the flexibility offered. Given its nature, subscription models run on a rolling contract basis which can be of varying duration. This offers flexibility to modify the product preferences with the changing trends. The flexibility of changing the product - or even returning the product – is a big attraction of the subscription model.
A subscription business model is a light decision
Subscription models’ flexibility also meet different needs. Consumers might want to subscribe to a product in-between period of transition. There might be people who subscribe just to try and experiment. Some people could still be choosing a model that fits within their choice and budget. So, the decision of choosing a subscription model is a light decision – as compared to signing a contract and getting into an agreement. This decision carries way less stressors.
It is cooperative!
Another similar benefit is that subscription-based products are a better match to your life situations, for example, you are going on a vacation or moving to your parent’s house for a while, it is far easier to manage a subscription than a lease or a rental deal. So, in this way, the subscription model smoothly flows into your life choices.
A subscription business allows access to the latest products and services
Another benefit of choosing subscriptions over leases and rentals is that subscriptions allow you access to the latest upgrades and innovations. For instance, the product you are looking for is an electric bike. We all know the technology for electric bikes is constantly progressing and there might be better and newer versions that you might want to try. So, in such a scenario, a subscription of electric bikes is a better deal as compared to renting an outdated model for a year.
A subscription business model improves buyer-seller relationship
A subscription model is known to provide increased customer support. There is not a single trade-off between the seller/provider and the buyer; rather, there is a relationship. This relationship is deeply valued in a subscription model. In the case of leases, the sellers often fade away. We all know that in a rental model, we only get to interact with the seller when the rent is due. This is not true for subscription models. There is continuous support as customer value is quite high in such models.
The rise of subscriptions
In the last couple of years, many big names, like Volkswagen and Dollar shave club, have opted for subscription-based models. This is because the potential of subscription-based models is consistently increasing. As technology and innovation keep progressing, the subscription model is coming at the centre of consumerism. It bypasses rental and lease models, given their rigidness. Although there are industries wherein rental and lease models still dominate – the growth of subscription-based model can not be overlooked. Not just growth-oriented, the model is also sustainable.
A subscription model is not limited to brand-new products; there is also a space for used product subscriptions.
This is the best part of a subscription model – it fits the needs of all. Depending on the need of the consumer – the preference and the budget, the subscriptions are adjusted.
Therefore, comparing the three models, subscription models are the most futuristic and flexible. With more products available under subscription models, it is not a faraway day that this usership way of consumption becomes the primary model.