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Heated Steering Wheel for $20 a Month? What’s Driving the Subscription Economy
Aug
From gym memberships to music and movies to razors, toilet paper, meal kits and clothing, there is hardly an area that the subscription economy can’t address.
After conquering the software market – where it earned its own acronym, SaaS (software as a service) – the subscription model is now making its way into the hardware world.
Car manufacturers were among the first to operate software to enable and disable additional features.
German car manufacturer BMW offers “micropayments in the car” to access the option for car buyers in the UK, Korea, Germany, Modern Zealand and South Africa. For example, a heated steering wheel costs NZ$20 per month in Modern Zealand and £10 in the UK.
Other markets including Australia will happen soon.
In the UK, seven of the 13 “digital services” – from heated seats to automatic high beams and driving assistance systems – are now available by subscription.
“Welcome to micropayment hell” – that’s what they call it one header put it down.
But that’s probably an exaggeration of the beginning of a corporate dystopia where “you’ll have nothing.” BMW’s motives are pretty straightforward — like much of what drives the subscription economy.
What is the subscription model?
The subscription model involves paying a fee for periodic access to a service or product. Until about a decade ago, it was largely restricted to a few select industries, such as milk delivery, newspapers, and magazines.
Snapshot
Other business models had similarities – such as rentals – but the purpose of the subscription model was different.
It wasn’t about meeting a demand for a service that someone only wanted to operate temporarily or couldn’t afford to own. It was about building a lasting relationship to maximize “customer lifetime value.”
How According to InvestopediaThe subscription model focuses on customer retention, not acquisition:
At its core, subscription business models rely on a way of generating revenue whereby an individual customer pays multiple times for long-term access to a good or service, rather than paying a vast amount up front.
This goes a long way toward explaining why subscription services are now being adopted in markets that aren’t best suited for them, such as streaming news and entertainment.
In a broad sense, consumers can now be divided into two groups. One group is the “transactional customer,” who interacts with a seller once or twice and then disappears.
The second group consists of customers whose bond and “investment” in the brand is maintained through subscriptions.
Snapshot
E-commerce and access
Part of the growth in the subscription economy came as companies jumped on the e-commerce wave, delivering goods like meal kits, wine, coffee, baby products, pet food, cleaning products, razors and toilet paper.
Consulting firm McKinsey has estimated that the subscription e-commerce market doubling the value every year – although that was before the pandemic. Now it could be more.
James Ross/AAP
The second part of the market is represented by BMW’s approach, which consists in offering customers additional functions, access to which is only possible for a fee.
In some cases, this may involve standard “upselling” techniques. For example, when you buy a recent Peloton exercise bike, you will be tempted subscription offerssuch as virtual classes and “personalized” training programs to “achieve your goals.”
Or increasingly, as is the case with BMW’s heated seats and steering wheels, it can be done via software that turns specific hardware components on or off.
What is the BMW game?
Is BMW’s goal to extract more money from customers by getting them to pay a flat fee for something rather than own it outright?
This is not what the subscription structure suggests. Quite the opposite.
Customers can still buy these options outright. For example, the heated steering wheel costs in the UK 200 poundsand in Modern Zealand 350 NZ dollars. Now they can also pay a subscription fee – for three years (£150, NZ$250), annually (£100, NZ$250) or monthly (£10, NZ$20).
These prices send a forceful signal – that the total cost of ownership is the most economical. It is unlikely that BMW expects anyone to sign up for one- or three-year options. They are probably just there to make the total cost more attractive.
Read more: The Decoy Effect: How You’re Influenced to Make a Choice Without Realizing It
On the other hand, a monthly offer may encourage owners to try a feature they would otherwise have been reluctant to purchase at the time of purchase.
Indeed, automakers claim that the reason they offer so many options as extras is because most owners don’t want them. So it seems mostly like BMW is offering a “try before you buy” option.
The Pitfalls of Oversubscription
However, it is not necessary for companies to have malicious intent for us to be concerned about the spread of the subscription model.
The more things we pay for with “micropayments,” the harder it is to track payments.
Many of us still pay for products and services we don’t operate. For example, a 2021 survey of 1,000 Australian adults found that around a third of us waste money on unused subscriptions or memberships – losing an average of around AUD 200 per year.
Deep psychological associations can influence these decisions. Experiments by American marketing professors Jennifer Savary and Ravi Dhar suggest that people with lower “self-awareness”are less likely to sign up for subscriptions – but they are also less likely to cancel subscriptions they don’t operate.
Read more: What Makes Us Sign Up for Subscription Boxes
We may see the subscription model increasingly being used in other sectors – including healthcare and the justice system.
For example, a subscription fee could provide better levels of nutritious food for a resident in a care facility for the elderly, a hospital, or even a prison. This is not dissimilar to the way private health insurance premiums are managed, but it still raises essential concerns about fairness and equality.
While there is no reason to overstate the dangers of the subscription economy, consumers, activist groups, and governments should ask themselves: “What next?”
