Three reasons why car rental companies should offer car subscription
Subscription as a form of vehicle ownership and usership sits somewhere between rental (days to weeks) and traditional financing/leasing (years) — filling a gap in the market that is left unserved. From a business capability point of view, the dynamics of running a car subscription service have very strong connection to rental in that it requires:
- A (primarily digital) audience who know what they want
- A logistics ability to have vehicles ready to be picked up by the next customer/subscriber
- An ability to monitor movement of fleet and understand utilisation with the goal of maximising it
The advantages of car rental companies
1. Experience in managing vehicle logistics
The above capabilities put rental providers at a strong advantage compared to other customer segments such as dealerships, OEM, micro-mobility and even pure-play subscription businesses. When it comes to accelerating and scaling quickly their subscription offering and from the Loopit network data, it becomes clear much of these advantages stem from leveraging early advantages such as understanding how to forecast and grow their utilisation rates. While some of this can be attributed to pricing, fleet type and the overall growing demand for car subscription offerings, Loopit believes these rental players with an existing logistics capability are at a distinct advantage as this covers what we see as the entire “lifecycle” of a subscription offering taking the vehicle as the point of reference.
To distil this further this means;
- Procurement of vehicles up to the desired fleet size — typically a vanilla set of makes and models
- Maintenance and servicing of the fleet based on predetermined parameters such as age and distance travelled
- Customer experience for pickup/dropoff possibly at different (or the same) location
- Software savviness to determine vehicle condition and also how best to utilise the make/model
2. Attracting an audience/customer segment
At a larger scale, these advantages have come into effect for major rental groups where Volkswagen’s acquisition of Europcar was motivated primarily to build out a capability in mobility; but more importantly; leverage Europcar’s extensive spread of locations and logistics capability in turning around vehicles for short to medium term use.
Another example was demonstrated by SIXT, the globally recognised rental operator beginning to roll out subscription as a complementary offering to their existing rental proposition. In recent times, SIXT New Zealand rolled out their new mobility centre earlier this year with a pop-up store showcasing their new mobility solutions. The established rental group is a great example of building the capacity to market both rental and subscription services — with a similar website experience but very different value propositions such as nuances around pricing, minimum terms and access to certain aspects of their fleet (e.g. used vs new). Their marketing capability, brand power, reach into target customer segments and fundamentally their ability to manage the movement of vehicles have allowed them to quickly roll out and scale a subscription fleet during a rather tough growth period marked by a trying past couple of years of lockdowns and headwinds around vehicle supply. The benchmark that has been set has only indicated that more rental operators will soon follow the lead in integrating an adjacent offering in the subscription space.
From what we can tell, these major subscription incumbents have acknowledged that vehicle subscription as an offering does not have any potential in cannibalising their rental operations. Rather, by allocating the resources into expanding their fleet size and investing into technology partners that scale with their long-term ambitions, rental incumbents see subscription as an expansion of their total addressable market and an efficient use of their locations and capability in vehicle turnaround as well as their digital savviness.
3. Delivering a great customer experience that leads to habit/brand loyalty
The digital savviness of rental companies should also be pointed out as a unique wedge in any car subscription service. Motorists interested in car subscription offerings are overwhelmingly originating digitally. As with most rental bookings, these group of individuals value the process of getting quick and easy access to vehicles — meaning new car subscription providers must prioritise setting up an integrated point-of-sale solution that has the capabilities to:
- enable self-service subscription bookings
- be operated through an omnichannel experience
We find upwards of 70% of all subscription bookings happen entirely online and by having an existing digital footprint, the marketing nous to bring an audience in and also the established trust of their likely audience they can convert more quickly and streamline their operations further. Many rental companies serving motorists who need quick access to a car, such as for vacations or holidays, understand this and have therefore set up existing processes in place. Coupled with the spread of locations that larger rental businesses have, from airport locations to metro and beyond; pick up and drop off options become all the more convenient for their customers and become a point of existing competency that becomes part of their new subscription business.
Rental businesses through their brand and what we refer to as their “just in time” offering, i.e. when you need it such as on vacation or through other circumstances understand the habitual nature of customers. The power of brand loyalty and the value of keeping customers within their brand “ecosystem” is inherently natural to them. This puts them at an advantage against more traditional buy/sell operations who require change management internally to equip their sales force and customer experience teams with the tools and/or incentives to make subscription appealing. As vehicles become a utility over the next few years as opposed to an asset, brand loyalty in our eyes is key and rental companies have that level of awareness already in-market.
Final Thought
Though lucrative, incorporating an entire business model like car subscription can bring about its unique challenges. However, given the similarities in core competencies between car rental and car subscription, it becomes apparent that car rental companies have a distinct advantage when it comes to running a successful car subscription service. With the used car market predicted to decline, car subscription services will continue to increase in ubiquity particularly from car dealerships and OEM car manufacturers. Loopit believes that in order to avoid early market share, car rental companies must leverage their existing customer base and established operational excellence to get ahead of other emerging incumbents. Our all-in-one platform equipped with a full suite of solutions purpose-built for car subscription, has helped car rental companies like SIXT New Zealand, efficiently launch and manage their car subscription service. Interested in launching a new recurring stream of revenue? Get started with our turnkey solution today: https://www.loopit.co/get-started
