A heated steering wheel for $20 a month? What’s driving the subscriptions economy
<p>From gym memberships to music and movies, to razors, toilet paper, meal kits and clothes, there’s seemingly no place the subscription economy can’t go.</p>
<p>Having conquered the software market – where it gets its own acronym, SaaS (Software as a Service) – the subscription model is now moving into hardware.</p>
<p>Car makers are among the first cabs off the rank, using software to turn on and off optional extras.</p>
<p>German auto maker BMW is offering “<a href="https://www.theverge.com/2022/7/12/23204950/bmw-subscriptions-microtransactions-heated-seats-feature" target="_blank" rel="noopener">in-car microtransactions</a>” to access options for car buyers in Britain, Korea, Germany, New Zealand and South Africa. A heated steering wheel, for example, has a monthly cost of NZ$20 in New Zealand, and £10 in the UK.</p>
<p>Other markets <a href="https://www.drive.com.au/news/bmw-australia-monthly-subscriptions-detailed/" target="_blank" rel="noopener">including Australia</a> will soon follow.</p>
<p>In the UK, seven of 13 “digital services” – from heated seats to automatic high beam and driving assistance – are now available in subscription form.</p>
<p>“Welcome to microtransaction hell” is how <a href="https://www.pcgamer.com/welcome-to-microtransaction-hell-buy-a-bmw-pay-monthly-for-the-cars-features/" target="_blank" rel="noopener">one headline</a> put it.</p>
<p>But that’s probably overselling the onset of a corporate dystopia where “you will own nothing”. BMW’s motives are pretty straightforward – as is most of what’s driving the subscription economy.</p>
<p><strong>What is the subscription model?</strong></p>
<p>The subscription model means paying a fee for periodical access to a service or product. Until a decade or so ago, it was largely confined to a few select industries, such as the delivery of milk, newspapers and magazines.</p>
<figure class="align-center "><img src="https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/474494/original/file-20220718-68552-hvzp5p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" alt="From milk and magazines, subscription services have proliferated with digital technology." /><figcaption><span class="caption">From milk and magazines, subscription services have proliferated with digital technology.</span> <span class="attribution">Shutterstock</span></figcaption></figure>
<p>Other business models had similarities – such as rental businesses – but the point of the subscription model was different.</p>
<p>It was not about meeting a demand for a service someone only wanted to use temporarily or could not afford to own outright. It was about locking in a continuing relationship, to maximise “customer lifetime value”.</p>
<p>As <a href="https://www.investopedia.com/ask/answers/042715/how-do-subscription-business-models-work.asp" target="_blank" rel="noopener">Investopedia puts it</a>, the subscription model’s focus is on customer retention over customer acquisition:</p>
<blockquote>
<p>In essence, subscription business models focus on the way revenue is made so that a single customer pays multiple payments for prolonged access to a good or service instead of a large upfront one-time price.</p>
</blockquote>
<p>This in large part explains why subscription services are now being adopted in markets outside their more obvious fit for things such as streaming news and entertainment.</p>
<p>In a broad sense, consumers can now be divided into two groups. One group comprises the “transactional shopper”, who interacts with the vendor once or twice, then disappears.</p>
<p>The other group comprises customers whose connection and “investment” in the brand is maintained through their subscriptions.</p>
<figure class="align-center "><img src="https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/474211/original/file-20220715-24-eopgdo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" alt="The subscriptions model emphasises customer retention over customer acquisition." /><figcaption><span class="caption">The subscriptions model emphasises customer retention over customer acquisition.</span> <span class="attribution">Shutterstock</span></figcaption></figure>
<p><strong>E-commerce and access</strong></p>
<p>Part of the growth in the subscription economy has come from companies riding the e-commerce wave, delivering goods such as meal kits, wine, coffee, baby supplies, pet food, cleaning products, razors and toilet paper.</p>
<p>Consultant firm McKinsey has estimated the subscription e-commerce market is <a href="https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/thinking-inside-the-subscription-box-new-research-on-ecommerce-consumers" target="_blank" rel="noopener">doubling in value</a> every year – though that was before the pandemic. It could be well be more now.</p>
<p>The other part of the market is represented by BMW’s approach, offering extra features to customers that can only be accessed for a fee.</p>
<p>In some cases this may involve standard “upsell” techniques. For example, when you buy a new Peloton exercise bike you’ll be enticed with <a href="https://www.onepeloton.com.au/membership" target="_blank" rel="noopener">subscription offers</a>, such as virtual classes and “customised” training programs, to “reach your goals”.</p>
<p>Or increasingly, as with BMW’s heated seats and steering wheels, it can be done with software turning actual bits of hardware on or off.</p>
<p><strong>What is BMW’s game?</strong></p>
<p>Is BMW’s purpose to gouge its customers for more money through getting them to pay an ongoing fee for something instead of owning it outright?</p>
<p>This is not what its subscription structure indicates. The opposite, in fact.</p>
<p>Customers can still buy these options outright. A heated steering wheel in the UK, for example, costs <a href="https://www.bmw.co.uk/en/shop/ls/dp/Steering_Wheel_Heating_SFA_gb" target="_blank" rel="noopener">£200</a>, and in New Zealand <a href="https://www.bmw.co.nz/en/shop/ls/dp/Steering_Wheel_Heating_SFA_nz" target="_blank" rel="noopener">NZ$350</a>. But now they can also pay a subscription – for three years (£150, NZ$250), annually (£100, NZ$250) or monthly (£10, NZ$20).</p>
<p>These prices represent a strong signal – that the cost of outright ownership is the most economical. It’s unlikely BMW expects anyone to sign up for the annual or three-yearly options. These are probably just to make the outright cost look more attractive.</p>
<p>The monthly offering, on the other hand, may lure owners to try out a feature they would otherwise have rejected buying outright at the time of purchase.</p>
<p>Indeed, car makers argue the reason they offer so many options as extras is because most owners don’t want them. So this mostly looks like BMW offering a “try before you buy” option.</p>
<p><strong>The pitfalls of over-subscribing</strong></p>
<p>That said, companies don’t need to have sinister motives for us to have concerns about the spread of the subscription model.</p>
<p>The more things we pay for with “micro-payments”, the harder it becomes to keep track of payments.</p>
<p>Many of us continue to pay for products and services we don’t use. A survey of 1,000 Australian adults in 2021, for example, found about a third wasted money on unused subscriptions or memberships – losing an average of about <a href="https://www.savings.com.au/savings-accounts/unused-lockdown-subscriptions-are-costing-aussies-200-a-year" target="_blank" rel="noopener">A$200 a year</a>.</p>
<p>Deep psychological associations can influence these decisions. Experiments by US marketing professors Jennifer Savary and Ravi Dhar suggests people with lower “<a href="https://academic.oup.com/jcr/article-abstract/46/5/887/5498871" target="_blank" rel="noopener">self-concept</a>” are less likely to sign up for subscriptions – but also less likely to cancel subscriptions they are not using.</p>
<p>We may see the subscription model increasingly used in other sectors – including the health and justice systems.</p>
<p>For example, a subscription payment may provide a better level of nutritious food for a resident in an aged care facility, or a hospital or even a prison. This is not dissimilar to the way private health insurance premiums are managed, but still presents important justice and equity concerns.</p>
<p>So while there’s no reason to exaggerate the dangers of the subscription economy, it’s also prudent for consumers, advocacy groups and governments to ask “What next?”.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/186913/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /></p>
<p><em><a href="https://theconversation.com/profiles/louise-grimmer-212082" target="_blank" rel="noopener">Louise Grimmer</a>, Senior Lecturer in Retail Marketing and Associate Head Research Performance, <a href="https://theconversation.com/institutions/university-of-tasmania-888" target="_blank" rel="noopener">University of Tasmania</a></em></p>
<p><em>This article is republished from <a href="https://theconversation.com" target="_blank" rel="noopener">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/a-heated-steering-wheel-for-20-a-month-whats-driving-the-subscriptions-economy-186913" target="_blank" rel="noopener">original article</a>.</em></p>
<p><em>Image: Getty Images</em></p>
