What does product-market-fit look like for car subscription businesses?

What does product-market-fit look like for car subscription businesses?

Jeremy Gupta
Chief Operating Officer
Subscription
May 10, 2022

In response to new car supply issues, rising costs of living and work-from-home arrangements, modern motorists are increasingly turning to car subscription services as an alternative to traditional vehicle ownership. Automakers, dealerships, rental companies and startups who have the logistics, operational excellence and existing networks have begun to implement car subscription models into their existing business models as a way to offer more flexible, future-facing transport solutions. However as with all new business models, success lies in the ability to find product-market-fit. In this guide, we explain the three essential components that businesses need to cover in order to achieve product-market-fit for their car subscription service. 

Ensuring your vehicle offering matches your intended market segment

When it comes to offering car subscription, the selection of vehicles offered through your program must align with your market positioning. Understanding what vehicles are in demand by your target market will be critical in making more informed decisions regarding sourcing vehicles and ensuring you achieve higher utilisation of the fleet once acquired. 

There is a misconception that car subscription targets a niche consumer segment, and therefore only a small range of vehicles would be appropriate for subscription. However, data gathered across the Loopit network of subscription providers reveals that the range of vehicles subscribed by consumers is largely reflective of the most popular vehicle models on sale today. 

Loopit has found that subscribers generally care more about the lifestyle a vehicle offers them than the actual individual vehicle itself. For example if a business is targeting young families, it would be more strategic for businesses to carry a representative range of SUVs as opposed to a specific SUV make and model. Electric vehicle offerings are particularly popular, with subscription offering a low-risk option to experience electric vehicles without the upfront costs and long-term commitment associated with ownership. 

Unlike traditional car ownership, rental and leasing; car subscription focuses on delivering affordability and flexibility through lower minimum terms and opportunity for vehicle swaps meaning subscribers become less fixated on aspects of the vehicle such as colour and the brand.

Understanding which vehicles are popular in your market is important in building product-market fit because it also allows you to be more efficient with marketing efforts. Despite the nuances that car subscription offers, the vehicle itself still remains the main “product” for subscribers. Here, campaigns and marketing activities can be executed in a way that effectively market your product to your target market. 

Having the wrong product in the right market will lead to redundant marketing efforts and the inability to validate demand for certain vehicles in your target market - which will be a hindrance to forecasting vehicle popularity ahead of any sourcing decisions. 

Ensuring pricing is appropriate for the position of subscription in the market

The widespread adoption of motorised vehicles wasn’t driven by the higher priced Rolls Royce but instead the friendlier priced Model-T which had much better price-fit with the target market of normal individuals seeking for a more effective way to travel from A to B. Very early iterations of car subscription in some markets failed as they positioned themselves as a premium product with pricing significantly above leasing and finance alternatives, seemingly justified by the convenience and flexibility that car subscription offers. 

It becomes all the more apparent that figuring out a pricing point for any car subscription offering is crucial in achieving product-market-fit. However, to do so requires an understanding of what you’re trying to achieve, position your product in a way that your target audience cares about and then iterate to a pricing strategy to ensure your goals can be met.

As car subscription sits between short term rental (days/weeks) and traditional finance/leasing (years), prospective customers will benchmark the subscription pricing against these alternative methods at face value, where car subscription is perceived to be more costly. However a more robust pricing analysis will show that the all-inclusive offering of car subscription often makes it a far more appealing prospect when all costs are considered such as registration and insurance, servicing and maintenance, roadside assistance and comprehensive warranty.

While supply chain and chip shortage issues resolve themselves in the future, Loopit expects that the pricing of car subscription will still reach parity with finance and leasing in the short term. When factoring in the shorter-term commitment and the flexibility to swap vehicles, the opportunity cost (or saving) of a vehicle subscription vs finance/leasing is why Loopit believes that the market will justify any potential premium in car subscription pricing. With this in consideration, it’s important to also understand what overarching business objectives to determine pricing strategy: 

  1. Does your subscription unit need to be profit generating?
  2. Is your car subscription service a channel to acquire vehicles for another area of your business such as rental or the used car department?
  3. Is there potential to iterate your pricing strategy for your market knowing that you can decrease internal costs through efficiency gains in technology, marketing, staffing or other?

Ensuring you can deliver a seamless customer experience

As online experiences have become the new norm for OEM automakers, car dealerships and rental companies, modern consumers expect that a seamless omnichannel experience is offered in their car subscription booking.  

A good CX in car subscription starts with your acquisition channels such as marketing campaigns and your website. These channels should allow your target audience to easily self-serve the way they source, compare, configure and book a subscription without the need of human intervention. However, should they need assistance, then providing that through informative landing pages, FAQs or a helpful, non-intrusive customer support team will also prove effective.

During the booking process, customers will also expect a seamless experience that allows for instant credit assessment and identity verification - which is all possible with Loopit. At Loopit, many of our providers report that they still see a large percentage of new subscribers wanting assistance in the signup phase as it is often their first time subscribing and have questions regarding their subscription terms. Upon signing up, internal processes must also be set up for efficient vehicle collection and return. 

Another essential component in delivering exceptional customer experience to achieve product-market-fit is managing the lifecycle of a subscription. What good is the promise of convenience and flexibility with car subscription if you can’t deliver on this promise from an operational perspective? It is important to remember that the customer experience doesn’t end when the vehicle goes out; rather your team will need to edit aspects of the subscription (plans and add ons), facilitate vehicle swaps, adjust pricing and ultimately assist your subscribers out with their ownership and driving experience - all through a cohesive platform like Loopit. A comprehensive subscription platform that will also allow you to configure your subscription offering and pricing; leading to a stronger product-market-fit. 

With any product it is essential to come up with a plan and assumptions and then iterate your way to product-market-fit. While it may be unlikely these assumptions will be correct upon launch, many providers in the Loopit network have achieved success through experimentation. Loopit is powering the future of mobility by making it quick and easy for businesses to launch their own car subscription services with our white label solutions. If your business is interested in integrating car subscription as part of your wider strategy, please get in touch with our team of automotive experts.

About the author
Jeremy is the Chief Operating Officer at Loopit. From setting up the Product & Engineering capability in a new office location to launching a new brand to market from scratch, Jeremy is an experienced technology and product leader who is passionate about the creation of products that serve unmet needs.

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