How Automotive Finance Leaders Can Stay Nimble with Vehicle Subscription Pricing

Understand the innovative pricing strategy of vehicle subscription services, highlighting its dynamic approach to depreciation, risk distribution, and responsiveness to market conditions.

George Skentzos

Head of Customer Experience

Published on 

March 14, 2024


Last updated on 

March 14, 2024

Key Takeaways

  • Subscription services offer a more flexible, accurate approach to vehicle depreciation, allowing frequent adjustments to pricing
  • The model spreads financial risk across multiple subscribers, providing more opportunities for price optimization
  • It enables a dynamic response to market conditions, ensuring prices remain competitive and aligned with actual vehicle value

In an industry that thrives on innovation and foresight, the automotive world's transition from traditional leasing models to flexible vehicle subscription services marks a crucial adaptation to the evolving consumer preferences and market demands. The key to this transition? A dynamic approach to pricing based on the vehicle's depreciation.

Traditional Leasing’s Pricing Dilemma

Conventionally, car leasing programs required a deep dive into the crystal ball of depreciation curves, attempting to estimate a vehicle's value loss over an extended period. This approach demanded not only a precise prediction of the vehicle's worth years into the future but also a conservative assumption to buffer against the unpredictable sway of market fluctuations.

This traditional method, though tried and tested, often encapsulated a rigid structure, hardly leaving room for flexibility and adjustment—an aspect increasingly perceived as a drawback in the face of a volatile market.

The Subscription Model’s Innovative Stride

Enter the era of vehicle subscription services, a model that eschews the one-size-fits-all approach of conventional leasing for a more agile and responsive strategy.

Unlike its predecessor, subscription services slice the depreciation curve into manageable, shorter segments, typically spanning 6 to 12 months.

This segmented approach allows for setting monthly fees that are not only reflective of the vehicle's estimated resale value at the end of a subscription cycle but can also be revised for the next subscriber, should the vehicle be returned.

Flexibility: The Winning Formula

The quintessential advantage of the subscription model is the flexibility it affords—a flexibility that allows subscription providers to spread out the risk across multiple customers.

While traditional leasing programs had one opportunity to recoup a vehicle's depreciation value, subscription services embrace the ability to adjust pricing in alignment with market changes.

This dynamic pricing mechanism ensures that even with unexpected market shifts, there are ample opportunities for corrections across multiple subscription cycles for each vehicle, thereby providing a broader margin for error and adjustment.

The Secret Revealed

The underlying secret to getting vehicle subscription pricing right doesn’t lie solely in precise upfront valuation but in adopting a perspective that accommodates fluctuation and change—one subscription at a time.

This approach empowers programs to better react to immediate market conditions, ensuring pricing remains in tight sync with the actual value of the vehicle. It's a model that not only reflects the agility required in today’s automotive market but also aligns with the predictive insights and forward-looking stance championed by platforms like Loopit.

In conclusion, the evolution from traditional leasing to dynamic vehicle subscription services symbolizes the automotive industry's readiness to embrace change, offering a blueprint for successfully navigating the complexities of vehicle depreciation and market volatility. As this model continues to gain traction, its success will likely hinge on the ability to remain adaptable, ensuring pricing strategies reflect the real-time value of vehicles in an ever-changing market landscape.

About the author
George is the Head of Marketing and Customer Experience at Loopit. Having originally started his career as a motoring journalist and founding team member for one of Australia's top automotive startups, George has a strong passion for automotive, business and growth marketing.
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