People want solutions, not physical products: rise of the subscription model

By Aarthi Rayapura September 21, 2016

By Lucy Purdy

Do we actually desire to own washing machines or sofas, or just to be able to rely on them when needed? Business is being disrupted by the growing dominance of the Internet of Things, and attention is increasingly shifting to pay-per-use models. The concept of homes and films being rented has long been commonplace but now furniture, household appliances and even baby products are being offered on the subscription model too.

Historically, the pay-per-use model hasn’t been available for everyday appliances and items. Transaction costs or the price of the technology required have stood in the way of widespread implementation. And as a result, people have continued to buy low-quality items that they rarely use.

How do these new models really benefit the consumer? Marcel Peters is CEO at Amsterdam-based Bundles, a company that offers high quality domestic appliances on subscription. Bundles’ model, which began with washing machines, includes complementary products and services such as installation, detergent, and maintenance. Plans are priced and adjusted based on how frequently the item is used each month. All this combines to create a “comprehensive and high quality experience for the user,” according to Peters.

So how could these sorts of models nudge modern life toward sustainability?

“The current model generates an increasing amount of waste,” says Peters. “Low-quality products have low levels of reusability, causing material depletion. Detergents, water and energy also cause waste.”

A system change towards a circular economy Peters believes, could result in more high-quality, restorative and regenerative design. Products would be increasingly built to last and supply chains optimised. Component suppliers may be able to escape from the “race to the bottom” business model they’re in while also complying with environmental regulations, he adds.

When the Ellen MacArthur Foundation undertook in-depth research (pdf) on washing machines and the circular economy, they found that though all machines have similar components, their longevity measured in washing cycles ranges widely. They found they ranged from about 2,000 for entry-level machines to 10,000 for high-quality machines. But a “sub-segment” of entry-level machines is built for only 800 to 1,000 cycles. The common break points were motors, pumps and plumbing.

When considering that more European households own washing machines than cars (pdf), the potentially far-reaching impact of shifting behaviour for just one product type becomes clear.

Among the other manufacturers and service providers already active in this space is US-based Pley, who offer educational toys on a monthly subscription basis. Sets of the likes of Lego and Knex as well as dolls and electronic toys, are offered for as little as $12.99 (£10) a month. When children tire of playing with them, they can be returned in pre-paid packaging. “No more wasting money on toys that are left gathering dust on your shelves,” reads their website.

Read the full article at: www.theguardian.com

And check out how Zuora is helping diverse industries adopt the subscription business model here!