Subscription Economy: Added Value in the Car By Subscription

This Q&A with Zuora’s Frank Föge was originally published by Irina Hübner in Elektronik Automotive

 

Subscription services are a business model in which car manufacturers and drivers benefit from the data generated by modern cars. Frank Föge, Country Manager for Germany & Austria at Zuora, explains in an interview why the importance of subscription models for the automotive industry will increase massively.

Mr. Föge, Zuora has been around since 2007. The company was one of the first providers of subscription models. What is the business model? 
Subscriptions help to gain a 360° view of the customer by understanding them better, and providing them with offers that suit their stage of life and the way they consumes things. Internationally, 70% of adults today already agree that subscriptions to products and services release people from the burden of ownership such as maintenance, disorder or loss of value. This was the conclusion of the “The End of Ownership” report, an international online survey carried out by The Harris Poll on behalf of Zuora. At Zuora, we recognized early on how the change from a product-centric sale to a truly customer-centered sale is taking place.

Can you give an example of how this can work? 
The goal is to acquire customers with a recurring business model. This is known from the media and music world through offers such as Netflix or Spotify. Such a recurring business model creates an ongoing customer relationship and consequently a better understanding of the customer. It doesn’t always have to be digital. Take, for example, our customer AMAG from Switzerland: With Clyde, they offer a subscription platform for cars, through which you can consume a car as needed. There are often combinations: A whole ecosystem of digital services is created around the physical product. It is precisely this combination that makes the topic of subscriptions exciting for every product provider.

Why is it so difficult to successfully establish subscription services on the market?
Many companies are now purely product-centric. Their economic indicators are often limited to the production of goods and do not look at values ​​such as customer lifetime value. So the prevailing sales thinking is still about the product and its life cycle: If the product is damaged or is no longer used, the customer has to sell a new one. In addition, the subscription economy made possible by the Internet is a comparatively young business model: after all, ten to 15 years ago, digital additional services were still in their infancy. In a world that has relied on the sale of goods for hundreds of years, you can’t simply switch to subscriptions practically overnight. It is a paradigm shift and the transformation of entire economic areas takes time.

How is Germany positioned regarding subscription services? 
Much of what we currently consume as a subscription still comes from the United States. Many other services are already part of everyday life there. So in Germany, we are still at the beginning of this new era. But we expect an increasingly rapid change, not least due to technologies such as 5G.

What is the particular potential for automakers when using subscription models?
It is about creating added value around the product car. How can I create something for the car ecosystem that improves and simplifies life for the customer in this ecosystem? When the customer uses it for excursions, shopping and driving to work, and also when they give it for maintenance. This also applies to customers for whom a car is primarily a means to an end. For them, the benefit is more important than ownership. You want more convenience, more car experience. The car manufacturer can significantly strengthen this through the subscription model and at the same time consolidate the customer relationship in one go, because up to now he has easily lost sight of the customer between purchase and maintenance. But a lot happens in between.

Kia uses the Zuora platform for its UVO Link subscription service. What type of subscription model is this?
In principle, there are features and services that the connected car area offers. Kia owners have access to the web portal and the app. Depending on the service package, they are then able to remotely control the air conditioning, find their parking space, book a workshop appointment, call roadside assistance and much more. So everything that makes life easier for vehicle users in and around the car and increases the convenience factor.

What are the general benefits of automakers working with platform providers for subscription models? And what specific benefits does Kia expect from the Zuora platform?
Automobile manufacturers want to benefit from a completely different interaction with the customer. In the business model of recurring sales, this does not mean that they bill customers monthly or quarterly. No, they want to communicate with them. To do this, they track via IoT or telematics services which services a customer prefers to use. This enables them to better understand what the customer really needs and what they are willing to pay for. These are things that can change quickly. Therefore, they need a high degree of agility to be able to keep track of all changes. We are the enabler to be able to manage such flexible subscription models in an agile way. Zuora ensures that business models can be flexibly modeled and billed fully automatically, no matter in which country and with which payment method. This flexibility is a big problem for classic IT systems.

Services like UVO Link collect huge amounts of customer data. What do automakers do with the data?
Data is clearly part of an agile subscription service. Every vehicle manufacturer has a strong interest in protecting this data and complying with the associated regulations. At the same time, this database provides precisely the information that automobile manufacturers use to learn how to better serve their customers. We see this connection again and again: If users receive an offer that is really helpful for them, they are more willing to provide their data. This is precisely the art of extracting the crucial knowledge from the data and determining whether the service offers the desired added value or whether the development is going in the wrong direction. Take the example of Netflix. The streaming service knows exactly who is watching who at what time. And what do they do with it? They produces content that the majority of viewers can expect to see. This creates added value. This procedure can be applied to many different areas.

So customers benefit from the fact that they disclose their data? 
Ultimately, it can be summarized under the topic of convenience. Based on user behavior, the car manufacturer develops and builds individually tailored services. In the end, everyday customer life should become easier. After all, we are all under time pressure, have to meet deadlines, pick up the children, drive to the workshop, and so on. Much of everyday life revolves around this mobility. If I, as a customer, receive a service offer that is tailored to my needs, I will find out exactly what is requested in return for my data.

How will subscription services in the automotive industry develop in the coming years?
Companies looking to the next decade are intensely engaged with subscriptions. Car manufacturers – including the major German brands – are increasingly understanding that ownership of a car brand is increasingly taking a back seat. According to studies by McKinsey, 40% of today’s drivers would switch brands the next time they bought a vehicle if they got more connectivity. McKinsey puts the market potential in the connectivity area at $ 1.5 trillion. Car manufacturers are boosting the production of smart cars. The driver’s license is also an open question for the autonomous driving of the future. Someone who is 18 years old only wants to get from A to B in ten years. As the co-founder and CEO of Zuora, Tien Tzuo, already wrote in his bestseller “Subscribed”: “We will see more and more vehicles that will act more like cell phones on wheels and less like a conventional car.” Of course, these are huge changes. It will be all the more important for an automotive company to quickly find out what the customer needs and to be able to react to it. The automotive industry has to think of the new buyer group and the next generation.

Is Kia the only automaker that Zuora works with?
We now count a total of ten automobile manufacturers to our customers. Kia UVO and General Motors Onstar are examples of this. In the case of Kia, the desire to work with us even arose because our success with Toyota was already known in North America. In France, we are traveling with Groupe Renault and Groupe PSA. Based on our subscription management products, telematics solutions for the logistics industry are also under development. The range of Zuora customers is therefore quite representative when it comes to the subscription economy in the automotive segment. It is interesting to see how fast this market is growing. Because we too grow with it, which is wonderful. We are also looking forward to new customers. There is certainly still potential in Germany.

 

Interested in leraning more? Learn 5 key takeaways for OEMs considering the shift to subscriptions, and subscribe to Zuora CEO Tien Tzuo’s weekly newsletter, The Subscribed Weekly, for the week’s most important subscription business news.

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