Cruising to work in an SUV is now within reach for even the most adamant 'NOwnership' evangelist - typically a millennial or Generation Z. The leasing industry is constantly reinventing itself, creatively marketing a steady stream of innovative products and services. New segments and business models transform the vehicle-leasing market, and private leasing is the new kid on the block. With about 1% of all vehicles in operation in Europe in private leasing, the market has far from reached its maturity:
"Over the next four to seven years, Generation Z consumers will enter the workforce, and their preferences of renting rather than owning will continue to drive the subscription economy. It's a generation that values experiences over ownership which is also reflected in a booming sharing economy," says Simon Buchwaldt-Nissen, Director, Corporate Strategy, Nets.
He expects these trends to keep driving the subscription economy along with a deeper engagement with sustainability issues. Media, leisure and food are some of the categories expected to benefit the most from the push from Generation Z.
Subscription business model on the rise
Subscription is defined as an advance payment made to receive or participate in something, and the business model has grown exponentially in recent years. Globally, over EUR 93 billion has been invested in companies operating in the subscription economy, and it is estimated that around 28,000 companies globally are offering a service based on subscription serving both B2B and B2C markets, and with offerings that may be either physical goods or services.
Out of 28,000, almost 3,100 companies offer subscriptions in the Nordics. According to our whitepaper, more than two-thirds of the subscriptions supply in the Nordics is provided by global suppliers into new geographies, and during the past five years, the growth in revenue for subscription companies has outstripped that of the retail indices of the Nordics and global S&P 500 sales index.
All about customer churn
While retail is based on ad-hoc purchasing and total revenues, subscription models rely on preplanned purchasing and recurring revenues. As a result, performance is measured against different metrics. The top four success parameters observed across sources are customer churn, monthly recurring revenue, customer lifetime value and customer acquisition cost, although their level of criticality depends on the specific nature of customer engagement and the business model followed.
SUBSCRIPTION ECONOMY: BUSINESS PERSPECTIVE is the first of a two-part white paper series. It looks at the subscription economy from the point of view of businesses operating in the industry and also examines strategies used by incumbents to succeed in it.
The second whitepaper, SUBSCRIPTION ECONOMY: CONSUMER PERSPECTIVE, will look at the consumer segments within the subscription economy; their demographic make-up, preferences, and how changes in the composition of subscribers is impacting supply in the subscription economy. The second whitepaper will be released in May.