The traditional model of car ownership is undergoing a profound transformation. For decades, the automotive industry primarily focused on selling vehicles as one-time products. However, a significant shift is now in full swing, moving towards a service-oriented approach. This paradigm is widely known as automotive servitization. It represents a fundamental change, where manufacturers are increasingly offering features and services through flexible subscription models. This evolution promises new revenue streams and redefines the relationship between automakers and consumers.
This shift encompasses more than just access to a vehicle. It includes a spectrum of offerings, from connected car services to full-fledged car-as-a-service platforms. Consumers are seeking greater flexibility and convenience. They value access over outright ownership. This trend is driven by technological advancements and changing consumer preferences. The implications for the entire auto industry are vast. Automakers must adapt quickly to remain competitive in this evolving landscape.
Understanding Automotive Servitization: Beyond the Product
Automotive servitization is a business model where companies transition from solely selling products to providing integrated solutions. These solutions combine products with supplementary services. Examples include maintenance, support, and performance optimization. In the automotive sector, this means car manufacturers are no longer just selling cars. They are selling mobility solutions. This includes bundling services like insurance, maintenance, and roadside assistance into a single monthly plan. This comprehensive approach delivers enhanced value to the customer [1].
The concept extends to various aspects of vehicle use. It covers everything from basic services to advanced, sophisticated offerings. Basic services might include product and spare parts provision. Intermediate services encompass repairs, scheduled maintenance, and help centers. Advanced services involve more complex, data-driven solutions. These can include predictive maintenance and real-time performance optimization [2]. Digitalization plays a critical role in enabling these transformations. It allows for seamless integration and delivery of services. Automakers are leveraging data to personalize experiences. This leads to stronger customer relationships.
The Emergence of Vehicle Subscriptions and Car-as-a-Service
Vehicle subscription models are a key component of automotive servitization. These models allow customers to pay a recurring fee for vehicle access. This is unlike traditional buying or leasing. Subscribers can often swap vehicles on demand. This provides unparalleled flexibility. Services like insurance and routine maintenance are typically bundled into the monthly fee [3]. This “all-inclusive” approach simplifies car usage. It removes many of the hassles associated with ownership. For example, Care by Volvo bundles insurance and maintenance, offering peace of mind [4].
Major automotive brands have already embraced this trend. BMW, Mercedes, Porsche, and Volvo have launched subscription plans [5]. These plans often include diverse vehicle models. Customers can switch between them as their needs change. This flexibility is highly appealing in today’s fast-paced world. These recurring revenue streams are vital for automakers. They help secure financial stability and fund future innovation. Access to the newest in-vehicle technology is a major draw for consumers [6].
New Revenue Models: Features on Demand and Beyond
Beyond full vehicle subscriptions, automakers are monetizing individual features through subscription services. This is a significant shift from the traditional one-time purchase of optional extras. Now, features like heated seats, advanced navigation, or even increased horsepower can be activated for a monthly or annual fee [7]. This micro-servitization allows consumers to customize their vehicle experience on an ongoing basis. It also creates continuous revenue streams for manufacturers. For instance, BMW has experimented with monthly fees for heated seats in some markets [8].
This model allows for dynamic adaptation to consumer needs. A driver might only subscribe to heated seats during winter months. Performance enthusiasts could pay for additional horsepower for a weekend track event. These flexible offerings maximize value for both parties. They also allow automakers to continuously innovate. Over-the-air (OTA) software updates facilitate the remote activation and deactivation of these features [9]. This digital capability is central to the success of these new revenue models. It ensures vehicles can evolve post-purchase.
Benefits and Challenges for Automakers and Consumers
For automakers, automotive servitization offers diversified and predictable revenue streams. It fosters deeper customer relationships. This leads to enhanced loyalty and increased customer stickiness. By focusing on services, companies can compete on value and quality, not just price [10]. It also provides opportunities for continuous innovation. This allows brands to adapt quickly to changing market trends [11]. Furthermore, services like shared mobility and electric vehicle charging support sustainability goals. This enhances brand image [12].
However, challenges exist. Automakers must transform their existing business models and organizational structures. This requires significant investment in new technologies and expertise. Building a robust digital infrastructure is crucial. Managing customer data securely is also paramount. From the consumer perspective, while flexibility and convenience are appealing, concerns about privacy and the total cost of ownership over time may arise. Clear communication about pricing and terms is essential for consumer trust. The industry also faces the challenge of educating consumers about these new models [13].
References
- [1] DealHub.io. What is Servitization? | DealHub
- [2] ResearchGate. Servitization in the automotive industry: How car manufacturers become mobility service providers
- [3] Loopit.co. What is a car subscription business model? (2024 Edition) | Loopit.co
- [4] Loopit.co. The Top Trends Shaping the Future of Car Subscriptions | Loopit.co
- [5] Orange Business. Automotive industry plots journey to car-as-a-service – Orange Business
- [6] ResearchGate. Car subscription services: Automakers’ shift towards servitized and sustainable business models
- [7] MotorEasy. Car Subscription Features | MotorEasy
- [8] ACV Auctions. What are Car Feature Subscriptions? – ACV Auctions
- [9] Automotive World. How far will the industry take subscription features? – Automotive World
- [10] Euromonitor.com. Servitization: Boosting Revenue and Customer Loyalty in Appliances – Euromonitor.com
- [11] Avrogan.com. Revolutionizing Automotive Industry with Servitization – Avrogan
- [12] Sibros.tech. The Ins and Outs of a Subscription-based Approach to Automotive – Sibros
- [13] Tesi.luiss.it. Servitization in the automotive industry: organizational implications in renewing the offer
- [14] Top Speed. Are Subscription Features In Cars The Next Big Controversy? – Top Speed
- [15] ADL. Car subscription schemes – Arthur D. Little
