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How to unleash the power of subscription economy

Why buy when you can rent?
28.03.2022
3 Min
[credi2]

Why buy when you can rent? New subscription models free consumers from old constraints and bring new business models for retailers that also make a credible contribution to the circular economy.

Rent, car leasing, mobile tariff. We have long been used to subscription models in many areas of everyday life. In order to be able to use these, we pay monthly amounts, and if we want, we can change landlords, lenders, or providers. However, this subscription economy is now using digital business models to cover more and more products and services that we previously used to buy. You no longer have to purchase smartphones, e-bikes, notebooks, and much more. You can rent them instead.

BNPL solution: subscription economy

According to Juniper Research, this subscription economy will grow rapidly – from $224 billion in 2021 to $275 billion in 2022, a growth of 23 percent. In the field of music and video streaming, hundreds of millions of consumers have made the switch from buying a product (CD, DVD) to monthly subscription fees. According to the Juniper study the physical world is now catching up. Generation Y and Z are the target groups that are making subscriptions a megatrend.

 

High customer retention and a growing convenience

The software sector is certainly a pioneer in the subscription trend. Instead of buying programs, there are countless companies today that operate very successfully Software-as-a-Service (SaaS) models. After conquering digital entertainment, the wave is now spilling over into many other areas.

“Why buy when you can rent? Our analyzes show that Generation Y and Z rely heavily on subscription models. What they get from Netflix and Spotify, they now expect from all other services and products as well,” says Daniel Strieder, CEO and co-founder of Viennese fintech Credi2. The European fintech is already successfully implementing subscription models with leading Apple retailers. “Subscription models are very attractive for retailers and OEMs (Orignal Equipment Manufacturers, ed.) because they allow you to achieve a higher shopping cart value and very high customer retention. Once a customer has subscribed to a smartwatch, he/she will almost certainly rent the next model from the same provider.”

In principle, subscription models are conceivable for all higher-value products that have a high resale value. There is currently a strong trend towards e-bike subscriptions. “That makes perfect sense. E-bikes are a very attractive alternative to cars and help make cities more livable. Not everyone can afford an e-bike but subscription models make the market much more accessible to a much broader range of consumers,” says Strieder. In the field of digital services, subscription models are on the rise. Good examples are the gaming or fitness industries. 

It definitely pays off for retailers who rely on subscription models. As Credi2 analyzes show, subscription models result in up to 20% higher shopping baskets, a three times higher re-purchasing rate, and increase sales for notebooks and smartphones by an average of 6 to 8 percent – also because new Gen Y & Z target groups are gained. For those retailers who rely on subscription models, the subscription is already one of the top 3 payment methods.

 

From pay-per-product to pay-per-use

Credi2 is one of the leading players in Europe in the “Buy Now Pay Later” (BNPL) white-label area for banks and PSPs (PlayStation Portable). The new digital financing models, such as payment in installments, are now being supplemented by subscription models. From the retailer’s point of view, there is an important distinction to be made: instead of selling a product (pay-per-product), the subscription offers the option of switching to pay-per-use. From the consumer’s point of view, this means significantly increased flexibility. An e-bike, for example, can be rented from spring to autumn and returned to the dealer in the cold winter months. The providers can then prepare the e-bikes for the next season.

Subscription models can also be perfectly coupled with other services and included in the monthly price. Whether it’s an e-bike or a smartwatch: When making a purchase, customers used to carry the responsibility of taking care of important things such as insurance, for instance, by themselves. But such additional services can be combined with the subscription to create an attractive offer that differs significantly from those of the competition. Customer convenience is greatly increased, and in competition, the provider can also present the “true cost of ownership” better than the competitors.

 

A contribution to the circular economy

Today, the climate crisis and how to combat it are extremely important for business models that should continue to function sustainably for many years to come. In the EU, the Green Deal ensures that the circular economy is on the rise in all social and economic areas – from reusable packaging to the refurbishing of smartphones. “If you look closely, the subscription economy is an important contribution to the circular economy,” says Strieder. “Because subscription models enable companies to extend the life cycle of products with the help of reuse, refurbishing or remanufacturing concepts.”

Here are some examples: If consumers rent a new iPhone for a certain period of time and return it after the subscription expires, the device can be overhauled and put back on the market. New e-bike subscriptions also show that it is not necessary for users to always rent a brand new bike, but can also get one that others have used before them.

Credi2 is therefore positioning itself as a professional fintech partner and pioneer for smart subscription models in the circular economy. “Rental models require that the products are pre-financed in order to then be able to issue them to many customers – this requires appropriate pre-financing,” says Strieder. “However, subscription models are very attractive for companies. Because they enable them to build Monthly Recurring Revenue (MRR) and thus very stable new business models.”