Subscription-based revenue models are growing at five times the pace of the average S&P 500 Index company (source) and brands can reap many benefits from jumping on the bandwagon, including:
- Growth, enabled by longer-term customer purchase cycles
- Better data gathering, personalisation and customer retention (source)
- Avoiding wastage, moving towards an eco-friendly operational model as products are created in accordance with real-life demand
- Ability to create multi-price subscription models, inclusive of premium services on a dial up/down basis
- Clearer identification of customer segments in line with the above
Applications in low-value purchase decisions
The subscription trend first gained popularity in the clothing market, with brands such as Rent the Runway enabling accessibility to designer clothing through high-end fashion rentals. Peer-to-peer rentals swiftly followed suit with businesses like By Rotation. Consumers win by wearing a range of outfits that don’t get stale. They are able to make a statement of wealth by gaining access to high-net-worth status signifiers, without the killer price tag. It feels almost like a cheat to the system. Perception control.
Well-known subscriptions such as Spotify have also completely reshaped the music market, answering the problem of illegal streaming whilst using data to create a deeply personal experience – records still hold high value for some, but the vast majority of us are streamers. Mobile phones are another example often overlooked – essentially we take out contracts and get renewals before fully owning the phone at the end of the term, meaning we’re merely renting our handsets. Entertainment services such as Netflix and Disney Plus have made DVDs obsolete and lounges less cluttered, but as the market becomes increasingly saturated, brands must compete harder to gain market share. Clear propositions and slick brand experiences are essential and streaming brands are now developing freemium pricing models (akin to Spotify’s strategy) to appeal to more customers (source).
Applications in mid-value purchase decisions
A study by Deloitte indicated that consumers are spending less on things because the costs associated with the social safety net are going up – from healthcare to pensions and insurance post-pandemic (source). It turns out the shift isn’t moving from products to experiences as previously thought, but rather accommodating a new way of thinking – the desire to pay for usage only and nothing more.
When it comes to rentals, transport is changing, too. There are now an estimated 5m leased vehicles on British roads, according to the BVLRA, 1.9m of which are individual or personal contracts. Sebastiano Fedrigo, managing director of Leasys claims “PCH is definitely on the rise […] due to usage versus ownership”’ (source). With increasing fuel costs and taxes for less eco-friendly cars, does rental solve the depreciation problem and is it ultimately less hassle? Brands such as Zipcar provide easy access for rental by the hour or day, proving an even thriftier option for many. They have reported 130% growth since 2018 (source).
Further developments in transport include the rise in popularity of electric scooters, with Voi being rolled out successfully in the South West. The brand is planning to launch long-term rentals of up to 6 months in Bristol, which could enable geo-location targeting and brand partnerships, collaborations or ads with ‘A Voi away from you’ style marketing (source).
Whilst the sharing industry is taking off in some areas, perhaps only a limited number of rental categories can flourish. Sucharita Kodali, a retail analyst at Forrester, suggests that renters of limited-use or higher-priced products may find more success than those of frequently used or lower-priced items (source). Does it make sense to rent inexpensive items? Or is it merely a gimmick? We think it depends on the specific market and consumer demand. Kodali also rightly notes that aggressive retail competitors could create headwinds for rentals. Who’s to say that the major players like Amazon couldn’t move into the rental space? (source).
Applications in high-value purchase decisions
Many of us are renting for longer due to the increasing cost of housing – but is this a purposeful choice or a necessity? Statistics from The Independent show that seven in 10 (70%) potential first-time buyers looking to buy in the next year or two have decided to delay their purchases as rising living costs hit their ability to save, with nearly nine in 10 (88%) saying their ability to save for a deposit has been affected by the rising cost of living (as taken from a Nationwide Building Society survey). With storage limitations and frequency of moving likely being higher for this audience, this context fits with the increasing desire for bulkier item rentals.
Renters index more highly than homeowners in terms of likelihood to share their views online, so a good brand experience matters more than ever for this growing segment. They have reported experiencing increased anxiety and feeling overworked, compared with single and multi-home owners (GWI) and are the most likely group to gamble or try a quick cash fix, ranking poorly against money-management. Subscriptions could enable people to budget more accurately and feel more empowered over their monthly expenses, but only if they can budget accurately. With rental costs continuing to rise in a market where demand outreaches supply, there may be a bittersweet sentiment toward rentals.
Journalist Arwa Mahdawi is more blunt, stating “perhaps the most pernicious thing about late-stage capitalism is the way in which it tries to convince us that not owning anything, not having any long-term security, is somehow liberating” (source). So, is the move towards the rental ‘trend’ merely a glamorous guise for society’s increasing poverty? One thing’s for certain, consumers who sign up to subscriptions will be at the mercy of price increases. And if they increasingly subscribe to more and more accounts, there’ll be less money in the pot for big savings. Perhaps, it’s an eventuality. However, 21% of millennials claimed they preferred to rent than buy and 28% cited better convenience as a motivator, according to the Urban Institute (source).
So, what are the key takeouts?
Renting for brands
- Expect longer customer purchase cycles; this will influence your communications planning activity and provide opportunities for insightful data collection
- Re-evaluate audience segments as a result of better accessibility; audience insight will be crucial to establish key purchase motivations
- Consider you might be competing on service more than product; ensuring consistently excellent service will be reliant on operational stability, fantastic digital UX and an always-on customer service approach
- Get better visibility about your environmental impact, informing more accurate reporting in Marketing communications
- Generate more employment opportunities, particularly for maintenance of rented products (i.e. Voi battery charging and maintenance)
Renting for consumers
- Get immediate access to more expensive goods and services
- Have more selection, more flexibility, and more power – dial up and down services based on your usage
- Feel less guilty and more helpful, consuming in a more environmentally conscious way
It’s not unimaginable to think of a world twenty years from now, where everything is rented, shared or swapped. And whilst this seems quite Utopian in essence, with environmental benefits and convenience at the core, some concerns remain. Whilst we chew over the real benefits of eco-friendly, flexible and accessible rentals, ask yourself this: Will this shift lead to us being more careless and apathetic with our stuff, knowing a replacement or upgrade is always around the corner? Are the days of self-discipline, emotional attachment and hard-saving eroding? And will future generations subsequently struggle to learn the value of money? One thing is for sure, we’re redefining the way we spend – is your brand prepared?