It’s not news that cars are becoming connected, that traditional carmakers are investing billions into building in-house software capabilities, or that those traditional carmakers are assailed from all sides by the likes of Tesla, Apple, Sony, and rapidly growing domestic brands from China, South Korea, and elsewhere. It’s also not news that those traditional carmakers are trying various tactics to retain their relevance in a fast-changing market, launching new electric vehicle platforms; dabbling with a variety of ownership, leasing, or subscription models; and experimenting with additional revenue streams.
What is news, it seems, is that some of those experiments initially sound a bit daft. Various news sites got incensed this month, for example, after discovering that BMW is offering drivers in some markets the opportunity to take out a subscription to unlock the heated seats already fitted in their car. Many of those same sites got equally incensed a few years ago when they found Mercedes-Benz trying something very similar for that brand’s auto-dipping headlights function.
While it’s entirely possible for a carmaker (or any other firm) to make a right mess of this, nickel-and-diming customers who have already handed over large sums of money for the core product, there’s also the opportunity to turn this into something beneficial for both the carmaker and the customer. Let’s look at some of the underlying trends:
- Reduced hardware variation. Carmakers have been moving toward “platforms” for years, designing a single foundation on which they then roll out several different car models. Multibrand firms such as VW take this even further, with a VW Golf, an Audi A3, a SEAT León, a Škoda Octavia, and others all sitting on the same MQB platform. More recently, carmakers have begun to reduce the number of options that buyers can add to their new cars. Last year, the Financial Times reported BMW’s efforts to “[call] time on endless customization.” Every option adds complexity to the production process and increases cost for the manufacturer and their suppliers. It may almost be cheaper to build every new BMW with heated seats, for example, than to manage the complexity of sourcing, storing, tracking, fitting, and maintaining heated and nonheated variants.
- Increased connectivity. Carmakers talk a lot about CASE: cars becoming Connected, Autonomous, Shared, and Electric. New cars are increasingly likely to be connected, and that connection can be used to collect data about real-world usage, push software updates, or support the delivery of new services.
- The rise of self-service. Buyers are moving online, researching, specifying, and even buying new cars without ever visiting a dealer or speaking to a representative of the brand. Volvo expects to sell half its cars online by 2025, and its electric models are only available to buy online today. The traditional opportunity for buyers to explore new features — or for dealers to push additional options — is being bypassed and might be replicated in-car with prompts and offers to try or buy additional functionality.
A lot of the incredulity expressed in the tech press was around the price of these subscriptions, but these are premium cars. The features and functions aren’t cheap, whether you buy them off an options list in the dealer or subscribe to them on your smartphone. In the UK, BMW wants £10 for a monthly subscription to their heated steering wheel, or the equivalent of £4.17 per month if you commit to three years. Bought the old-fashioned way, the same feature costs £270 to add to a new BMW 320i Sport — or the equivalent of adding £11 or £7.50 per month to a typical 24–36-month lease payment. There’s clearly scope to think a little more carefully about how these different pricing options stack up.
But there’s also scope to think far more creatively about how car owners and carmakers can interact around shared mobility moments via their shared, connected car platform. Offering a monthly subscription to a feature such as heated seats may not make sense. Over months or years, you either want it (and buy it up front) or you don’t: The in-car prompt to add a monthly or annual subscription will rarely appeal. But the in-car prompt to add heated seats for a day, as you program a 200-mile route into the sat nav and watch the dashboard thermometer report an outside temperature of -5 degrees Celsius? It’s probably worth £5–£10 to quickly and easily make that single long trip more comfortable. Directly aligned to a mobility moment (the customer’s need to travel 200 miles today, in freezing temperatures) and seamlessly enabled as a one-click purchase because of the brand’s existing relationship with its customer, the economic argument shifts. The “rip-off” £10 per month for something you might use one day in the future becomes a more reasonable £5–£10 payment for comfort and warmth, right now. The enabling technologies and business models are the same, but the customer journey — and perceived value — are very different.