Last updated on June 22nd, 2023
In the past few years, it has become increasingly clear that subscription-based business models are becoming a popular trend with business owners and customers. For business owners this is driven by better customer retention, and stable long-term profits. For customers, subscription-based business models are becoming more popular for a few reasons. Why would a customer want to subscribe or rent instead of own? There are several reasons, some good, others bad. Lets dive into those reasons deeper.
1. Convenience and value
A good reason. Some examples include entertainment subscription-based models like Netflix and Spotify. In exchange for a weekly fee users are granted access to a library of tens of thousands of titles that would otherwise cost a fortune to buy. The convenience and value offered here is obvious. Another example is Car share services like Carnextdoor, Uber Carshare, Flexicar, Popcar and GoGet. These are for the most part not subscription-based business models, but peer to peer or one time access services, where your neighbour has a car next door, and when you want to use it you book it out. But they do work on the same principle that when you want the good, you rent it for the time you need. There’s a lot of fixed costs involved in owning a car and if you don’t need to use one often, these services can save you a lot of money. It also puts idle cars to work, meaning fewer cars are needed on our roads, reducing the embodied energy and sustainability of vehicles.
2. Ability to access something they could otherwise not afford.
A good or bad reason depending on the context. All people should have access to all life’s luxuries, regardless of their age and income – even if only for a short while, and rental or subscription-based business models can provide this access. But if someone is using a subscription-based business model to access something that is closer to a human right – like appliancesthat are important to sanitary living conditions like a washing machine or refrigerator – because they could not otherwise afford to buy those appliances, well that’s not good. Perhaps the question here is, do we believe that people have a right to true ownership of certain property?
Housing is increasingly becoming unaffordable for people to buy, and most would consider it to be a true right for a hardworking person to have – A place to call their own, where they can settle down for the long run and do what they will without fear of repercussion or eviction. In Melbourne City, Australia, most could never afford to live within the inner suburbs. Places like Melbourne CBD, Carnegie, Toorak, and Caulfield and Maribyrnong are completely out of reach for most Australians, all they could hope to do is find a rental house or apartment for rent. At the same time we need rental property for those who haven’t accumulated enough savings to buy a house or apartment, or are just temporary inhabitants who do not want to stay long term. We need subscription or rental housing – but we need true ownership to be reasonably on the table.
3. No choice – or at least no reasonable choice
The worst outcome of subscription-based business models, and obviously a bad reason. It should be noted though it is hard to simply categorise subscription-based business models into three distinct categories, and whether we may determine if they are good or bad based on this categorisation – It is highly dependent on context. For example a person who works 40 hours per week for 10 years and has not managed to save for a home deposit in an average neighbourhood, despite being responsible with their money and their best intentions – Well we could say that person had no choice but to continue subscribing to housing instead of owning.
The most obvious example where a customer has no choice is some Software as a Service (SaaS) products. If you want a copy of Photoshop now, your only choice is to subscribe to it. And there’s plenty of other examples of software where your only choice is to subscribe to it. Now you might say “sure, but there’s other software you can use”, and that’s true, but the fact is that Adobe Photoshop is the industry standard. One of the reasons it is the industry standard is that Adobe actively encourages students with cheap access, so that’s what they learn, and when they go to get a job, they expect their employer to continue offering them this access, now at a much higher price. Not all SaaS is a case of no choice – but when you are offered no realistic alternative and no option for true ownership, which ends up costing you more, that’s not fair.
4. The reasons for subscription-based model popularity to appliance manufacturers and appliance retailers.
The big driver for a subscription-based model to businesses is driven by better customer retention, and stable long-term profits. When subscription-based models are done well, a business can turn a one time purchase into a lifelong income stream – and while there is plenty of scope for it to be at the customers detriment, it needn’t be at all. Subscription-based models done well give customers more freedom and flexibility as well as lower lifetime costs. For example marketing costs and cash flow management costs are significantly reduced for the business, allowing it to spend more on customer service and retention, and reduce prices, while building a more reliable product.
5. Lessons for appliance manufacturers, the appliance industry and the future of appliance sales.
The appliance industry has long been set in its ways, and the time may be coming for disruption. As consumers become more educated about their homes and how they use appliances, appliance manufacturers might be realising that there could be a better way to do business than simply convincing customers to buy the latest model appliance. Will we witness a shift in consumer behaviour to subscription appliances given a choice between true ownership and a subscription-based model? Or would it just be a cynical attempt by appliance manufacturers and the appliance industry as a whole to make more appliance sales and profits? Well, it could be either. Done well it could be a revolution for the appliance industry. Done badly, a shameless money grab.
6. Done well Done well subscription appliances makes a lot of sense. For appliance manufacturers it could mean long term reliable income. With a risk reversal, no lock in contract, or return anytime subscription-based model, for customers there could be a choice between buying the appliance outright, or subscribing to either a brand-new model, or a refurbished model. Customers no longer need to worry about appliance breakdowns and appliance repairs, appliances not fitting when they move, or outgrowing their appliance. Upsizing, downsizing, easy and straightforward. No more worries about how to move big heavy appliances from place to place. Or what to do when the appliance needs repairs. From a sustainability perspective a subscription-based model makes far more sense than the current buying outright model. If the appliance manufacturers own the appliances they are highly incentivised to build reliable, repairable models – even easily upgradeable models – which has the potential to substantially reduce waste and align the appliance industry with reduce, reuse, recycle philosophy much more closely.
A subscription-based model done well could see the return of appliance repair. The unfortunate truth is that in many countries, like Australia, the cost of labour is very high. While it might be a sustainable practice to have your appliance repaired it is not the economic choice. To get a repairer out to look at the appliance, you have to pay a call out fee (even if the appliance is irreparable) you need to pay for the repair – and if it’s not fixed, you’re right back where you started. This problem in the appliance industry causes flow on effects – consumers buy cheaper, cheaply built brands, knowing that if the appliance breaks they will not repair it, rather throw it out and buy another. A subscription-based model can change all of this and align the appliance industry with the reduce, reuse, recycle philosophy. For an appliance manufacturer who has access to parts at cost price and specialises in repairing and refreshing appliances, with control over the quality and repairability of the appliances in the first place, this is not expensive at all. Replacing a dented fridge door makes a big difference to its appeal and its about a 5 minute job and $5 of steel and plastic. Trying to replace a fridge door as a consumer – if you’re lucky enough the part isn’t NLA – no longer available – it’s at least $100 a door, sometimes upwards of $400, and you still need to pay the technician to come out and do the job!
To do it well though, the “set in its ways” appliance industry may be too rigid to adapt, certainly most players will be. Giving customers the option to subscribe to not new – second hand or used appliances – refurbished appliances – means a pivot away from manufacturing, to refurbishing, repairing, testing, servicing and cleaning. It doesn’t sound difficult but let’s look at it. The appliance manufacturer designs the appliance. They make it in China, or another country with cheap labour. Then they ship it around the world to their warehouses. From their warehouses it goes to appliance retailers through what are often cartel like structures called buying groups, which have exclusive membership. If the appliance manufacturer sells to anyone outside of the appliance buying group, then the appliance buying group boycotts them. Once with the appliance retailer, the appliances are sold and delivered to the customer by the appliance retailer.
From this state of affairs appliance manufacturers need to continuing to import the goods from overseas to their local warehouses, and setup operations for repair, testing, servicing, cleaning and refurbishment. This will certainly upset the appliance buying group cartels – so for the appliance manufacturer, they are risking everything to make the change to a subscription-based model, at least not without their cut. But, lets say they did take the risk, or find a way to appease the cartels – A big corporation would need to make a big pivot to substantially more local staff and a whole new set of skills in refurbishment, cleaning, testing and repair. They don’t know how to do this or have the facilities. It’s a lot of risk for the risk averse appliance industry.
7. Done badly
Done badly subscription appliances offered by an appliance manufacturer would just be a money grab. It could go a few ways. Perhaps appliance manufacturers in cooperation with existing appliance retailers would offer a subscription fridge, which was really just the same as you paying it off over a few years at high interest rates with an option to buy the appliance for $1 at the end of the term – like traditional appliance rental. Or maybe you could subscribe to only a new fridge, and if there was any fault the appliance manufacturer or appliance retailer just took the fridge away and crushed it. Subscription appliances done badly would just be a money grab – It could start with the best of intentions, but as reality set in, a watered-down version would just be a cynical money grab.
Should the Appliance Industry Take Note?
Yes. It seems likely that if the appliance industry does nothing that inevitably a plucky start-up will get the jump on them catching them short as a whole and scrambling to catch up. But entrenched ways of doing business and cartel behaviour from appliance retailers make it hard to see how the appliance industry could pivot to a subscription-based model in anything but a cynical money grab, which would likely be doomed to failure.