San Francisco, CA — Right now the auto industry is in the throes of upheaval. Airport parking lots sit empty while ride sharing app pickup zones are packed. Millennials aren’t buying cars. Shockingly, the value of cab medallions in NYC is plummeting, recently selling for less than $300K versus well over $1 million per medallion just a few years ago. Plus, ride sharing apps and car subscription brands also allow you to access transportation whenever you need it.
Sure, there are still plenty of consumers who prefer to own their own cars, but Membership Economy expert Robbie Kellman Baxter says companies like Uber and Zipcar signal a much bigger disruption looming for the auto industry.
“People who ten years ago couldn’t imagine not owning a car now find that today it’s a very viable option,” says Baxter, author of The Membership Economy: Find Your Superusers, Master the Forever Transaction, and Build Recurring Revenue. “The way consumers view car ownership is shifting dramatically. Access is becoming the hot issue. If Big Auto fails to adapt to the new ways consumers think about car ownership, they could be faced with a huge crisis very soon.”
This impending shake-up is one of the many disruptions caused by the rise of the Membership Economy, a paradigm shift in which businesses are rethinking how they fit into the lives of their customers and leveraging the power of subscriptions, network, and community in entirely new ways. Specifically, the Membership Economy is responsible for a mindset change from ownership to access. Now more and more, consumers are craving access, and savvy entrepreneurs are wisely taking advantage of new technology and using it to address customers’ unmet needs and wishes.
“Disruptor brands like Zipcar and car2go provide a great alternative to ownership,” says Baxter. “Turo lets you access other people’s cars when they aren’t using them, and of course Uber, Lyft, and the other ‘ridesharing’ companies have dramatically reduced the appeal of car ownership.”
Baxter says these factors have Big Auto seriously thinking about new models. Some brands have already responded with their own subscription services, like Maven by General Motors, BOOK by Cadillac, and Ford Motor Company’s Canvas.
“The important thing to remember is owning a car is not necessarily the way for all consumers to achieve their transportation goals,” says Baxter. “On top of that, technology is changing quickly, enabling new models, and any area where consumers are used to getting a lousy experience is ripe for disruption. Compare the traditional taxi experience to Uber, or to cite another industry, typical vacation rentals by owner experiences versus using Airbnb.”
Keep reading for Baxter’s reasons the auto industry is seeing so many disruptive new models.
Car ownership isn’t necessarily the best value for everyone. At one time, people wanted to own a car because of factors like reliability, choice of model, customization, and their choice of price point. However, today, factors like depreciation, maintenance costs, taxes, and the huge initial price tag give consumers pause—especially when there are so many new ways to access a ride when they need one.
City life isn’t conducive to car ownership. It’s bad news for Big Auto, but most people living in cities don’t need to own a car that for the most part stays parked in a garage or lot. Urban parking can be a hassle and pricey too. Today, there are lots of more convenient options. Access makes more sense than ownership for many.
Owning a car is too expensive for many people (especially when so many working-aged people are underemployed). It’s far easier for lower income people to come up with a small amount of money for a single ride or even for a subscription to a car-sharing service than it is to save up for a big down payment and hefty monthly payments. And the costs of car ownership, including maintenance, repairs, and parking, can add up.
People are paying more for experience and less for ownership. “Consumers today like having the best or newest thing more than owning something,” says Baxter. “You can see this trend in upticks in dining out, renting apartments, and increased travel. The same goes for car ownership. People want to ride in style, and they don’t need to own a car to do that.”
Different consumer segments have different automotive and transportation needs.Having flexibility with transportation once meant either buying or leasing a car, renting, or relying on taxis. But today, there are many more options, and different segments can meet their needs in new ways.
“You might want to customize your car, but I might have nowhere to park,” says Baxter. “Someone else might want to drive only on the weekends. All the new access models today allow everyone to solve their particular transportation goals with ease.”
As more and more players introduce targeted access models, mainstream consumers will enjoy a broader set of options. As various auto-access models become ever more mainstream, the market for people who want to buy cars will dwindle, and traditional automakers will be forced to fight over the scraps.
Venture capital is readily available for entrepreneurs with new ideas. If you have a great idea, there are plenty of venture capital firms to help make it a reality. This ample supply of investment capital gives entrepreneurs the resources to try different approaches. (Of course, this is true of all industries, not just the automotive segment.)
New technologies are reducing trust barriers and changing consumer behavior. “Five years ago, I couldn’t have imagined hopping into some stranger’s personal car and riding alone with him to the airport,” says Baxter. “But now I do because of tech innovations like GPS, Uber’s background checks, and car check-ups.”
Baxter points out that while Big Auto is currently the industry that needs to check its rearview mirror, nearly every industry should be on alert. Until recently, the main segments affected by the Membership Economy have been software, media, and professional services and associations. But now other industries are taking notice and responding. For example, snack food subscription clubs are popping up, like KIND Snack Club; CPG brands are getting in on the action, like Gillette Shave Club; even the air travel industry has responded with unlimited subscriptions like Surf Air.
“Essentially any industry that relies on marketing to build competitive advantage is ripe for disruption through the Membership Economy,” concludes Baxter. “That’s because the ME is all about putting the customer at the center of everything and evolving to serve their needs. The bottom line: Any business that loves their products, processes, or employees more than their customers is at risk. It will be interesting to watch and see if Big Auto rises to the challenges ahead, or gets left in the dust.”
Peninsula Strategies LLC