Backed by the trend of usage-sans-ownership, the top car brand is actively buffing up its presence in the subscription ecosystem in the country.
It’s ideal to fight your battles in a familiar battleground. That’s auto giant Maruti Suzuki India’s current strategy for its subscription model in one sentence.
The leading carmaker introduced its subscription service in September last year which included models like Swift, Baleno, Dzire, Ciaz, Vitara Brezza, Ertiga and XL6. The company then expanded the service to three new vehicles Wagon R, Ignis and S-Cross earlier this month (January 2021).
Originally a domain of car rental startups like Zoomcar and Revv, the auto market leader’s entry indicates that it could be the next big thing in mobility. The subscription model joins existing models of auto consumption like rentals, cab-hailing, ownerships, leasing and pre-owned vehicles. The question is, will the newbie subscription model eat out of the existing models’ plates, and if there is an overlap in TG.
In conversation with afaqs!, Shashank Srivastava, executive director, sales and marketing, Maruti Suzuki India, says that the trend of subscription has emerged both globally and in in India over the last few years. It caters to a cohort of consumers who prefer using assets sans the hassles of owning them.
As per research firm GM Insights, the global automobile subscription market was worth over $3 billion in 2019, and is set to grow at a CAGR of over 40 per cent between 2020 and 2026. It is part of a larger phenomenon of Mobility as a Service (MaaS).
The Indian market is at a nascent stage and is led by the oldest player Zoomcar, a car rental startup (backed by Mahindra) launched in 2013. Zoomcar is followed by Revv, another startup that has partnered with Hyundai Motor and Mahindra.
Car manufacturers globally are already building their in-house subscription brands. Ford has Canvas, Volvo owns Care, Porsche has Passport, Mercedes-Benz offers Flexperience, BMW launched Access, and so on… The subscription charges in India start at around Rs 14,000 per month and go up, depending on the make and the model.
Srivastava divides this emerging ‘asset-light’ target consumer segment in three separate buckets. They live in top cities and an important thread that ties the three is that they don’t want to buy a new car, but need one. This, in a way, rules out the emotional aspect of buying a vehicle.
The first group comprises of the aspiring millennials in the 18-36 age group. They may be students or young employees. These users don’t want to have a long-term financial burden, like a loan, and have limited usage for a short period of time. They demand affordability and flexibility in usage.
The second type are convenience seekers, who are mostly mid-level executives, professionals or businessmen. They maybe existing car owners. As Srivastava mentions, they don’t want to get into the hassles of financing, insurance, maintenance, etc., of car ownership.
“They just want a carefree experience. They are in transferable jobs and have to work in various cities for short periods, say, 2-3 years. There’s the hassle of moving the car, registration, transfer of ownership, etc. involved in such situations.”
The third category comprises of ‘prime buyers’, who already have a car, but need a second or temporary vehicle. They are ideally those people who travel frequently outside the city for work or business. “The existing car might be required by other family members. Also, they are people who want a change in the experience.”
The subscription model allows a driver to choose from a portfolio of models. The monthly fees paid by the subscriber covers insurance, tax, repair and maintenance. It reduces the immediate financial commitment of downpayments, while increasing flexibility. Unlike leasing, it doesn’t force users into long-term agreements (three-plus years).
Srivastava points out that the phenomenon is also being seen in categories like furniture, home appliances, and even apparel/jewellery. Flipkart just offered a subscription bundle for buying smartphones.
While the entry of a major player is always a welcome move for an emerging category, it does not explain why the company would make way for subscription when it actually benefits from driving direct sales.
"You can’t control market phenomena by being out of it."
Explaining the shift, Srivastava says, “There are some market phenomena, which you can’t control by being out of it. If we were not doing it, brands like Zoomcar and Revv are. If we are not into fleet management, Ola and Uber are. And when they buy cars, they may not buy them from Maruti Suzuki. They could buy it from any other automobile company.”
He mentions that it is best to figure a way to tap into the trend and take advantage of it. “Say, if we were running Ola-Uber, it would entirely be a fleet of Maruti cars. We can’t control market phenomenon like shared mobility, etc.”
Limiting the end-to-end experience within the Maruti Suzuki ecosystem not only drives sales (since every car delivered to a subscriber counts as a sale), but also paves the way for services like maintenance, repair, spare parts, etc.
A major threat to players like Maruti are startups like Zoomcar and Revv becoming the point of contact for their (auto brands’) products. Like, in the case of Uber, it is mainly an Uber experience, which the brand of the car has little say in. The auto brand finds itself in a rather unnoticed spot of an ingredient of the larger experience.
Maruti Suzuki started subscriptions with NCR and Bengaluru (in January-February 2020). The next phase started with Hyderabad and Pune, and expanded to eight other cities, including Chennai, Ahmedabad and Mumbai. The plan is to expand to 14 cities by March 2021, and touch ground in 20 cities by June.
As Srivastava reveals, Maruti is currently “in the process of finalising 12,000 subscriptions” and the maximum traction is driven by Brezza and Swift.
But where do vehicles that have completed their subscription tenure go? They can either be resubscribed by a new user or resold at market price.
“We haven’t yet brought in used car subscription. That can be the next shift, which will allow very low subscription amounts.”
Maruti Suzuki isn’t necessarily a tech company, but if the subscription business picks up pace, it might need to beef up its tech, backed by robust on-ground dealer support. It is in a way an offline-to-online (O2O) model.
In Maruti’s case, the user journey usually starts digitally on the website. The user logs in and puts in a query for a particular vehicle for a certain period of time, and then the dealer coordinates.