Innovation

Who’s Really Taking Cadillac’s Subscription Service For A Spin?

Cadillac Subscription Commerce Play

Consumers can rent anything from jewelry to books, even clothes to corporate jets, via subscription services, so why not a luxury vehicle? But who is actually in the market for that type of rental? And is a service like this even worth the risk? Dan Burkhart, CEO and cofounder of Recurly, joined Karen Webster to discuss Cadillac’s new car subscription concierge service and what it means for the subscription commerce space.

As more brands begin to catch on to the growing popularity of the pay-as-you-go lifestyle of many consumers — who, at an increasing rate, are enjoying the convenience that comes with putting off the decision to own — the subscription commerce landscape is impacting new industries in some very unique ways.

The latest example comes from automaker GM, which recently announced the launch of a car subscription concierge service of its Cadillac cars and SUVs starting Feb. 1. The program, called BOOK by Cadillac, allows the company’s vehicles to be delivered and picked up on-demand for customers via a smartphone app.

The new offering delivers on what Dan Burkhart, CEO and cofounder of Recurly, described as a convenient and aspirational experience that also enables the brand to be accessible to consumers in an entirely new way. From a consumer perspective, he noted, people may be much more willing to consider high-ticket subscriptions like this just for the opportunity to take advantage of a luxury experience.

“I find it to be fascinating because so many more purchase decisions in the world of subscription commerce are being driven by not just experiences but also the flexibility and convenience that the model affords,” Burkhart explained.

But who is Cadillac really going after, and is its exposure to potential consumers worth the business risk?

 

Taking Subscriptions For A Spin

The targeted demographic of the BOOK by Cadillac program is first-time drivers of GM’s luxury vehicles, and it is intended to whet the appetite for these drivers so that they end up leasing or purchasing these vehicles — which typically cost between $60,000 and $100,000 if purchased — over the course of their life.

Many consumers, particularly those within the millennial generation, don’t have a car because they either don’t need one in the urban area in which they live or don’t want one badly enough to deal with the additional hassles and costs that come with vehicle ownership.

“From a price point perspective, I think the idea of storing a large luxury SUV in Manhattan is probably a non-starter,” Burkhart said, “and when you think about the added risk of insurance, fender benders and parking tickets, a $1,500 price point is probably an interesting option to have the vehicle available only when you need it.”

The program clearly speaks to the type of consumer who may want to have the convenience and availability to get in a luxury vehicle with the added bonus of a quick, pay-as-you-go option.

“It seems like a really valid approach to reeling some of this market that might be changing their criteria for how and why they might want to own a high-end asset like this,” Burkhart noted.

 

Risky Business

The conversion of a customer from a subscriber to a purchaser of a luxury vehicle sounds ideal, but getting from Point A to Point B may actually be a bit risky.

“The reserves on the fender benders and the periodic spills, tears and dents is probably the greatest exposure,” Burkhart noted.

There’s also the issue of identity — in that GM must be able to authenticate that the subscriber is who they say they are when they join the program, as well as when they go to drive off with the vehicle itself.

“How do you validate that the person driving a $100,000 car away from your lot is the person that they claim they are?” Burkhart questioned.

“I would imagine that auto manufacturers are going to have to look at all of those variables in its entirety. If they see that this pilot continues, there will be some copycats following pretty quickly,” he added.

Burkhart said that it’s also safe to assume that the $500 setup fee required for the program will include a KYC application process to validate not only bank accounts but data, such as addresses, Social Security numbers and the customer identities in general.

“I can’t imagine them relying solely on the credit card authorization as the means of validation. The risk is too great,” he noted.

 

Reaching The Finish Line

The biggest measure of success for a program like BOOK by Cadillac, Burkhart explained, is how long GM will be able to keep these loyal customers engaged for this type of experience.

It’s likely that GM will also be keeping a close eye on the cross-sell, up-sell conversion ability of the program. Since the program seems to be focused on trial and adoption, with part of the intrigue and appeal being access to a variety of makes and model, then it will be interesting to see to what extent these subscriptions actually lead as a gateway into vehicle ownership.

Or at the least, a longer-term commitment in the form of a lease.

Burkhart explained that, oftentimes, offering a trail for the right type of experience is a great way to take advantage of consumer access, even for those customers that don’t convert to being paid subscribers. If they are out still tweeting, Facebooking and/or Instagramming about the experience, then there is a second-order benefit, he added.

“Perhaps one of the second-order benefits by design in this program is to quite literally get butts in the seats of a nice Cadillac experience,” Burkhart said.

“To promote that trial and adoption and perhaps purchase consideration experience by way of a subscription might actually be part of the overall design.”

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