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The big catalyst: how subscription models could make consumption more sustainable

Kay Dallmann
08.12.2021 | 4 minutes
couple paying with card on tablet

The rise of the sharing economy

However, the western world in particular is still characterized by traditional, linear consumption habits. They have largely been shaped by the concept of the “everything store” with an ever-increasing selection available at a click and just an hour away to be consumed. This principle has reached a peak in the early 21st century and is built on complex pillars, namely: convenience, selection, security, trust and a low price.

Almost at the same time – and driven by a number of different factors – the sharing economy has emerged. Billions of people around the globe have started to realize that not only digital content like music and movies can be shared, but also physical assets ranging from accommodation to cars. This marks a bifurcation from direct-to-consumer (D2C) to direct-to-many (D2N) relationships. And it poses questions in several different areas, in which D2N relationship models differ from more traditional linear consumption patterns.

Five crucial questions for the sharing economy

  • Online intermediation: The sharing economy as we know it today has been shaped by the emergence of the internet: Technology facilitates sharing transactions and reduces the information asymmetry between the partners in a transaction, thereby leveling the playing field.

 

  • Utilization: Can sharing enable a higher utilization of high value assets and thereby not only reduce waste but also the amount of time that products, cars or apartments remain unused?

 

  • Relationship: The sharing economy is characterized by interactions and relationships between groups of people instead of simply between buyer and seller.  To what extent do these relationships depend on trust between the people involved – and how does the perception of consumer risk change compared to more traditional modes of consumption?

 

  • Convenience: Owning a good is quite convenient in a lot of aspects. For example, it can be used how and whenever the owner wants to. In the sharing economy, and in particular with regards to physical goods, the questions how accessible the use of goods is and what friction is incorporated in sharing transactions, are crucial.

 

  • Ownership: Based on cultural values like personal independence and security, ownership of goods has been the normative ideal for consumption for a long time. Can the sharing economy help change this ideal towards valuing access over ownership?

The ownership question

The ownership question in particular is a decisive one, because it leads to follow-up questions:

  1. Could the subscription models that are typical of many sharing economy business models be a catalyst for sustainable consumption on a broader scale?
  2. And what is needed to motivate both consumers and companies to switch to shared consumption models more broadly?

The answer to the first question is a resounding “yes”:

When done right, sharing and subscription can indeed have huge economical and ecological benefits.

The second question needs a longer answer.

First, let’s look at what variables characterize the relationship between consumers and goods. There are four fundamental dimensions to consider: perceived value, convenience, information asymmetry and the cost of ownership. All four dimensions are fundamentally transformed through the sharing economy. A popular example like Uber can help to highlight this.

Example Uber

With Uber consumers can create an additional source of income from owning a car. But they also need to invest time to create income, which, for most car owners, is a huge inconvenience – so much so that they are deterred from partaking in the sharing economy at all (except as Uber customers). The model of using your own car for transportation services also raises the risk from the owner perspective – and potentially the cost of ownership: Is an additional insurance needed? More maintenance? What happens in the case of an accident?

The changes that come with subscription models

Now let’s move from the established Uber ride sharing model to subscription-based p2p car sharing models. They change the dynamics described above in several ways.

Firstly, the (cash) cost of ownership is structured completely different, as the car as an asset remains on the balance sheet of the provider. A huge upfront payment (or leasing contract) is replaced by monthly subscription payments. Which might be more expensive in the long term but create a lot of flexibility in the shorter term. From a consumer’s (subscriber’s) point of view this also changes the risk profile of using the car completely: Legal ownership of the asset remains with the provider, who also takes care of insurance, factors in that the car is used by a network of consumers instead of a single buyer, provides the technological platform for sharing – and makes all this part of its business model.

What this means is:

The subscribers now have an economic incentive to share the car – and the opportunity to create additional income without sacrificing their own time or the burden of additional financial risks that might come with sharing. Sharing is transformed from a niche for a small group of owners/drivers to something that carries potentially huge benefits for individual users, the companies enabling such disruptive business models and society as a whole – by enabling higher utilization of idle assets for huge gains in macro-economic efficiency.

How all this looks like from the company’s point of view I will discuss in the next blog post of this series, using the concrete example of Arvato Financial Solutions’ partner Lynk & Co.

 

Meet our Thought Leader for D2N!
Kay Dallmann
Senior VP Accounting

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