The simple dictum of “why buy something when you can just pay for usage” is disrupting the business model across industries. With increasing digital adoption around us, subscription-as-a-service/pay-per-use models have become a major component of digital strategy and altered most of the services we use. Such an approach to digital architecture has become the new normal in our everyday usage, for instance, in music, movies and shows, video games, and cloud storage, etc. Even products like furniture and automobiles are increasingly offered on subscription models. What about the consumer appliance industry? Is there a real disruption? Will our future appliance purchases be on subscription basis?
There sure is a demand and consumer affinity for the subscription model, but is the consumer appliance industry ready to adopt the model?
The Millennial thinking- Understanding the customer preference
Traditionally consumers preferred to own products but with the increasing millennial and Gen-Z consumer influence, the subscription model is becoming the new favorite. For the younger consumers, a subscription model provides numerous benefits and resonates well with the millennial lifestyle. More specifically, it frees them from being tied up with the same model, offers the convenience of not having to go to a store and spend time deciding and comparing different products, gives the option to personalize based on usage and lifestyle, and provides them the flexibility to stop/switch the subscription any time, etc. For the consumers who are used to subscribing to various services, it is a natural extension to subscribe to washing, cooking, refrigeration, and vacuuming services too. There is certainly a demand and consumer affinity for the subscription economy. But is the consumer appliance industry ready to adopt the model?
The early adopters
Currently, there are few players in the market who are providing subscription services for appliances. But most of the services are predominantly in the laundry space, with very few vendors offering subscription services for dishwashers, coffee machines, and air and water purifiers. The options/models are also limited as most of these players have a partnership/collaboration with large OEMs (original equipment manufacturers) and offer appliances only from that particular OEM brand. There are hardly any OEMs who directly provide a subscription model, and that, too, is mostly either for laundry or vacuuming products.
Will the OEMs join the bandwagon?
With the emerging popularity and other benefits like recurring revenue generation and sustainability etc., OEMs still have a long way to go before they are ready to make the switch to a subscription model. Transition to a subscription-based model is complicated in the case of OEMs, and it requires a complete revamp across the organization. For example, some of the key changes include:
- Product design alteration to cater for easy repair and maintenance of the appliance
- Supply chain flexibility to handle the varying demand and ensure product availability
- Asset ownership change, as the product ownership will continue to remain with the OEMs; this will also require a strong service ecosystem to support product repair, maintenance, and refurbishment
- Distribution channel restructuring to support reselling as part of the subscription model; OEMs will also need to handle the potential resistance from the traditional distribution channel due to their decline in product sales
- Digital strategy upgrade, as it forms the backbone of the subscription model. The IT system will need a major overhaul as subscription model increases the complexity in pricing, billing, and collection, etc. Also, OEMs need to develop a strong digital strategy and digital architecture to support various platforms and services like asset tracking, web/mobile applications for online channel, and data analysis, etc.
Even with the advancement in digital technologies and supply chain structures, providing a usage-based pricing will not be possible for all categories. OEMs have to a use a mix of fixed monthly cost and usage-based pricing. Offering a subscription model for the budget/entry models and some small appliances might not work as it is cheaper to buy the product compared to the subscription cost. Also, a subscription model might not be everyone’s cup of tea, some consumers might still want to own their appliances.
Figure 1: A Subscription-as-a-Service Model
Will a managed kitchen become a reality?
Imagine a ready-to-use kitchen which is equipped with feature-rich, smart appliances such as a large double fridge with built-in display, a voice controlled smart oven, an AI-enabled washing machine, a smart coffee machine which can personalize your cup of coffee, and others. The best part is you just have to pay a monthly charge of around 1% to 5% of the product value or pay a nominal charge based on how the smart appliances are used.
Though it is still a concept right now, it is definitely intriguing. The subscription model has already started disrupting the smart appliances industry, but the speed and scale of disruption is still limited. With consumer convenience being one of the major driving factors in the appliance industry, the near future will witness an increased number of players offering a subscription model for appliances.
OEMs may not yet be ready to offer subscription services directly. But drawing a parallel from what is happening in the connected appliances ecosystem, there will be increased collaboration between OEMs and third-party players offering subscription models. It offers a win-win opportunity for both parties.
Based on the past trends and changing market dynamics from adjacent industries, the real business will move from selling appliances to offering services for the appliances. As the subscription model increases, the focus on hardware will reduce drastically. This is similar to what is happening with gaming consoles, DTH equipment, or even TVs for that matter, which has become a mere terminal.
The business has actually moved to the services offered around it. The consumer appliances market is still in the nascent stage in terms of subscription services, especially when we consider the requirements to revamp supply chain structures. But it won’t be long before the functionality of the appliance is controlled by the service purchased and not on the ownership of the appliance.