Subscription-Based Offerings Are Radically Changing the Automotive Sector

The automotive sector is increasingly embracing subscription-based features and software add-ons as part of their vehicle offerings. The automotive subscription model is a natural extension of the broader trends in the industry. From the early days of personal car ownership that was the norm for over 100 years, to the rise of leasing and shared mobility rideshare services, today’s expansion of subscription services are part of a larger movement towards flexibility, connected services, and digital transformation in the automotive industry.

Overview of Automotive Sector Transformation

• Vehicle-as-a-Service: Automakers like BMW, Volvo, and Mercedes-Benz now offer subscription programs where customers can pay a monthly fee to access a range of vehicles, with the ability to swap models based on needs or preferences. This model eliminates long-term commitments to a particular model and allows for greater flexibility.
• Over-the-Air Software Updates: Cars are increasingly seen as connected devices that require constant updates. Subscription models for software upgrades and additional features (e.g., autonomous driving capabilities, advanced infotainment systems) are becoming commonplace.
• Vehicle Subscription Bundles: These subscriptions often include not only the vehicle itself but also add-ons like insurance, maintenance, and roadside assistance, simplifying the ownership experience for customers.
• Shift in Customer Preferences: Younger consumers, in particular, prefer the flexibility of a subscription model, which allows them to access the latest features without being locked into a long-term commitment. This has led to a significant shift from traditional ownership to mobility as a service (MaaS).

Key benefits for automakers, service providers and their customers include:

• Software Updates and Features: Automakers are moving towards offering software updates and additional features through subscription models. This allows customers to purchase basic vehicle functionalities upfront and subscribe to advanced features such as autonomous driving capabilities, enhanced infotainment systems, or performance upgrades over time.
• Flexibility and Customization: Subscription-based models provide flexibility for customers to tailor their vehicle's capabilities based on their needs and preferences. This can include temporary upgrades for road trips or seasonal adjustments like snow mode or advanced navigation during vacations.
• Revenue Stream Diversification: For automakers, subscriptions offer a steady revenue stream beyond initial vehicle sales. This recurring income model helps in stabilizing revenues and enhances customer lifetime value through ongoing service relationships.
• Connected Services: Subscription models are increasingly used for connected services such as remote vehicle monitoring, diagnostics, and over-the-air software updates. This ensures that vehicles remain up-to-date with the latest technology and performance improvements without requiring physical visits to service centers.
• Enhanced User Experience: By offering subscriptions for advanced features and services, automakers aim to enhance the overall user experience. Customers can access the latest technological advancements without waiting for new model releases or major upgrades.
• Economic and Environmental Benefits: Subscriptions can also promote sustainable practices by extending the lifecycle of vehicles. Instead of replacing entire vehicles for updated features, customers can upgrade software and services, reducing overall waste and environmental impact.
• Integration with Mobility Services: Subscription models are aligning with broader mobility trends, integrating vehicle ownership with on-demand services. This includes options for temporary upgrades or access to shared mobility platforms, facilitating seamless transitions between ownership and alternative transportation methods.

Overall, the automotive industry's adoption of subscription-based features reflects a strategic shift towards service-oriented models that prioritize flexibility, sustainability, and continuous innovation in meeting customer demands.

How SAP Cloud ERP is Helping Manage Automotive Sector Transformation

SAP S/4HANA Cloud ERP can play a crucial role in helping automakers and ride services providers manage and optimize automotive subscription offerings. In our work with numerous automakers and self-driving ride share providers, the Bramasol SAP Cloud ERP implementation team has front-line experience with understanding the trends and helping apply SAP Cloud ERP solutions to enable success with new subscription-based programs.

Here are some of the key ways in which SAP Cloud ERP can benefit automotive and related service companies:

Integrated Subscription Management

SAP Cloud ERP can streamline subscription management by providing a unified platform for tracking subscriptions, billing, and renewals. This system allows automakers and ride services providers to easily manage multiple subscription tiers, from basic vehicle functionality to premium services like enhanced driving features or software updates. Features include:

• Automated Billing: SAP Cloud ERP can automatically generate invoices, track payment history, and manage revenue recognition, especially for subscription-based offerings. This reduces administrative effort and ensures timely payments.
• Real-Time Subscription Tracking: The system offers visibility into which features or services are active for each customer, providing insights into customer usage and behavior, which can inform upselling or cross-selling strategies.

Seamless Integration Across Operations

Automakers and ride service providers often deal with complex operations, including vehicle manufacturing, fleet management, customer service, and maintenance. SAP Cloud ERP ensures all these functions are integrated into one system, eliminating silos. Key benefits include:

• End-to-End Visibility: From the moment a vehicle is sold or leased, to its use in a ride-sharing service, to its subscription for advanced features, SAP Cloud ERP offers complete visibility across the entire lifecycle.
• Optimized Maintenance and Support: By integrating maintenance schedules and software updates into the ERP system, companies can ensure that vehicles are always in top condition, minimizing downtime and improving customer satisfaction.

Dynamic Pricing and Billing Models

Subscription-based services often come with dynamic pricing models. SAP Cloud ERP can support this by allowing automakers and service providers to define and implement various pricing strategies:

• Customizable Pricing Tiers: Automakers can create different pricing structures for vehicle features, such as advanced safety, autonomous driving modes, or premium infotainment.
• Flexible Billing Periods: Providers can choose from different billing cycles (monthly, quarterly, or annually) to accommodate customer preferences and optimize cash flow.

Data Analytics for Personalization and Upselling

SAP Cloud ERP's advanced analytics capabilities enable businesses to track customer behavior, usage patterns, and preferences, providing valuable insights into how subscription services are used. This data can be leveraged to:

• Personalize Offers: Automakers and ride services providers can tailor subscription offerings based on customer preferences, offering targeted upgrades or features that are likely to appeal to specific customers.
• Predictive Analytics: The system can predict customer needs or churn risks, enabling proactive retention strategies or timely promotions to keep customers engaged.

Revenue Recognition Compliance

For automakers and ride services providers, ensuring compliance with revenue recognition standards such as ASC 606 or IFRS 15 is critical, especially with recurring subscription revenues. SAP Cloud ERP includes functionality to:

• Automate Revenue Recognition: The system automates the allocation of revenue for subscription-based services, ensuring compliance with relevant standards.
• Audit Trail and Reporting: SAP Cloud ERP provides robust reporting capabilities that ensure clear visibility into financial performance, supporting transparency and compliance audits.

Fleet and Asset Management

For ride services providers managing large fleets, SAP Cloud ERP offers tools to optimize fleet management:

• Vehicle Lifecycle Management: SAP Cloud ERP allows providers to track each vehicle’s lifecycle, from procurement to retirement, ensuring the right mix of vehicles is available to meet customer demand while minimizing maintenance costs.
• Real-Time Monitoring: With connected vehicles, SAP Cloud ERP can gather real-time data from each vehicle (e.g., mileage, condition, usage of subscription features), enabling proactive fleet management and maintenance.

Customer Experience and Relationship Management

SAP Cloud ERP integrates with SAP Customer Experience (CX) solutions, such as SAP Sales Cloud and SAP Service Cloud, to enhance customer engagement:

• 360-Degree Customer View: Customer data is unified, providing a comprehensive view of the customer’s interactions across different touchpoints, from initial vehicle purchase to ongoing service subscriptions.
• Enhanced Service: Service providers can offer proactive maintenance reminders, subscription renewals, and personalized offers based on a complete understanding of the customer's journey.

Supply Chain and Logistics Optimization

For automakers and service providers offering subscription features, supply chain and logistics management are critical to ensuring timely delivery of vehicles and the necessary software upgrades or hardware kits:

• Efficient Supply Chain Management: SAP Cloud ERP can optimize procurement, production, and distribution of vehicles, parts, or subscription-related add-ons, helping providers meet customer demand efficiently.
• Software Distribution: The system ensures that software updates or new features are delivered on time and are integrated into vehicles seamlessly.

Compliance and Risk Management

With subscription models becoming more prevalent, the regulatory landscape around data security, consumer protection, and privacy is evolving. SAP Cloud ERP helps mitigate these risks by offering:

• Data Protection Compliance: The system supports compliance with GDPR and other privacy regulations, ensuring that customer data related to subscriptions is securely handled.
• Risk Management: Automakers and ride services providers can use SAP Cloud ERP to track and manage risks, whether it’s related to compliance, service performance, or financial processes.

Summary

In the context of the automotive industry’s history, subscription offerings represent a significant shift from ownership to access, driven by technological advancements and changing consumer preferences. These offerings allow for greater adaptability in how people use and experience vehicles, marking a new chapter in the evolution of the industry.

SAP Cloud ERP helps automakers and ride services providers optimize and scale their subscription-based offerings by providing integrated, automated solutions across subscription management, revenue recognition, customer engagement, fleet management, and compliance. By adopting such a robust ERP solution, automotive companies can not only streamline their operations but also offer a more personalized, efficient, and flexible service to their customers, which is key in today’s competitive and rapidly evolving automotive and mobility sectors.

For more information on Bramasol and SAP Solutions for the Automotive Sector, contact us below: