Third-party or in-house? Why launching your own car subscription service holds the key

WITH car subscriptions a huge growth market – despite the unfortunate administration of Onto recently – a variety of companies are looking to build their own space in the industry.

The most obvious choice for many is to use a third-party intermediary, seemingly offering low risk and gaining expertise immediately. But is this the best way to go, or will it ultimately harm the long-term potential growth in this sector for your firm?

Tempting. But flawed?

As with any young market, established businesses are looking at ways to expand their offering to customers, and the car subscription space is no different. For brokers, it can seem tempting to try and manage risk, gauge demand, and reduce upfront investment by picking a third-party to deal with car subscriptions for their business.

At first glance, these are all positive and sensible approaches, particularly in turbulent times for the car industry as a whole. But this isn’t the full picture. By picking a third-party intermediary, you will lose out on certain aspects of both control and revenue.

You might have an established customer base, and bringing in a third-party to help expand that sounds appealing. But how can you be sure that the business you are trusting to expand into car subscriptions matches your work ethic and customer care. There are a myriad different potential problems to counter those initial tempting positives.

Don’t cop out – go all in

By picking a third-party route into the car subscription market, there is little chance you are giving the expansion your all. A noncommittal, tentative approach rarely works in business, and that’s as true here as anywhere. Being passive means there is no strength in your own brand and reputation, and little chance to be proactive to changing markets, rather than reactive. It’s a set-up that may be the only option for certain businesses.

But there are three core issues that will be of some concern to most established brokers.

By using third-party operators, your margins will be lower, as the only thing you will really be doing is supplying the vehicles. As such, you’re profiting from a subscription fee and potential residuals, which could easily limit profitability.

A third party will also dilute brand equity, with no chance for you to put your stamp on this new arm of your business. There is no direct relationship with customers when you’re simply supplying the vehicles, so no chance to put your stamp on proceedings, which has got you to where you are today. This extends to creating loyalty in customers, improving the chance of long-term value for both you and the customer.

There is also limited-to-no opportunity to upsell or cross-sell to customers. Those products that can be picked and added on by the customer to create better value for them and increased profitability for the broker often won’t be available when going with a third party to effectively run the car subscription arm of your business.

Analysis of successful businesses in the market show that it is often those that own customer relationships, manage a fleet, and leverage revenue streams have the most profitable approach. By fully embracing the subscription model – even in a relatively young and rapidly expanding market – means that multi-million pound businesses have ben built.

Don’t dip your toes in. Take the plunge

Opting to launch a car subscription service under your own banner will bring along a number of benefits, financially and in terms of brand image. Directly managing customer relationships allows a greater and improved offering to consumers, and can create greater subscriber engagement.

By going down this route, you can put your stamp on each customer journey, improving it for them and creating long term value for your business.

There’s a chance to sell, engage, discuss, and upsell, which simply isn’t the case with third-party arrangements. And research shows that up to 40% of subscribers can end up buying the car they’ve subscribed to.

“Building your own in-house car subscription service with Loopit means you can have the best of both worlds,” says Andrew Mortimer, executive chairman of Loopit in the UK.

“There is the instant expertise and back-of-house platforms that come with engaging a third party for car subscription customers. But you also have your own name above the door, your own stamp on customer relationships, and a committed, bold step into a hugely profitable market.”