Selling Subscription-based Vehicle Features Will Challenge Automakers in Unexpected Ways

Cox Automotive released today new consumer research that suggests automakers may face challenges if they expect to generate significant revenue from subscription-type features, also known as Features on Demand (FoD). The Research & Market Intelligence team at Cox Automotive understands the importance of the trend toward Features on Demand, and the new study “Software Monetization: The Emergence of Vehicle Features on Demand” is the team’s first comprehensive look at the topic.

The study was undertaken to gauge consumer awareness of automakers offering Features on Demand as part of their new-vehicle sales strategies and that FoD was likely to become a growing trend in the automotive industry. The team surveyed over 2,000 in-market vehicle shoppers in late December and early January to determine their interest in vehicle features through subscription-type services. Additionally, the study explored the consumer benefits and barriers for FoD.

“Our initial research indicates that the transition to Features on Demand will be an uphill battle for many automakers,” said Vanessa Ton, senior manager of market and customer research at Cox Automotive, who helped lead the research project. “In the market right now, there is low consumer awareness and some skepticism on the part of shoppers. To gain consumer acceptance, automakers must ensure consumers perceive subscription-based features as a good value and not just a money-grab.”

The study suggests that awareness of Features on Demand is still very low among shoppers, with only 21% of in-market shoppers familiar with the concept. However, 41% indicate that they are interested in Features on Demand. Most shoppers see some benefit in the strategy, as an FoD approach will provide vehicle buyers an opportunity to try out unfamiliar features without requiring a long-term commitment (i.e., buying something they don’t like or need.) Shoppers also view FoD as an opportunity to upgrade their vehicles and try new technology. Importantly, most shoppers believe a top benefit of FoD would be a lower starting vehicle price.

The research also shows that, at least initially, most shoppers (58%) expect an FoD approach to be too expensive, and there are concerns about data security and privacy. Skepticism was apparent in the research, as three-out-of-four respondents agreed with the statement, ‘Features on Demand will allow automakers to make more money’. Further, 69% of respondents indicated that if certain features were available only via subscription, they would likely shop elsewhere.

“As consumer familiarity is low, automakers will have to be careful in how they present an FoD strategy and make sure not to turn off shoppers from the start,” added Ton. “Our research suggests that free trial periods might be one way to approach the issue.”

Sixty-five percent of survey respondents suggested that a free on-demand subscription – a free trial period – would be a positive selling point and make them more likely to consider a brand, and nearly half of shoppers felt FoD features would be a reason to retain a vehicle longer, as new capabilities or options could be added well after the time of purchase. Shoppers of Tesla, Jeep, Dodge and Ford were more likely to consider vehicles with Features on Demand, the research shows.

The Cox Automotive research indicates that FoD with the greatest revenue opportunity for the automakers would be stolen vehicle location and recovery systems, parking-assist features, digital keys via smartphone applications, and in-vehicle Wi-Fi. Longer term, according to the new report, the greatest revenue opportunities for FoD would be through streaming services, virtual assistants, and driver monitoring or self-driving capabilities.

“As with everything in the auto business, the value proposition has to be front-and-center for the consumer,” Ton concluded. “Automakers will need to steer away from mandates and instead ease consumers into features they can access by offering free trials on safety and convenience options.”

For more information about the study, contact the Cox Automotive Communications team.