‘Sub­scrip­tion econ­omy’ en­ters main­stream

The Korea Times - - TREND - By Baek Byung-yeul [email protected]­re­atimes.co.kr

Peo­ple use to buy and own prod­ucts of their need. But this way of con­sump­tion has been chal­lenged in re­cent years as more peo­ple choose to “sub­scribe” rather than pur­chase.

Sub­scrip­tion ser­vices were nor­mally used to get reg­u­lar de­liv­ery of goods such as milk or news­pa­pers, but con­sumer tastes have evolved to where cus­tomers sub­scribe to al­most any­thing, which has led the cre­ation of a so-called “sub­scrip­tion econ­omy.”

The sub­scrip­tion econ­omy has been emerg­ing as a po­ten­tially lu­cra­tive busi­ness model be­cause it en­ables con­sumers to save on the ini­tial pur­chase cost, ac­cord­ing to com­pany of­fi­cials and in­dus­try an­a­lysts, who said an in­creas­ing num­ber of mil­len­ni­als, those born roughly be­tween 1980 and 2000, are paving the way for it to be­come the main­stream be­cause they pre­fer sub­scrip­tion ser­vices rather than own­ing prod­ucts, they added.

The sub­scrip­tion econ­omy has some­thing in com­mon with the shar­ing econ­omy, an­other emerg­ing term that has been talked about for years, be­cause users of the two busi­ness mod­els rent prod­ucts or ser­vices from providers.

But they are slightly dif­fer­ent. In the shar­ing econ­omy, users pay for their use of car-shar­ing ser­vice, of­fice-shar­ing or home shar­ing like Airbnb.

The sub­scrip­tion econ­omy is closer to the soft­ware as a ser­vice (SaaS) model as the sub­scrip­tion-based model puts its fo­cus on de­liv­er­ing ser­vices to cus­tomers, who sub­scribe to them on a monthly ba­sis, rather than in­di­vid­ual trans­ac­tions.

For ex­am­ple, Net­flix, Spo­tify and other stream­ing ser­vice providers are kind of on-de­mand sub­scrip­tion as the bill will be the same whether users use the ser­vices 24/7 or not. Also, car sub­scrip­tion ser­vice pro­vided by Hyundai Mo­tor or other car­mak­ers is not cat­e­go­rized into the shar­ing econ­omy as users rent or lease their cars for a cer­tain pe­riod of time.

Data showed that the sub­scrip­tion econ­omy will quickly be­come a ma­jor trend. Ac­cord­ing to in­dus­try re­searcher Gart­ner, 75 per­cent of com­pa­nies sell­ing direct to con­sumers will of­fer sub­scrip­tion ser­vices in 2023. Fi­nan­cial in­sti­tu­tion Credit

Suisse pre­sumed the mar­ket size of the sub­scrip­tion econ­omy in 2020 will be at $530 bil­lion, more than dou­ble com­pared to 2000 when it was $215 bil­lion.

The strong growth of the sub­scrip­tion econ­omy has been chang­ing the busi­ness land­scape, forc­ing com­pa­nies in many sec­tors such as daily ne­ces­si­ties, mu­sic, videos, games, au­to­mo­bile and even pri­vate yachts to in­tro­duce the sub­scrip­tion ser­vices.

While the sub­scrip­tion-based busi­ness model has been led by com­pa­nies based in the U.S., Korean com­pa­nies are also ac­cel­er­at­ing to launch their ser­vices to catch up with the trend. They said the sub­scrip­tion ser­vices have be­come an es­sen­tial fac­tor for them cre­at­ing a pos­i­tive dis­tinc­tion.

Hyundai Mo­tor Group has been test-op­er­at­ing three car sub­scrip­tion pro­grams since Jan­uary.

Hyundai Mo­tor en­ables sub­scribers to its Hyundai Se­lec­tion pro­gram to drive three Hyundai ve­hi­cles with a monthly fee of 720,000 won ($615).

Its sis­ter com­pany Kia Mo­tors and lux­ury brand Ge­n­e­sis are also test-op­er­at­ing their sub­scrip­tion pro­grams Kia Flex and Ge­n­e­sis Spec­trum, re­spec­tively.

While the au­tomaker is test­ing the sub­scrip­tion ser­vice for a lim­ited time, a Hyundai of­fi­cial said it will ex­tend the pi­lot pro­grams thanks to their pop­u­lar­ity.

“Hyundai, Kia and Ge­n­e­sis are test-op­er­at­ing their sub­scrip­tion pro­grams. Though the num­ber of sub­scribers is lim­ited to around 100 in re­spec­tive pro­grams, we have seen the users are highly sat­is­fied. Based on the pop­u­lar­ity, we re­cently de­cided to ex­tend the ser­vice pe­riod of the Ge­n­e­sis Spec­trum pro­gram,” the of­fi­cial said.

The au­tomaker said launch­ing the sub­scrip­tion pro­grams was right de­ci­sion as it could ver­ify that younger con­sumers pre­fer to sub­scribe rather than to pur­chase ve­hi­cles.

“When com­pared with mid­dle-aged or older con­sumers, we could find that younger driv­ers pre­fer to rent ve­hi­cles be­cause many of them are in­ter­ested in car sub­scrib­ing or ride-shar­ing ser­vices rather than own­ing cars. Launch­ing the sub­scrip­tion pro­grams was the right de­ci­sion be­cause we could meet the chang­ing con­sumer trends,” the of­fi­cial said.

E-com­merce firm Coupang said the num­ber of peo­ple who sub­scribe to its daily ne­ces­sity de­liv­ery ser­vice are more than 400,000. Rang­ing from baby items such as di­a­pers and pow­dered milk to rice and pro­cessed foods, con­sumers can get de­liv­ery of over 8,000 items.

Dong­won F&B is op­er­at­ing a meal sub­scrip­tion ser­vice, en­abling con­sumers to choose what they want to eat ev­ery­day. An­other food com­pany Korea Yakult, known for “Yakult ladies,” who sell and de­liver the foods and bev­er­ages of the com­pany, is also run­ning food sub­scrip­tion ser­vice Eat­sOn.

The beauty in­dus­try here is also em­brac­ing sub­scrip­tion ser­vices. Startup com­pany Wisely de­liv­ers ra­zors pro­duced in Ger­many on a reg­u­lar ba­sis and cos­met­ics com­pa­nies AmorePa­cific and Aekyung In­dus­try have of­fered their cos­met­ics sub­scrip­tion ser­vices of Steady:D and Fflow, re­spec­tively.

Korea lags be­hind ad­vanced coun­tries

While Korean com­pa­nies are dip­ping their feet in the emerg­ing busi­ness model, an ex­pert said the coun­try is lag­ging be­hind other ad­vanced coun­tries in mak­ing a shift to the sub­scrip­tion econ­omy.

“Korea is be­hind other ad­vanced coun­tries in the sub­scrip­tion-based busi­ness mar­ket be­cause they en­tered the sec­tor rather late. But the coun­try has been placed in a lead­ing po­si­tion among Asian coun­tries,” James Kang, an an­a­lyst at Euromon­i­tor In­ter­na­tional Korea, said.

The an­a­lyst said there needs to be more im­prove­ments in the home fur­nish­ing and con­sumer elec­tron­ics sec­tors. For in­stance, the coun­try’s mat­tress rental busi­ness is ex­pected to see a growth after some prod­ucts of lo­cal man­u­fac­tur­ers were found to con­tain the ra­dioac­tive el­e­ment radon in 2018.

“In over­seas coun­tries, the Swedish home fur­nish­ing giant IKEA al­ready kicked off its fur­ni­ture rental busi­ness. While the coun­try’s mat­tress mar­ket is es­ti­mated at 1.2 tril­lion won, the por­tion of mat­tress rental busi­ness is pre­sumed to ac­count for about 300 bil­lion won. Since the 2018 radon mat­tress scan­dal, the rental busi­ness in the sec­tor is ex­pected to see a huge growth,” he said.

The rental busi­ness for home ap­pli­ances, es­pe­cially air pu­ri­fiers due to the grow­ing con­cern for air pol­lu­tion, has been en­joy­ing a soaring pop­u­lar­ity but there’s still much room for de­vel­op­ment in home ap­pli­ance sec­tor as smart home tech­nolo­gies are get­ting ma­ture.

“Us­ing Ama­zon’s Dash Re­plen­ish­ment Ser­vice (DRS), which en­ables con­nected ap­pli­ances to or­der phys­i­cal goods from Ama­zon, con­sumers can au­to­mat­i­cally or­der new de­ter­gent for their wash­ing ma­chine in over­seas coun­tries. Both wash­ers of Sam­sung Elec­tron­ics and LG Elec­tron­ics are also ca­pa­ble of that but the func­tion is not avail­able for do­mes­tic con­sumers be­cause there’s no such mar­ket here,” the an­a­lyst said.

Lee Suk-geun, a busi­ness pro­fes­sor at So­gang Uni­ver­sity, said the sub­scrip­tion econ­omy will dis­rupt the en­tire busi­ness model due to a grow­ing “end of own­er­ship” trend, in which peo­ple are not as in­ter­ested in own­ing goods any more.

“Due to the grow­ing end of the ‘own­er­ship trend’, the sub­scrip­tion econ­omy is ex­pected to soar to meet chang­ing con­sumer needs. Dis­rup­tions are in­evitable as more and more com­pa­nies will trans­form their busi­ness model to the sub­scrip­tion one,” Lee said.

To take the lead in the sub­scrip­tion-based busi­ness, un­der­stand­ing the fast-chang­ing con­sumer needs and im­prov­ing man­age­ment ca­pa­bil­ity of sup­ply chain are get­ting more im­por­tant be­cause they need to make ag­ile de­ci­sions to of­fer well-cu­rated and more per­son­al­ized ser­vices, the pro­fes­sor added.

“In the sub­scrip­tion econ­omy era, com­pa­nies are urged to make ag­ile de­ci­sions to be more com­pet­i­tive than any­one else. It is es­sen­tial for com­pa­nies to bet­ter un­der­stand the rapidly-chang­ing con­sumer needs and ef­fec­tively man­age their prod­uct sup­ply chain to sat­isfy the needs. Also, im­prov­ing ef­fi­ciency of their after-sales ser­vice op­er­a­tion will be very im­por­tant,” Lee said.

Newspapers in English

Newspapers from Korea, Republic

© PressReader. All rights reserved.