The Core of the Circular Economy: Comparison of Rental [Grover] and Subscription [Fairown] Model
Updated: Nov 19, 2021
Last week, Grover announced a $1 billion funding round. Congrats to their team! At Fairown, we often get the question whether we provide a similar payment model as Grover. This is why we wanted to shed light on this topic.
The time for one-and-done business models has passed. It’s safe to say that subscription models are the future of consumption, driving a circular economy and sustainable business.
Payment models come in different shapes and sizes from product rental aka pay-as-you-use to advanced subscription models.
From Sales to Rental and Subscriptions
The classical sales model is a core building block of commerce and relies on the exchange of goods for profits. Rental and subscription payment models transform this relationship into a deeper and more detailed one. They provide brands with the opportunity to choose which type of commitment they want to establish with consumers.
Renting is an agreement where a payment is made for the temporary use of a good, service, or property. It is a short-term relationship between retailers and consumers with an unpredictable future. It’s essence relies on the opportunity for consumers to exit the commitment with minimal costs.
Subscription is a business model where a customer pays a recurring price at regular intervals for access to a product. It is based on establishing a long-term, binding, and loyal relationship between consumers and brands. It creates the opportunity for consumers to use the latest, up-to-date products at affordable prices, but requires additional costs to exit the commitment.
Rental Model: Grover
The rental model is represented well by Grover. This model is built on the retailer, e.g. Grover, who takes a B2C service provider role. The rental model offers flexibility, meaning it doesn’t bind consumers to a brand, since there is no long-term commitment. When the rental cycle ends, a consumer is free to go. Consumers also have the buyout option during the rental period for a given sum.
For brands, this translates into inconsistencies in predicting the sales flow and recurring purchases like in any relationship with a retailer. The distribution of products is strongly limited to countries where Grover is present and taking credit risk. That might not be the best perspective for brands planning to expand sales internationally.
Brands that choose to distribute products via retailers lose a grip over branding as different brands are merged into large product categories controlled by the retailer. This approach increases customer loyalty to the retailer as customers are owned by it and products offered in the retailer’s rental store. Product upgrades are also managed by the retailer.
Rental models leave brands without much control of the customer relationship, brand loyalty, or predictable sales results.
Subscription Model: Fairown
A good example of a subscription model provider is Fairown. This model is built on B2B infrastructure created by the provider, for example, Fairown. It is designed to convert buyers into subscribers and increase customer loyalty to brands. This is achieved by keeping the customer relationship in the hands of the brand.
By using transaction data and a smooth renewal process to improve customer retention and loyalty, brands will have predictable levels of new sales across product categories. Customer lifetime value increases through product bundling with higher purchase sizes and a boost in profitability via add-on services. The brand, not the retailer, is the one triggering and choosing upselling options. To increase loyalty, customers can continue payments until the end of the subscription cycle and keep the product, instead of a mid-term buyout option as for rentals.
The distribution model of subscriptions enables to launch a white-label concept and merge the payment method seamlessly into existing branding. Brands can choose to push products to market through either retailers or direct sales and leverage this payment model across sales channels. They also get the power to steer the secondary market in a sustainable way.
Subscription model is key in customer retention, higher lifetime value, recurring sales, and sustainable expansion of sales channels.
Driving a Circular Economy
Looking at the examples of Grover and Fairown, they both empower the circular economy, which is rewarding and crucial from the perspective of sustainability. The lifetime value of products and devices is maximised by pushing them to the secondary market or utilising their components in new product creation processes.
Curious about how your business can benefit from product subscriptions? Reach out to us to find out more!