After a long hiatus, I returned to the Financial Time The Future of Car Summit 2023. Despite the pandemic, the summit continued in an online format. It was delightful to reconnect with familiar faces after four years. This year’s hot topic was, surprisingly, “Would you pay a monthly fee for heated seats in your car?” I understand that this might sound amusing and absurd. However, notable automotive brands such as BMW, Mercedes-Benz, Volkswagen, Toyota, Audi, Cadillac, Porsche, and even Tesla charge a monthly fee for optional features available on their cars.
This represents a new paradigm! In the past, when purchasing a car, you would specify the desired features at the dealer, and that was the end of it. If you opted for heated seats, you would have them, or else you wouldn’t. Now, however, things have changed. All cars come equipped with all features, but you need to make monthly payments to activate them.
Mercedes-Benz has taken an unconventional approach by introducing a monthly subscription fee for increased acceleration.
The list of examples is extensive, but it is not something that consumers are happy to pay for. Here’s why: car companies compare this model to services like Apple Music, Netflix, or Spotify. They argue that tech companies, such as Apple, follow a similar approach. However, Apple never charges a fee for features like the ultra-wide lens or external speaker. Apple and Google charge for software. If you wish to listen to music, you can pay for Apple Music or download Spotify. Even if you choose not to pay for Apple Music, your iPhone’s speaker still functions. You are not limited to exclusively listening to music from Apple Music. Your iPhone will continue to operate properly.
During the FT summit, I posed a question to Matthew Simpkins from Salesforce. I inquired about Netflix losing customers after the pandemic, as people grew bored with the content and realised they were paying a substantial amount of money. Essentially, people became disinterested and stopped paying. I wondered if the same issue could arise in the future with car subscriptions. Matthew made an excellent point, highlighting that Netflix failed to introduce exciting new content, leading people to no longer find value in paying for the service. He suggested that the car industry could learn from this situation and take the opportunity to improve technology and introduce new features. Additionally, he emphasised the importance of bundling these optional extras with the monthly lease payments. Otherwise, customers may be reluctant to pay an additional £50 while already paying £500 per month. It was a great answer, and Matthew wrote an article about this topic on the Salesforce website, which you can read through the provided link.
https://www.salesforce.com/resources/articles/merging-driver-and-vehicle-data-article/
From the perspective of participants, the majority at the FT Car Summit are not enthusiastic about paying a subscription fee specifically for heated seats. Drawing from my observations and experience in behavioural economics, it is clear that people generally dislike paying last-minute extra fees, such as delivery charges for online shopping or fees for individual features like heated seats. It would be more effective to bundle these fees into the overall price customers are already willing to pay. This way, the subscription fee would essentially become an optional feature fee. In essence, this approach would likely result in no significant change.
I believe the car industry is endeavouring to find new sources of income and taking inspiration from the tech industry. However, it’s important to note that the tech industry primarily sells software, unlike the automotive industry, which deals with high-priced products like cars. Attempting to retrofit a Netflix payment model to something like a BMW heated seat may not prove successful in the long term.