We have all experienced Software as a Service-style business models, such as Netflix (pictured), but what about tyres as a service?
You’ve heard of software as a service (or SaaS). But tyres as a service? If you haven’t heard of SaaS, the chances are you have transacted with a business model based on SaaS’s subscription-centred thinking. The popularity of Netflix, Amazon Prime, Spotify and Amazon music make this point. You pay your money and access to your favourite media is simply included. Now transpose this set-up into the world of tyres.
During the last month Zenises announced that Z Tyre has launched “the Z Tyre Flat Rate subscription”. This product, which is currently only available in Germany, starts at 4.99 euros per month and is designed to cover all new tyre related costs. Of course the major selling point is that it removes the need for a large initial payment and therefore aims to reduce the anxiety of what is often a “distress purchase” – a term that has become synonymous with tyre retail. As well as aiming to take the distress out of the distress purchase, Zenises suggests that the adoption of this model also paves the way for increased opportunities to sell tyres based on “aesthetics, performance and expert recommendation”, which is likely to be music to the ears of both tyre manufacturers and retails alike (click here for further details of the Z Tyre Flat Rate subscription launch).
Zenises’ subscription model brings with it a number of features that are relatively novel in the passenger car, business-to-consumer tyre retail segment. Firstly – just like Apple Music, Netflix and Amazon Prime – while a subscription gains access to tyres, the consumer doesn’t actually own the product (something that sounds more like the pence per kilometre style of contract we more naturally associate with the commercial vehicle segment than with car tyres). Of course, there are those that would argue that such an approach actually represents the further commoditization of tyre sales and even the devaluation of tyres in and of themselves, but on the other hand one senior executive of a global top-five tyre maker recently told Tyres & Accessories that selling a tyre on the basis of brand (as opposed to complicated performance characteristics, for example) was the marketing department’s dream. At the same time, others are working hard to sell “mobility” as a concept
So why hasn’t anyone else offered tyres as a service yet? And, while we are on the subject, isn’t Zenises in danger of losing a new idea to a bigger rival? Why won’t anyone else copy it? Speaking to T&A at the recent CV Show in Birmingham, Zenises CEO Harjeev Kandhari offered three key reasons: legal protections; price positioning; and the complexity of offering tyres as a service.
Legal protection is perhaps the most obvious reason. According to Kandhari, the Zenises system is trademarked and the company is patenting the back-office IT infrastructure upon which the product relies (more on this later). Both points mean any competitor will have to develop a quite original solution in order to compete.
Price positioning rules out large numbers of premium and mid-range tyres, which simply don’t want to be associated with such a low-sounding price point. Furthermore, owing to the fact that Z Tyre Flat Rate operates as a one or two-year subscription model it could be that some customers actually pay significantly less for tyres than if they bought a premium brand outright. And, of course, none of these firms want to shoot themselves in the foot in a bid to introduce a new sales approach.
Complexity wasn’t an answer I expected. Surely most large tyre manufacturers can simply replicate a subscription model if – and it’s a big if – they wanted to. But subscriptions sales is said to represent such a car tyre retail paradigm-shift that large organisations have to factor change management into any plans to compete in this arena (see “Micheldever’s Protyre retail chain is UK’s fastest growing” for the latest detail on contemporary UK tyre retail developments). In practice this means dealing with [re]training, switching the focus towards selling mobility and showing the consumer how subscriptions reduce the barrier to entry. According to Kandhari, subscription sales require roughly 50 per cent traditional tyre sales skills and 50 per cent new IT infrastructure. Indeed the subscription concept is said to have come quickly, while the IT backbone has taken the last 18 months to get up to speed. The reason for this is because normal ordering and stock-keeping is necessarily complicated by the sale-or-return nature of the subscription deal as well as the requirement for credit check and credit scoring integration.
Nevertheless, in the first month Z Tyre Flat Rate subscription take-up has been very strong. Initially, Zenises was aiming to bring 250 German tyre dealers on-stream. In fact, executives say as many as 600 could have been on the books had they not limited the scale of this first run of the system. From here the goal is to build up the tyres as a service concept in Germany before considering which markets to enter next. The UK is said to be top of the list of the waiting list. So with that fact in mine and with this kind of take-up, it will be very interesting to see how tyres as a service fairs during 2016 and indeed if anyone else decides to go down this route.