As long as rental users get the service they paid for, they don’t care much for the brand either. And some manufacturers are already seeing that.
Water purifier maker Livpure Smart is already renting its product as a service rather than just selling it. “We want to sell water as a service,” says Sunalini Singh, assistant general manager of marketing for the SAR Group, which makes the water purifier.
Analyzing the subscription route
After launching its subscription plans in 2018, subscriptions from just two cities accounted for 3% of the company’s sales, says Singh. The reason for going the subscription route, she said, was to target millennials. It’s a generation that doesn’t want to shell out Rs 15,000 ($218) upfront for the machine, not to mention the annual maintenance costs.
The downside for Livpure Smart is that its service centers, which were once profit centers, are now cost centers since they’re tasked with maintaining the rented purifiers.
The service centers no longer make any money, admits Singh. But the silver lining, she says, is in that customer acquisition costs have dropped. “Traditionally, we acquire customers through advertising and that costs about Rs 3,000 ($43.7), but this is entirely through referrals, so costs are down to about Rs 1,800 ($26.2),” she says.
The company is now evaluating the launch of air purifiers on rent, too. Singh adds they expect 30-35% of their revenue coming from subscriptions in two years.
“Subscription is officially the most popular business model. It is growing at over 100% every year, and represents 30% of our deal flow,” says Sandeep Murthy, partner at Lightbox Partners, and an investor in Furlenco.
The tail that wags the dog
Manufacturers are starting to wake up to this new paradigm. Swedish furniture giant Ikea, for one, is also looking to build a scalable subscription service for furniture. It’s pitching this as a move to reduce waste and be greener.
For others, the writing is on the wall. The likes of Uber, home-sharing company Airbnb, and co-working space WeWork have convinced users that ownership is overrated.
Brands, too, have lost their sheen amidst a deluge of young, hungrier competitors looking to do more at lower price points. Samsung, which reportedly cut 1,000 jobs in India recently, epitomizes this trend.
It is losing market share to upstart rivals in the smart television segment. Smaller, nimbler television brands like TCL, Lloyd—by offering cheaper products—have captured 40-50% of the market, up from 10% three years ago, says the executive director of a consumer durables retail chain. He didn’t want to comment publicly as he does business with Samsung.
Hyundai’s recent decision to lease directly to consumers is a sign that manufacturers across sectors are taking notice.
But has the dam truly broken? Not quite. For manufacturers to also rent, it calls for a very different risk appetite that few have. “There is nothing common in the way manufacturers run their business versus rental companies,” says Ashish Goel, co-founder, and CEO of furniture maker Urban Ladder.
Nothing is common
“The type of product, financial model and operating model—nothing is common. You need very sharp financial engineering for this more than anything else,” he says. Goel estimates that to generate the same Rs 100 crore ($14.5 million), a rental company would need 3X more inventory than a manufacturer. Urban Ladder has decided to avoid the rental space altogether.
Smart TV maker Vu Technologies is similarly averse to space. “We evaluated rentals, but the costs involved make it prohibitive,” says Devita Saraf, chairperson, and CEO of Vu Technologies. “My margins will be wiped out if you take the logistics and maintenance costs. Unless it is going to count for one-fourth of our sales, we are not going to look at it,” Saraf says categorically.
But if ride-sharing and e-commerce foretell the future of the rental economy, manufacturers better keep an eye out. Eventually, manufacturers will have to sell with one hand tied behind their backs. “Large distribution channels will reverse integrate into producing products.
This will present a challenge for manufacturers as the distributor will wield influence on what products are consumed—think how Netflix/Amazon Prime shifted power away from content creators. The same thing will happen across industries,” says Lightbox’s Murthy. Renting, then, could wield more influence in the manufacturers’ fate.