Venkat Viswanathan is Founder and Chairman of LatentView Analytics, a marketing analytics and decision science company.
In May 2022, the number of short-term rentals (Airbnbs and Vrbos) available in Manhattan far surpassed the number of year-term rentals. A first for the city, the shift indicates a prioritization of the flexibility of the short-term rental model. As inflation rises, so does the popularity of the sharing economy—partial ownership of goods and services that are more cost-effective than owning outright. Already popular among consumer-facing companies, this change indicates the transformations taking over the enterprise at large.
The history of the rental economy and its widespread adoption can tell us a lot about how this trend will continue to play out in the enterprise. But first, we must understand how the rental economy caught fire. Has inflation driven prices so high that what was once “affordable” is limited to those people that can afford to “live comfortably”? Or do millennials and Gen Z have different priorities—like travel and wellness—than their parents?
History Of The Rental Economy
More than any generation ahead of them, millennials deferred buying their first homes. When they began their careers in the early 2000s, the housing market was falling, jobs were tough to come by and staggering student loan debt meant taking on a mortgage was put on the back burner. Today’s market conditions are not dissimilar, causing younger millennials and Gen Z to lean into the flexibility renting provides.
The youngest in corporate America are exceptionally comfortable with the sharing economy. Many of them remember when Netflix sent DVDs directly to their mailboxes in red envelopes. They grew up with the idea that the sharing economy brings more diversity of choice or a slice of luxury without the expensive overhead. Their generation’s affinity for renting will translate into how they make business decisions, and companies should be prepared to tailor their offering to that model of consumption.
How The Rental Economy And Subscription Work Together
As Gen Z matured, so did the rental economy, and along with it came the widespread adoption of the subscription model. As consumers began to rent the same goods and services repeatedly and the enterprise began to see the value in automatically charging consumers’ credit cards every month, a new way to buy was born.
Why buy in bulk when you could have the exact right amount of paper towels delivered every month for the same price? This is the thesis that Jeff Bezos is hanging his million-dollar hat on. Given the success of programs like URBN’s Nuuly and Lyft’s Citi Bike, the marriage of rental and subscription keeps customers coming back. But as hot new bombshell startups enter the market, the real challenge is creating increasing value for subscribers.
Creating Customer Value
The key to subscription longevity and low churn rates—keeping in mind the benefits of the rental economy—is creating value for your subscribers by building an offering to fit their unique needs. Organizations looking to create a subscription for the first time and hoping to transition existing customers to subscribers should be conscious of timing.
Do you have enough customer data to segment your customers nearly down to one? Further, are you analyzing the data at your disposal to understand the unmet needs of your customers? When you have a grasp on these two things, you can build a subscription model tailor-made for your existing customers rather than one that mimics other subscriptions on the market today.
The rental and subscription economy is entering a new phase of growth. To capitalize on that upward momentum, brands should pay attention to where the rental economy and current business trends overlap.
1. Flexibility: Post-pandemic, much of the workforce is asking for flexibility to be built into their daily lives. From where and when they work to balancing work and personal time, millennials and Gen Z are dispelling the traditional 9-to-5 workday and prioritizing creating a custom solution fit to their needs. A good subscription offering should—and often does—do the same.
2. Everything As A Service: The SaaS model fundamentally changed how the enterprise purchases software when it rolled updates, customer service and maintenance into one fixed fee. This model, which offers clear value to the subscriber compared to its predecessor, is being adopted outside of software development. Similar to contract work, I predict that other business functions will become available as a service on an ad hoc basis for roles outside of core business needs.
3. Sustainability: The enterprise is feeling the pressure to operate more sustainably. Minimizing waste by utilizing products and services on an as-needed basis is likely to become popular, especially as millennials and Gen Z become the decision-makers. From sharing physical space to taking advantage of hardware buy-back programs, the rental model is primed to be widely adopted by the enterprise.
The lifestyle preferences of millennials and Gen Z bleed over into how they behave as consumers and, eventually, business leaders. Sparked by the explosion of the rental economy, when you create a subscription model designed to be flexible, adaptable and sustainable, your long-term value will be clear—the key to reducing churn in an already saturated market.