Introduction
Alternatives to traditional purchasing have intrigued consumers for decades. In the past, these concepts were often known as financing or leasing options. However, with the rise of the digital age and the immense popularity of services like Netflix and Spotify, the term 'subscription' has become a household name. A decade ago, the term "subscriptions" was associated only with digital subscriptions such as software, tools, and media services. Currently, sellers and manufacturers of physical products such as cars, furniture, electronics, bikes, etc., also refer to their service models as subscriptions.
A question that still confuses both consumers and sellers is whether to refer to this service as "lease," "rental," or a "subscription." And we'll help you explore the answer in this article.
One thing that is clear is that such a model (whatever we may decide to call it) reflects a broader cultural transition towards prioritising flexibility and experiences over traditional ownership models, reshaping industries and consumer behaviours alike. These alternatives to purchasing focus more on the use of the product itself rather than the ownership. Whether you're subscribing to a monthly box of goodies, sharing rides through a car-sharing service, or accessing software through a subscription model, the emphasis is on enjoying the benefits of the product or service without the need for full ownership.
Lease Model or Leasing
The term "lease" itself has a long history dating back to ancient times but we're only interested in the use of term after the industrial revolution. Before the industrial revolution, the term leasing was primarily used for the leasing of land for a specified period in exchange for payment. However the industrial revolution led to the expansion of leasing beyond land to include machinery, equipment and commercial properties.
Leasing become a popular means for businesses to access assets without the need for large capital investments.
Since leasing was commonly used in the industrial sense and was primarily employed for business-to-business (B2B) transactions, the term is still predominantly utilised by the same demographic today.
Key features of a leasing model
- A lease is for a specific period agreed upon in advance.
- A lease typically involves signing of a contract.
- At the end of the contractual period the leased equipment may be returned, bought or the contract may be renewed (typically the contract contains the specific about the "end-of-term" scenarios").
- The lessee (the party taking the lease) does not automatically own the equipment at the end of the lease period.
- A lease payment may contain additional fees for insurance, maintenance and repair. Leasing typically includes a down payment, security deposit and other fees.
Leasing is often mixed up with financing, but they're not the same. Financing usually has an interest rate, whereas leasing doesn't. Leasing just means making regular fixed payments.
Leasing models beyond machinery and industrial equipment
Even though the term "leasing" was and is commonly associated with leasing of machinery and industrial equipment, currently it is also used in the B2C context, for example, leasing a car and also for leasing of non-industrial products such as appliances, consumer electronics, furniture etc., for both B2B and B2C purpose.
The use of the term "leasing" for non-industrial products such as consumer electronics, appliances and furniture can be attributed to the evolution of leasing practices to include a wide range of products and services. People were already familiar with leasing of equipment and leasing of cars, therefore associating the term "leasing" for accessing products such as furniture and electronics in the same way seemed to be a natural fit. ConclusionThe term "lease" has historically been associated with heavy equipment and commercial transactions. Over time, this usage has become ingrained in language and industry terminology.
The term "lease" is widely recognised and understood by consumers and businesses alike. Even if rental or subscription may be more appropriate terms for certain products, using "lease" maintains consistency and clarity, particularly for those familiar with leasing practices.
In some industries, such as real estate and automotive, leasing is a common practice with established legal and financial frameworks.
Applying the term "lease" to other products may be a way of aligning with industry norms and practices. Companies may choose to use the term "lease" in their marketing and branding efforts to leverage its familiarity and association with professional and commercial transactions. This can help convey a sense of reliability and professionalism to consumers.
Language evolves over time, and words can take on new meanings or applications. While "lease" may have originally referred to specific types of transactions, its usage has expanded to encompass a broader range of products and services in response to changing consumer preferences and market dynamics.
Rental Model, rental and rental services
Similar to the use of the term "lease, the term "rental" is also not new to the market and was also primarily associated with property and land. Currently the term is primarily used in in the context or real estate but with the digital transformation, many companies have emerged and expanded the term to include cars, tools and other consumer durable products.
In the current consumer landscape, the term 'rental' is often associated with the temporary use of products for short durations, such as a few hours or weeks. For example, renting a car for a vacation or renting skis for a ski trip in the Alps.
Key features of a rental model
- Temporary use: The most common feature of a rental is the short term access to products (typically a few hours and maximum a week).
- No ownership transfer: At the end of the rental period the product is returned. Typically there is no possibility of ownership at the end of the rental period.
- Payment structure: The rental fee is subject to duration of the rental period, the rental product and additional services taken along with the product such as repair, insurance, delivery.
- Liability for damages: Depending on the rental agreement, renters may be responsible for maintaining the rented item in good condition during the rental period. This may include regular maintenance tasks or returning the item in the same condition as when it was rented.
Conclusion
In the past, "rental" was primarily linked with land and property, but its usage has expanded to encompass a wide range of products. For example when it comes to consumer electronics, all three terms, that is "lease", "rental" and "subscription" are used to convey the same message: access products without the hassle and financial commitment of ownership.
At present the term "rental" is most commonly used in the real estate and automotive industry to signify temporary access to products.
Subscriptions, Product-as-a-Service
The term "subscriptions" was originally popularised by print media in which readers received copies of their preferred publications on a recurring basis. Subscription models emerged as a service in which a product or service was provided on a recurring basis for a recurring fee. Later subscription-based membership services emerged in various industries, offering access to goods, services, or exclusive benefits for a recurring fee.
Examples include subscription-based clubs, loyalty programs, and subscription boxes that deliver curated products to consumers' doorsteps. With the advent of the internet and digital technology in the late 20th and early 21st centuries, the subscription model experienced a resurgence. Online platforms, streaming services, and software companies began offering subscription-based access to digital content, services, and software licenses, revolutionising how consumers access and consume media and software.In the current consumer landscape the term "subscriptions" have become synonyms to flexibility and connivence and has expanded to consumer durable and consumable products.
There’s a long list of products that a person can subscribe to:
- Vehicles, like cars and bikes – including electric cars and electric bikes
- Baby and kids goods
- Furniture
- Home appliances
- Consumer electronics
- Tools and equipments
- Clothes
- Consumables like tee, coffee, groceries, supplements etc.
Subscriptions and circular economy
Subscribing to products and offering subscription services has emerged as a pivotal strategy for advancing sustainability within companies and participating in the circular economy.
Subscription services encourage product sharing and reuse, extending the lifespan of goods and reducing the need for new production. This aligns with the principles of the circular economy, which aims to keep products, materials, and resources in use for as long as possible, thereby reducing the environmental impact of manufacturing and consumption.
Furthermore, subscription models incentivise companies to design products with durability, longevity, and recyclability in mind. By prioritising quality over quantity and offering services such as repair, maintenance, and product upgrades, companies can ensure that their products remain in circulation for longer periods, contributing to the circularity of resources.
Participating in subscription-based models also enables companies to establish long-term relationships with customers, fostering loyalty and repeat business. This can lead to reduced customer churn and increased customer lifetime value, while also providing opportunities for ongoing engagement and feedback.
Moreover, subscribing to products can offer cost savings for consumers, as they no longer need to make large upfront investments in purchasing items outright. Instead, they pay a recurring fee for access to the products they need, promoting affordability and accessibility while reducing financial barriers to sustainability.
In a Nutshell:
- Subscribing to products and offering subscription services is key for sustainability and circular economy.
- Subscription services promote product sharing and reuse, reducing the need for new production.
- Aligning with circular economy principles, subscriptions aim to keep products in use for longer, minimising environmental impact.
- Companies adopting subscription models focus on durable, long-lasting, and recyclable product designs.
- Services like repair, maintenance, and upgrades ensure products remain in circulation, enhancing resource circularity.
- Subscription-based models foster long-term customer relationships, leading to loyalty and repeat business.
- For consumers, subscriptions offer cost savings by eliminating large upfront investments and promoting affordability.
- Overall, subscriptions contribute to sustainability by reducing waste and promoting responsible consumption practices.
The subscription model is an advocate for conscious consumption. A lot of products that people use are temporary – fitting to a particular life event.
Key features of a subscription model
- Subscriptions typically offer more flexibility such as upgrade/downgrade of products, changing the product etc.
- Subscriptions contracts are longer then rental contracts
- Subscriptions may have a minimum subscription term. This term typically exists to make sure that the service provider at least recovers the costs incurred for the delivery of product.
- Subscriptions do not have a fixed end term.
- Subscription contacts may conclude in ownership of the products.
- Subscriptions typically allow for easy cancellations or modification to subscription plans.
- Subscriptions for consumer durable products typically have a sustainability aspect attached to it.
Subscriptions vs. Rental vs. Lease
The difference between subscription and leasing can be best understood via two differentiating comapirsion points; customer’s intent and commitment to an asset. The difference between subscription and rental can be best understood via two differentiating comparison points; the duration of the contract and service bundle.
Lease vs. Subscription
Customer’s intent
Lease: The customer’s intent in a lease contract is to have or get the asset. Lease is an “asset-oriented” transaction.
Subscription: The customer’s intent is to have the experience and benefits of the asset. Subscription is a “service-oriented” transaction.
Commitment to an asset
Lease: In a lease there is a particular asset involved that is identified at the beginning of the contract.
Subscription: In a subscription there is no such commitment to as asset as the fundamental idea of a subscription is choice and flexibility.
Rental vs. subscription
Duration of contract
Rental: Rental contracts are usually short lived. Standard contract length varies from a few hours to 3 months.
Subscription: Subscription contracts are usually long lived. Standard contract length varies from 3 to 24 months for consumer durable products and a few years for industrial subscriptions.
Service bundle
Rental: Rental contracts only include the product and do not offer additional services like insurance, maintenance, repair
Subscription: Subscription products are more service oriented and often are bundles together with additional services like insurance, maintenance and repair.
Practice of combining business models
While there are significant differences between a lease and a subscription, the terms subscription and rental are often used interchangeably. At present a lot of companies that offer their products on a subscription basis, instead of selling them combine the elements from lease, rental and subscription. Some companies offer products as a service and call it a rental because they do not offer maintenance or repair services along with the product.
While some companies offer a product on a subscription basis and attach it with maintenance or repair.
The conclusion is that the three terms, that is "subscription", "rentals", and "lease" are used interchangeably mainly because of the use of the term in the past. Lease was and is associated with industry equipment and machinery primarily but also often with cars because after leasing of equipment and machinery, leasing of cars was popularised by manufacturers and dealerships.
When leasing cars become a popular alternative to purchasing, more products such as furniture, tools, appliances and electronics joined the category of products that could be leased. But leasing was typically associated with long term, fixed contracts and didn't really satisfy the need for short term use of products such as needing a car for a short vacation or renting skis for a one-time trip to the alps. As a result came the concept of renting products for short term duration and for fixed needs.
And then the consumer needs evolved once again with the digital transformation, eCommerce revolution and disruption of traditional retail and as a result came a combination of the concept of leasing and renting, that is flexible use or products and services for a recurring fee without the hassle of ownership and often combined with value adding services depending on the product.
The fluid interchangeability of terms like "subscription," "rental," and "lease" reflects the dynamic nature of consumer preferences and the evolving business landscape. While each term carries its own historical context and connotations, they now converge to offer consumers flexible options for accessing products and services. Whether it's for short-term rentals, long-term leases, or recurring subscriptions, the overarching goal remains the same: to meet consumer needs while embracing convenience, sustainability, and value.
Rental, lease or subscription: Which is the right model for your product
If you’re still deciding whether your product is more of a lease or a subscription and are looking to create a clear distinction between a lease and a subscription/rental, the following table highlights additional points for comparison.
Additionally, choosing what to call your service of providing access to your product depends on various factors. The most important factors perhaps are the product itself, your target market and your business objectives.
But let's not forget that your goal should be to provide value to your target market and you can do this by combining the features of the rental, lease and subscription model. If you provide bikes for example, calling it a rental service makes sense if you want to target people who wish to rent bikes while they are on vacation (that is short term use) but of course you can include additional service elements such as basic insurance coverage, helmet, phone holder etc., to address the needs of someone who wants a bike while on vacation.
Alternatively if you want to target city dwellers and encourage them to undertake a healthy lifestyle you can offer your bikes as a subscription in which the customer pays a recurring fee for the use of the bike and may get maintenance and repair facilities from you.
About circuly
circuly is a subscription management software solution that enables manufacturers and retails of consumer durable products to launch, manage and scale a rental, lease or subscription model for physical products. With the help of the circuly solution, retailers and manufacturers of consumer durable products can make their business circular, add a recurring revenue stream, extend the product lifecycle, reach new customer segments and achieve their sustainability goals. circuly makes the process of renting products online as seamless and scalable as traditional sales, revolutionising the way businesses operate in the digital landscape.
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