Care by Volvo CEO Patrik Illerstig has an interesting way of describing the role his 3-year-old business plays within the 93-year-old Swedish automaker’s universe.
“We are like a hundred annoying mosquitoes flying around trying to make the elephant move a bit faster,” he told Automotive News Europe. “We want to drive change.”
Care by Volvo has done that by offering customers a different way to own a car, through a subscription rather than a lease or a sale.
Illerstig said that Care by Volvo proved it has a long-term place within Volvo when the automaker announced last year that its “new company purpose” was to “provide customers with the Freedom to Move in a personal, sustainable and safe way.”
The phrase Freedom to Move originated with Care by Volvo “but then it was sort of kidnapped to the whole company,” Illerstig said with a laugh. Part of Volvo’s new purpose includes establishing 5 million direct consumer relationships by 2025. To help Volvo reach that goal Illerstig last week was given an additional title, which is head of global online business.
Bumpy beginning
The subscription plan, however, struggled at first because only one model was part of the program, the XC40 compact SUV, and customers were asked to sign up for roughly a year or two years depending on the market. Something needed to change, so last year Care by Volvo debuted a revised program that is now live in Germany, the Netherlands, Norway and the United States.
“In all those markets we offer virtually all of our models, but we have a slimmed-down set of options to help the consumer because we don't need to show them a million choices,” Illerstig said. In Germany, for example, the XC60 midsize SUV is offered in either the premium Momentum or the sporty R-Design trim lines. Meanwhile, the XC40 is offered only in the Momentum trim level and the S60 only in R-Design.
Another big difference has been the launch of more flexible subscription terms. “In Europe we have a 30-day trial so people can sign up and test it and see if they like it. If not, they can give the car back,” Illerstig said. “And we have a three-month rolling subscription period that just keeps on going until you don't want the car anymore.”
These changes have been crucial to the program’s evolution.
“I think we finally have managed to create a true subscription,” Illerstig said, “which is not what it was at the beginning.”
The changes have been very effective, especially in Germany, where the program exceeded expectations by topping 2,000 subscriptions last year.
Volvo estimates the subscriptions represent more than 5 percent of the automaker’s total registrations in Germany. The aim for 2020 is to boost that number to between 10 percent and 15 percent. Another impressive figure for Care by Volvo in Germany is that it has a conquest rate of more than 90 percent. “That's incremental business for us and for our retailers,” Illerstig said.
In addition, those new customers are about 10 years younger on average than the brand’s typical retail customer. That means Volvo is being introduced to a lot more 40-somethings. “And they are potentially going to have cars for a longer period of time, so it's good from a customer-lifetime value perspective,” Illerstig said.
Volvo also hopes that’s good for the bottom line. Volvo board member for commercial operations Lex Kerssemakers, who is Illerstig’s boss, told ANE Care by Volvo was starting to make money in Europe.
Competition intensifies
A big reason why Care by Volvo decided to tweak its offerings is because competition is growing. For example, in Germany, there are about 15 companies offering subscriptions. This includes startups such as Cluno as well as established players such as car-rental firm Sixt.
Illerstig believes Care by Volvo stands out because of its flexible subscription term. “To me, I think the customer must always win, so I don't see how a system can hold up if consumers need to commit to four or five years,” he said. “When do you ever commit to four or five years of anything these days?”
Other advantages that Illerstig sees, particularly over startups, are the power of the Volvo brand, which he believes evokes positive feelings in a majority of potential subscription customers. An additional benefit that Illerstig hopes to create via Care by Volvo is to be an entry point, especially in Europe, for customers who want to switch to an electrified car.
European automakers are encouraging car buyers to move into vehicles that produce lower emissions to avoid hefty EU fines. “We think this is a fantastic way to get people to test our hybrids or even our electric cars,” Illerstig said. “We are betting heavily that once they try them they will love them and keep them.”
With that in mind, when Care by Volvo launched its more flexible scheme in Norway in February it decided that it would offer only plug-in hybrids. Full-electric cars will join the fleet starting with the XC40 Recharge that will debut at the end of this year.
No clue, no problem
Kerssemakers recently told ANE that 70 percent of the Care by Volvo team has “no clue” about the car business. “I took that aimed at myself,” said Illerstig, who before moving to Volvo in 2018 was at Qliro, an online payments and consumer finance company.
During his time at Qliro he launched multiple complex business-to-consumer and business-to-business products that helped the company grow to more than 2 million unique end users across the Nordic countries. “I think it's quite useful to have someone who thinks more like normal people do,” Illerstig said. “And then you can complement that with everyone here who lives and breathes cars.”
Kerssemakers also said that having feedback from people without an automotive background has been essential to help Care by Volvo adapt and evolve. A future example of that should be evident soon.
Care by Volvo ran a pilot program last autumn in Germany to determine whether customers would be open to subscribing to used Volvo models.
The pilot program led to a limited number of subscriptions in Germany for used Volvos. Illerstig said he expects used Volvos to be integrated into Care by Volvo in Germany at some point in the near future, without giving a start date. It’s just a one way that Care by Volvo aims to keep pestering the elephant to change.
