Volvo sets tough goal for car subscriptions arm

Volvo wants its car subscriptions arm to more than double sales this year. The ambitious target comes after Care by Volvo already doubled sales in 2020. The man tasked with propelling the virtual retail specialist toward the tougher goal is Magnus Fredin, an e-commerce veteran who was named Care by Volvo boss last August. He discussed the four-year-old business’s next steps with Automotive News Europe Managing Editor Douglas A. Bolduc.

What were some of the 2020 highlights for Care by Volvo?
We doubled our sales volume.

Could you give us some specific numbers?
What I can tell you is that we have a market share of roughly 10 percent [of Volvo's total sales] in the countries where we are active. We are aiming to more than double the volume this year.

Does that mean a 20 percent share is the target in those markets where you are already at about 10 percent?
We want to get closer to that but since we are growing overall as a company it's not a 100 percent correlation with the percentage. In terms of actual numbers we are planning to more than double the volume.

What does Care by Volvo consider a sale?
What we count are the number of subscriptions that we sell. That is the primary goal. This is a huge change of thinking from the traditional model of selling a car and earning money from that one transaction to becoming more focused on the value of the customer during the lifetime of that person's subscription.

Volvo CEO Hakan Samuelsson recently told me that a key market for Care by Volvo is Germany, where 6.1 percent of the company’s retail sales were attributed to the product in 2020. What have been the keys to success in Germany?
We launched in Germany at the end of 2018 and in 2019 we started to build up the processes and services to put us in position to grow significantly in 2020. We are also very proud of this because it is right in line with the Volvo's goal to have 50 percent of its sales done online by 2025. We now see we can drive customer growth and we can drive conquest through this avenue.

What is Care by Volvo’s conquest rate?
Roughly 90 percent of Care by Volvo customers are new to the brand. That is a very high number. In addition, 73 percent of the customers who have signed up for Care by Volvo in Germany did so because of the subscription offer. They wouldn't have switched to Volvo if it wasn't for the subscription scheme.

There have been changes to the offer since Care by Volo started. Can you explain those?
We have gone from offering something at the beginning that was more like a traditional lease product. You would go online, sign up and do the full e-commerce end-to-end journey. But in the end it was still a 24-month contract, although it was all inclusive. We have since added different elements that have been very successful for us such as a 30-day trial. That means the customer doesn't have to commit to a long-term contract before actually trying the car. The other big change was offering what we call a "true subscription" because the customer has a three months' notice requirement if they no longer want to continue with the program. These two elements have been very important.

Did you start those offers in Germany?
Yes, Germany is where we usually try things first to see how customers react. When we launched stock sales with a short delivery time we also launched that in Germany first. Therefore, I would consider Germany to be our trial-and-error market and the rest of the markets follow after that.

How do sales of stock cars work?
Coming at this from the more traditional way of automotive thinking, a customer would go the automaker's website, configure a car, decide on the financing and then go to the retailer and eventually take delivery of the car. If you switch to an e-commerce flow, you can look at stock cars just like you would browse for a pair of shoes or jeans online. With this option you can pick a quick delivery then go to the checkout. What we have learned is that 80 percent of our customers prefer to take a stock car [which can be delivered within a month] rather than configure their own [which can take three to seven months to be delivered].

Is Care by Volo helping to lower the average age of a Volvo buyer?
We are roughly six to eight years younger than the average at Volvo.

Does that mean the early 40s?
I would say it's closer to 45. I see a lot of the growth opportunities as we reach out to even younger customers.

Is the business profitable?
We don't share numbers in terms of profitability, but this would not be one of Volvo’s core pillars [to more than double global online sales to 50 percent by 2025] if we thought we couldn't make money. That is absolutely clear. And this is not something that is bleeding money today.

Does Care by Volvo look at nontraditional metrics to rate its success?
Yes. I come from the e-commerce world and I have been building up tech companies for a while. In this sector you are primarily looking at the customer’s lifetime value. That is different from what I have seen in the automotive industry. Another core pillar for us is how many visits a person makes to the retailer before making a purchase. In Germany, for example, roughly 40 percent of customers visit the retailers before making a purchase. That means 60 percent go fully online.

Does that number concern dealers?
We do not want the retailers to be excluded from the buying journey, but it's important to understand how we can improve and build the service to make sure it is as good as possible.

One of the numbers that Volve talks about is having 5 million direct customer relationships by 2025. What role will Care by Volvo play in that?
We want to build the direct relationships together with our retailers so we can do as much as possible to keep loyal customers and retain them over time. That is absolutely core to our subscription model.

What is Care by Volvo’s retention rate?
We don't share that. What I can say is that the [retention] data looks solid. Although we have a flexible model where the customer actually can switch to another car and can easily jump out or in, that is not something we want to encourage. At the same time, one of our core pillars is flexibility. If the customer needs a different car because of a life change or needs to end the subscription because they lost their job then they can. Therefore, we offer the possibility to do these things, which provides peace of mind, without encouraging people to make changes just because they can.

Why have other companies struggled in this sector?
It's difficult for me to comment on why others have struggled. I would rather talk about why we have succeeded. I think it's a combination of different things. One is truly involving the retailers to make sure the purchase journey is good from the time someone goes to the website to place an order all the way through to delivery. Another thing is looking at how we are reducing the barriers to make the purchase online, and the 30-day trial is a clear example of this. If you want the customer to buy something online and you want to have a reasonable acquisition cost to do so, you cannot put a lot of friction in there. That is the key. And I think we have been fairly good at that. But we made a lot of mistakes in the beginning.

Could you give an example?
Yes. When a customer initially went into Volvo.com and tried to sign up to Care by Volvo we forced them to sign in with a Volvo ID. Conquest customers didn’t have a Volvo ID. Just by removing that small little obstacle we increased the conversion rate by 100 percent.

At the launch of Care by Volvo there was some resistance from dealers, particularly in the U.S. What has been done to address those concerns?
It's clear that the world is changing overall, especially online, and the pandemic is accelerating this. The data points show how much online car sales are increasing overall. That creates some worries, but we have been very clear with the retailers from the beginning that this is the journey we want to make together, so let's sit down and talk about how we can build common solutions. It's clear that we as an automaker need to make sure we build something that is very competitive and works for all our retailers instead of creating something specifically for every single retailer. That would very inefficient. Volvo is committed to making this a joint venture. And when it comes to competing in the retail world it's about choice. Those customers who want to buy online should have the opportunity to do so, and those who want to buy in a physical space at a dealership together with the retailer should be able to do so. That's absolutely clear to us.

Did the pandemic help boost dealers' acceptance of online retailing and Care by Volvo because they needed a way to connect with customers while their physical stores were closed by lockdowns?
First of all, Care by Volvo did quite well even before the pandemic. That being said, although we are a fairly small automaker I believe the organization has gotten an enormous amount of energy from the move into online because of the speed and agility it requires. This is not something that will change because online is here to stay. I think that is the biggest contribution that this change provides.

Did you and other Care by Volvo executives get asked to help other parts of the business that might have been a step behind when it comes to online sales?
We don't see anyone being a couple of steps behind or that they have to come to us for help. We are all working closely together. We are not the new guys in the corner. We are an integrated part of the company. We did a couple of things, such as the Stay Home Store during the early part of the pandemic, where we drove leads to the retailers so they could convert them in a smoother way. This was a very important learning experience for us at Care by Volvo because we had to scale things up to include more countries. So, while we already had good traction for the product this experience accelerated our ability to help customers reach us even though the dealerships were closed.