Discussing this new monetization model is a priority among the many forthcoming topics on the Monetization Thread. It highlights the value case and transformational potential of a core business.
The business objective of a variable lease is to align the customer and the leaser to optimize cost and performance. However, that only happens sometimes today. To accomplish this, let’s first examine what is wrong with today’s leases.
Typically, lease pricing is determined by factors unrelated to the asset’s performance. The finance team sets the price to ensure a return on capital, while the buyer aims for the lowest payment. Often, service packages are included at a fixed fee based on the product, not based on usage or predictive metrics. Nowadays, companies also incorporate data and connected services into these packages. The main issue is the need for more alignment in pricing priorities, as the current model is backward. In fact, Data, software, and connected services provide the most value, followed by service and support, and then the asset’s value. However, the current model usually inverts this hierarchy. What the customer wants is a guaranteed operational cost model.
Soon, lease pricing will be driven by data. This data will come from the customer, independent sources, and the vehicle itself, resulting in a monetization model that aligns with the actual value.
Key factors impacting the monetization model include:
- Asset use
- Asset utilization
- Insurance costs
- Risk analysis
- Servicing plans
- Replacement parts
- Fuel and charging
- Connected services required
- Customer operating model
- Customer payment plans
Paccar’s full leasing, as shown here, provides a solid view of a successful program. However, a few pieces are missing in terms of value alignment. Are we able to align the customer operating model? Is there a definitive listing of predictable costs driven by multiple data sources? Finally, is there a “Consumption-based” option?
The win-win scenario is customer alignment for their needs and increased margins for the leaser. Imagine a truck leasing company being able to add 1/2 point to its lease portfolio while the customer has a predictable operating cost model driven by real data.
Pricing and payment alternative models, like consumption models, create challenges for today’s Finance organizations and public markets. Consumption-based payments, which might vary throughout the program, put pressure on the Finance team to manage and explain the variability to shareholders. However, if you’re making ½ points or more on the book of business, I expect more support than criticism. That is a real return!
The business opportunity for any OEM here can be a bit tricky. Some are leasing companies themselves, and some are not. If they are now, who owns the data and the model? Is that a potential platform offering for an OEM to provide leasing companies?
Much of this transition is already underway, and now is the time to accelerate the launch of platforms with predictive elements to drive variable lease options. Data-as-a-service could be one approach, either selling or metering the data to another solution or providing aggregation services for the platform to recommend variable lease pricing. If you own the leasing company, perhaps you can only offer a competitive advantage.
Please follow future articles detailing the data model, aggregation, & AI elements needed for this foundational change.
