If you look up the term “ownership,” you will likely come across this definition: the act, state, or right of possessing something.
This notion of possession is about having an object under your control. Whether you are a business or an individual, you can use that item as you see fit—within the limits of the law, of course.
The ability to own and possess items correlates directly to your purchasing power. For example, it is unlikely that a starving college student owns a Chanel necklace. However, once the student graduates and navigates their career, their compensation increases and therefore, they may gain the wherewithal to purchase such a precious piece of jewelry. But is this traditional, consumer model beginning to be turned upside down?
The answer is yes. The need to “own” is no longer necessarily about the actual good; it is increasingly about the experience—how wearing that necklace makes you feel. And because of this, consumers are turning more and more to renting, rather than ownership.
The business of rental over ownership is not new to the Business to Business (B2B) world. For instance, companies such as United Rental often lease out heavy equipment, and Rolls Royce is nearing the 60th anniversary of its “Power by the Hour” initiative, which allows for the rental of a jet engine on a pay-by-the-hour basis. While long adopted in the B2B space, this mentality has more recently transferred into the consumer world.
Increasingly, Business to Consumer (B2C) companies are embracing the notion that consumers are willing to pay in the near term for an experience but are hesitant to make a long-term commitment to the item associated with that experience. A study of consumers revealed that 74 percent of Americans are more interested in experiences than in products or things.
The luxury experience without the luxury price
Let us revisit that Chanel necklace. Chanel would like consumers to save their hard-earned money, and one day walk into the Chanel store on Avenue Montaigne in Paris and purchase a beautiful necklace for a few thousand dollars. But what if consumers could simply rent that necklace for a gala event, instead? In other words, consumers would be leasing the experience of wearing a luxury item—and saving thousands of dollars. These services are offered by companies such as Rent the Runway. They allow you to access the experiences of luxury. With trends changing faster than ever, why make a long-term investment in an item that might be out of style a year later?
The successes of transportation services such as Lyft and Uber exemplify the move away from owning a car, to simply accessing personalized transportation as needed via a mobile app. It used to be a rite of passage for a 16-year-old to get their driver’s license, but today, not so much. Fewer people between ages 20 and 24 have driver’s licenses than the same age group did in the 1980s. The urge to drive oneself is diminishing. Consumers are more interested in the experience of being transported from point A to B. They do not see the value in owning—let alone financing, licensing, insuring, storing, and servicing—the physical item, a car, that can provide that experience.
What are companies to do?
To embrace this new reality, companies should start developing a hybrid strategy. While there is little evidence that we will move to a 100 percent ownerless model, there is a drive towards an own/rent mix. Retailers such as REI are embracing this hybrid. Consumers can still go in and purchase a new Kelty tent, but they can also rent it for a once-a-year camping trip. The market for consumer rentals has favored high-cost items, think an expensive camera lens, or items that are not used on a regular basis, like carpet cleaners or Halloween costumes. But as Rent the Runway has shown, this concept is creeping into clothing and fashion, as well.
A more sustainable approach
Sustainability is also a driver of the new thinking about ownership. The rental model, and more flexible returns, can also address the drive to a more sustainable supply chain. In fact, the average American discards 80 pounds of clothing every year. The strain this discard places on sustainability is daunting. Can brands and companies look to a rental model where products are recycled through the supply chain rather than ending up in a landfill?
On the other hand, brands like Madewell encourage their customers to bring in a pair of jeans for a discount on a new pair. It is an example of companies nudging their consumers to think about the circular aspects of ownership and goods. These innovative initiatives encourage customers to recycle products rather than simply throw them out.
Owning “things” has carried many connotations, from having enough basic necessities to survive, to flaunting success with luxury goods. Today, the trend has steered toward valuing experiences-as-a-service. Brands need to think about how they can meet the new needs and desires of their customers in this emerging experience economy.
Infor is a provider of enterprise resource planning software for businesses.