The Keys to Running a Profitable Subscription Business – Vince Zappa, Clutch Technologies

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Jim Fitzpatrick is joined by Vince Zappa, President of Clutch Technologies, at the 2020 NADA Show in Las Vegas, Nevada.

ClutchVIDEO TRANSCRIPT: 

Jim Fitzpatrick: Vince Zappa, president of Clutch Technologies. Thanks so much for joining me on CBT News.

Vince Zappa: Yeah, thank you. Thank you for having me.

Jim Fitzpatrick: Yeah. Here we are at the 2020 NADA Convention in Vegas. It’s always a good time, right?

Vince Zappa: It is. Absolutely.

Jim Fitzpatrick: Yeah. So last time we had you in the studio, obviously we were talking to you about subscription last year. Kind of give us an update. Where is it? There’s been a lot of talk, a couple of different ways on that, and dealers are still trying to figure it out in some cases.

Vince Zappa: Yeah, yeah. You know, I think anything that’s innovative, you always have an early entrance fee. We’re figuring it out– the early days.

Jim Fitzpatrick: Sure.

Vince Zappa: We’ve actually figured out a lot of new best practices, and what we think we’re going to help dealers, we’ve expanded our product set-

Jim Fitzpatrick: Right.

Vince Zappa: To even address any need that a dealer may have from a mobility perspective-

Jim Fitzpatrick: Right.

Vince Zappa: All the way from simply being able to connect your car so that you can enable these services-

Jim Fitzpatrick: Right.

Vince Zappa: All the way up to really where we started, which was multi-vehicle subscription.

Jim Fitzpatrick: Okay. Okay.

Vince Zappa: And so there’s a spectrum on, and I think we’re seeing dealers enter different points and different products-

Jim Fitzpatrick: Sure. Sure.

Vince Zappa: Along that spectrum.

Jim Fitzpatrick: Any predictions that you’d like to give for 2020 while you’re here?

Vince Zappa: Yeah, I think 2019 for us was an incredible year of growth. We actually now have over 240 rooftops, dealer rooftops who are our customers across our different variety of products-

Jim Fitzpatrick: Okay.

Vince Zappa: 18 different OEM brands. I actually called 2019 the year of the OEM in many ways-

Jim Fitzpatrick: Okay.

Vince Zappa: Because there’s a lot of bets that are being made as it relates to any of these different mobility-related products-

Jim Fitzpatrick: Right.

Vince Zappa: Whether it again is full and multi-vehicle subscription or some of the other variants, including single vehicle subscription.

Jim Fitzpatrick: Right. Sure.

Vince Zappa: And I think that this year, we’re going to start to see expansion of programs, both dealer and OEM programs-

Jim Fitzpatrick: Right.

Vince Zappa: Continue to see that from the bets that were made in 2019.

Jim Fitzpatrick: Right.

Vince Zappa: And some new entrance.

Jim Fitzpatrick: Right.

Vince Zappa: I think there are going to be some that are going to be announced on the OEM side in the next week or two.

Jim Fitzpatrick: Yeah, for sure.

Vince Zappa: Yeah.

Jim Fitzpatrick: What would you say dealers are still on the fence about? I mean, I would imagine you’re having those conversations, right?

Vince Zappa: Yeah. I think that there are some dealers, this is, looking back in hindsight, I think pretty predictable now for us to say and easy for us to say, which is you have to be really committed. The early vision of subscription was this incredible consumer experience, transformative for the consumer.

Jim Fitzpatrick: Yeah.

Vince Zappa: We still believe in that. We still believe that is the ultimate where the industry should head.

Jim Fitzpatrick: Right.

Vince Zappa: And there will always be a price point and we think a market for that.

Jim Fitzpatrick: Right.

Vince Zappa: But I think for a lot of dealers now it’s figuring out if they’re not willing to go operationally all the way toward a multi-vehicle subscription offering, then where do they enter along that spectrum?

Jim Fitzpatrick: Right.

Vince Zappa: What is the best entry point for their business?

Jim Fitzpatrick: Right.

Vince Zappa: Should they think about using their excess lunar capacity, for example, to offer optimized rentals–? They think about expanding into single vehicle subscription for used cars that maybe they have that they have been able to move.

Jim Fitzpatrick: Yeah.

Vince Zappa: What I’ve learned about this industry, Jim, there’s no one solution at all.

Jim Fitzpatrick: That’s right. Very true.

Vince Zappa: Dealers are very entrepreneurial. I love it.

Jim Fitzpatrick: Sure. That’s for sure.

Vince Zappa: And they all have different motivations for things they’re trying to optimize on-

Jim Fitzpatrick: Right.

Vince Zappa: And we think there’s a lot of ways to use these products to help them optimize those different ways. It doesn’t have to just be one–.

Jim Fitzpatrick: Right. Right. So the big buzz around the convention today is affordability, and that’s been an issue now for the last couple of years, the notion that an average price of an average new car is $38,000.

Vince Zappa: Yeah.

Jim Fitzpatrick: We don’t know where this is headed, right?

Vince Zappa: Yeah. Right.

Jim Fitzpatrick: And it’s a big issue. And to your point and to your product, that kind of speaks to that affordability issue, doesn’t it?

Vince Zappa: It does. Yeah. You know, as we started off with Clutch and subscription in the market, of course the early adopters were, generally speaking, luxury brands with much higher price points.

Jim Fitzpatrick: Yeah. Right.

Vince Zappa: We always made the argument, which we still do today, there’s two things that you change in the price points–, you changed the underlying costs of the vehicles that are in these programs-

Jim Fitzpatrick: Right.

Vince Zappa: And you change the delivery mechanism. How high touch is it, how white glove is it?

Jim Fitzpatrick: Yeah.

Vince Zappa: What we’re going to see are entrance, you’re going to see the re-entrance of some subscription programs that have been paused that are going to be a different price points, you’re going to, again, I keep mentioning single vehicle subscription, the multi-vehicle model where you have unlimited choices across some kind of virtual garage of cars. Is it for everyone? It’s a higher price point. It’s naturally going to be a higher price point.

Jim Fitzpatrick: Right.

Vince Zappa: What we’re going to see is this step down into single vehicle, which is going to be, I believe, priced at both for new and used vehicles.

Jim Fitzpatrick: Okay.

Vince Zappa: Just slightly above the– cost for a lease ultimately.

Jim Fitzpatrick: Wow. Wow. That’ll be phenomenal.

Vince Zappa: Very, very close.

Jim Fitzpatrick: Really?

Vince Zappa: Yes.

Jim Fitzpatrick: Wow. That’s a game-changer.

Vince Zappa: There’s no reason why it shouldn’t be, one car to one consumer.

Jim Fitzpatrick: Yeah. What are the keys to running a profitable subscription business?

Vince Zappa: Yeah. Again, depends on what products you’re running.

Jim Fitzpatrick: Okay.

Vince Zappa: I think that in our experience over the last few years, you have to have a commitment operationally to thinking about, as a dealer, thinking about your business in a very different way. We use this phrase a lot. You have to move from a transactional mindset to a continuous one-

Jim Fitzpatrick: Right.

Vince Zappa: In regards to your customer relationship.

Jim Fitzpatrick: Sure. Sure.

Vince Zappa: You need to understand that customers, you’re going to see them twice, two or three times a month in some cases-

Jim Fitzpatrick: Right. Right.

Vince Zappa: Depending on which product-

Jim Fitzpatrick: Yeah.

Vince Zappa: What you want to bring to market. And so I think that having an operational mindset that’s built around this recurring relationship has got to be at its core, and you have to have people who think that way, you have to have processes around that, and when you do that, the rewards are there.

Jim Fitzpatrick: Okay.

Vince Zappa: If you are kind of half committed, I’d say don’t start.

Jim Fitzpatrick: Really?

Vince Zappa: Yeah.

Jim Fitzpatrick: Wow.

Vince Zappa: And I’m thinking of the multi-vehicle again, the penultimate.

Jim Fitzpatrick: Sure. Sure.

Vince Zappa: You know, you have to be committed in that regard.

Jim Fitzpatrick: Yeah.

Vince Zappa: These other types of flavors, single vehicle and all these others, very simple.

Jim Fitzpatrick: Yeah. Dealers have to look at their business model with a whole new set of eyes right now, don’t they? In 2020, in order to survive all of the things that are getting thrown at them?

Vince Zappa: I do.

Jim Fitzpatrick: If they don’t keep up, it’s not your… I don’t want to say it’s not your father’s dealership anymore, but it really isn’t the same business that it was just 10 years ago.

Vince Zappa: Absolutely. I mean, we hear so much about how dealers do not make money on selling new cars.

Jim Fitzpatrick: That’s right. That’s right.

Vince Zappa: Now, we know there’s all other types of ways to make money. Our argument has always been, if you can’t make money selling it in that individual transaction-

Jim Fitzpatrick: Right.

Vince Zappa: We’re pretty sure you can make it over time, structuring it with a recurring relationship.

Jim Fitzpatrick: Yeah. Yeah.

Vince Zappa: And I want to see dealers evolve to where they are true transportation providers in their local communities, not just transactional sales of one unit.

Jim Fitzpatrick: Right. Right.

Vince Zappa: There’s nothing wrong with that.

Jim Fitzpatrick: Sure.

Vince Zappa: I think dealers are great. I love, again, love the entrepreneurial–.

Jim Fitzpatrick: Oh yeah, for sure.

Vince Zappa: But I think that over time is we see dealers really start to think about consumers entering one of their dealerships-

Jim Fitzpatrick: Right.

Vince Zappa: And all of these different services they can provide around them, whether it’s rentals, whether it’s single vehicle, multi vehicle, whatever it may be.

Jim Fitzpatrick: Sure. Yeah.

Vince Zappa: I really am interested in seeing dealers evolve to these kind of mobility hubs.

Jim Fitzpatrick: Right.

Vince Zappa: And it’s going to take a while.

Jim Fitzpatrick: It will. It will.

Vince Zappa: Yeah.

Jim Fitzpatrick: And a whole new mindset of the way dealers look at their dealership operation. Thanks so much for all the time today, but I don’t want to let you get away. You guys have an announcement here at NADA, clutch along with Xtime. Talk to us a little bit about that.

Vince Zappa: Very excited by it. This is one of those areas where, being acquired by Cox back in 2018, you just realize there’s so many different-

Jim Fitzpatrick: Yeah, I bet. I bet.

Vince Zappa: Ways to take advantage of integrating these platforms.

Jim Fitzpatrick: Yeah.

Vince Zappa: What we realized very early on, one of the Clutch products is what we call service pickup and delivery that’s out in the market. We want to streamline for dealers, when a consumer comes in and has a scheduling event through Exxon-

Jim Fitzpatrick: Right.

Vince Zappa: We want to make it very easy for that to flow all the way from Exxon back into their dealer service centers, and even helping facilitate the delivery of a car to a person-

Jim Fitzpatrick: Right.

Vince Zappa: Pick up their car, bring it back.

Jim Fitzpatrick: Wow.

Vince Zappa: And making it really, really seamless. Certainly there’s services that do that today-

Jim Fitzpatrick: Yeah.

Vince Zappa: But we want to make it really tight, really incredible for the dealer to be able to then optimize that experience and actually optimize their operations as a result-

Jim Fitzpatrick: Yeah.

Vince Zappa: But deliver, most importantly, to the consumer, a way to do this all through a mobile apps and really, really tight and integrated, and that’s what we’re really excited about. I couldn’t be more excited about that partnership and we’re going to do more of that Cox.

Jim Fitzpatrick: That’s fantastic.

Vince Zappa: Both Internally and externally when it makes sense.

Jim Fitzpatrick: Yeah. That’s fantastic. If you’re listening to this conversation right now, get over to Clutch Technology or Cox Automotive’s booth. It’s a huge booth. It’s half the size I think of the convention.

Vince Zappa: Yes, it is.

Jim Fitzpatrick: But nevertheless, you guys are always doing such great things for dealers, and I think subscription definitely needs to be on the table.

Vince Zappa: It does. It does.

Jim Fitzpatrick: It’s something that dealers are considering at all times.

Vince Zappa: Yeah. Yeah, absolutely.

Jim Fitzpatrick: Vince Zappa, president of Clutch Technologies. Thank you so much for joining us. It’s been great.

Vince Zappa: Thank you very much. Appreciate it. Yeah.

Jim Fitzpatrick: Thank you. Have a good show.

Vince Zappa: Thank you.

Jim Fitzpatrick: Yeah.

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