LG Subscription Service is a True Profit Type Innovation

When LG launched their new subscription service model for home appliances replacing the purchase the appliance with full retail price to the new subscription model, it became evident to me that this new type of subscription models is a true illustration of the Profit type innovation.

They have the subscription model with the following Points:

• For the entire term of the contract, the Company retains ownership of the Product.
• For products with a contract/mandatory usage period of 3 years or less, ownership will not be transferred to the customer after the expiration of the contract period, and it is mandatory to choose whether to re-subscribe/return/take over (additional cost) after the expiration of the contract period.
• For products with a contract/mandatory usage period of 4~6 years, the ownership of the product will be transferred to the customer after the expiration of the contract period.

They Also have Rental Care Solution options like

• Free replacement of water pipes
• Filter Replacement
• Sterilization Services
• Inside Cleaning Free
• Aftersales Service

But What is strictly Interesting is that for consumers it may appear that they are saving more money but in reality in total value they are paying a bit higher, OfCourse it will be less than numbers below if we take time value of money where money loses its value with time due to inflation and central banks interest rates.

Yet what are the benefits that LG gains with this ?

1. Ability to penetrate new price point and customer segments as several of the consumers who couldn't afford their products right away can easily deal with subscription services (same as installments)
2. Remove the hassle of comparing prices directly with competition especially in entry products like top freezers
3. Sell Services to customers and enable integration of 3rd party apps & services through this subscription service.

New Possibilities for LG

• 1,3,6 Months rental service for quick renters who want to rent the appliance for Trip Duration or even contract business in market
• B2B with apartment buildings allowing builders instead of buying an appliance add appliance subscription as part of the upfront fees where renters can choose within a certain band of price any appliance they prefer.

Retail Purchase Option:

• The LG Modern Edge Refrigerator is available for a member discount price of KRW 950,000.LG Modern Edge Refrigerator 462 liters (L) Manhattan Midnight | M451MC93 | Refrigerator |LG Electronics
• With additional discounts, the maximum benefit price is KRW 883,500.

Subscription Purchase Option:

• The subscription service involves a contract period of three years.LG Modern Edge Refrigerator | M451MC93 | LG Electronics
• For the first year, the monthly fee after the affiliate card discount is KRW 18,900. Calculation: 18,900 KRW/month * 12 months = 226,800 KRW for the first year.
• For the second and third years, the monthly fee is KRW 41,900. Calculation: 41,900 KRW/month * 12 months = 502,800 KRW for each of the second and third years.

Total Cost Over Three Years (Subscription):

• First year: 226,800 KRW
• Second year: 502,800 KRW
• Third year: 502,800 KRW
• Total: 226,800 KRW + 502,800 KRW + 502,800 KRW = 1,281,600 KRW

Comparison:

• The total cost for the subscription over three years (1,281,600 KRW) is 39% higher than the retail purchase price (883,500 KRW).
• The analysis points out that the total subscription cost is equivalent to paying 139% of the retail purchase price (1,232,400 / 883,500 = 1.39, or 139%).

Conclusion:

• The subscription model results in a significantly higher overall cost compared to the one-time retail purchase price.
• The analysis suggests that while the subscription model spreads out payments, it ultimately costs the consumer more over the three-year period.

What do you think about the new appliance subscription platform from LG? Share your thoughts in the comment.