Circular business strategies are increasingly becoming a competitive advantage for those looking to strengthen their position in the market over others offering traditional one-time sales.
June 23, 2020
In Part 1 of this series, Take, Make, Waste - Why Some Brands Plan for Obsolescence, we broke down the linear economic model and how it creates incentive structures that cause companies to plan obsolescence into their products. This not only creates a frustrating consumer experience, but also wastes long-term potential of raw materials — leading to significant and unnecessary ecological and economic waste.
When considering product development within the linear economic model, only incremental gains can be realized to reduce the impact of always needing to sell higher and higher quantities of products — again driven by the fact that brands can only realize value once: when a product is sold. Instead of thinking about products through a linear sequence of steps, companies should consider the full lifecycle of a product and its material components.
Enter the circular economy — also known simply as circularity. In a circular economy, products are kept in use for as long as possible, with their material components reused to create new products at their end of life to realize maximum potential.
With circularity, brands no longer need to constantly push new products and can instead focus on providing the maximum value possible through existing products and resources. In return for providing long-term value, brands can provide a better customer experience and charge for it accordingly. And because the full potential of material inputs is realized, waste is minimized while revenue is maximized. Circularity is the answer to bringing customer satisfaction, business success and environmental sustainability into a symbiotic state.
Circular business strategies are increasingly becoming a competitive advantage for those looking to strengthen their position in the market over others offering traditional transactional product sales. The circular model better fits the way consumers prefer to purchase products and services: with smaller payments at the time value is provided over large up-front investments.
Value can be created a number of ways within the circular economy. Let’s take a look at a few.
By now we are all familiar with the service economy. Services like Uber, Airbnb, and TaskRabbit provide users with what they want without the need to invest in purchasing a physical product. Applying this model to a physical good gives you a Product Service System, or PSS, where services are layered on top of product ownership adding a layer of value to the value chain.
Product Service Systems can be broken down into three main categories:
Products are sold to consumers with additional services offered to increase the value of the overall offering.
Products are not sold directly; instead, the function of the product is provided through leasing or renting the product. With this business model, ownership of the products remain with the company providing them.
In this business model, products only play a role in helping provide a service to the user. For example, a car is used to transport consumers using ride sharing apps, but the car is never owned by the customer.
These business models form the foundation for companies to not only replace revenue from traditional, one-time product sales, but actually increase revenue and customer satisfaction by driving repeat usage of the services offered.
With circularity becoming an obvious evolution of current linear business model, brands need a way to execute on the above business model shifts. In our next piece we will discuss the tactics to transform any business into a circular one.