Unpuzzle the Business Model in Circular Economy
Updated: Sep 25, 2022
The challenges for Circular economy
The current common business model emphasizes on product sales which is contradictory to the core value of Circular economy.
Business wants to embed Circular economy while stays profit needs to answer the following questions:
HOW to integrate longer-use and reuse style in the market approach?
HOW to create value for customers while using less materials and conserving resources?
HOW to deliver these values to customers if not through the conventional sales?
So where should companies start?
Firstly, we start with STRATEGY by focusing on the main principles
Narrowing the loops through resource efficiency and reducing the amount of material needed for each product/ service.
But what will happen with the product after it has been used?
Slowing the loops through designing a long life product, product life extension and 4Rs service loops.
But how can company make people want to keep these products for life time?
Closing the loops through disassembly and reassembly
Secondly, CIRCULAR BUSINESS MODEL
The most common business model calls out the name of Business Model Canvas which simply can be categorize into 3 value dimensions.
Value proposition: What value is proposed and to whom?, including Value proposition, Customer segment, Customer relationship.
Value creation and delivery: How value is created and delivered?, including Key resources and capabilities, Key activities, Key partners, Key channels.
Value capture: How is value captured?, including: Cost and Revenue streams.
Now, let's take a look at the Circular business model.
Circular value creation model which focuses on the 3 domains: key resources and capabilities, key activities, key partners. Companies apply the Circular value creation model by directly act upon the material and product resources in business, including but not limit to recycling, repairing, remanufacturing, reusing to optimize the utility rate of good, resources efficiency or avoid the use of toxic substances.
Circular value proposition model looks deeply at the value proposition, customer segment and customer relationships. Circular value proposition model sheds the light on the following issue.
How to make customers want circular products?
How to do circular branding?
How to offer product/ service in a non-traditional ways?
Classic long life model: companies deliver value of durable products to capture value through sale of high grade, long life products.
Hybrid model: companies offer the combinations of a durable product and short-lived consumable to capture the value through combining revenue streams from sales of durable goods with repeat sales of the last eecycling consumable.
Access model: companies create value by charging for access to product instead of generating value through product ownership such as pay per use.
Performance model: companies capture values by charging for final result which is offered by service provider.
Gap-exploiter model: ofend offer by a third-party exploit left-over value in product systems by repairing, refurbishing, remanufacturing or upcycling.
Circular value network model: customer relationships, key resources and capabilities, key activities, key channels. The circular economy is NOT a circular but a dynamic system of interlink products. This is why closing, slowing, narrowing the loops is only possible to achieve when all the stages of a product life cycle are connected in such a way that products and its resources can be kept inside the economy. The circular value network model emphasizes the collaboration between companies and other factors of the value chain.
The opportunities for companies in Circular economy
Profit opportunities: lower costs and create new streams of profit
Reduce volatility and greater security and resilience of supply:
New demand for business as services in circular economy: collection and reverse logistics system, repair and resale platform, parts and component remanufacturing and refurbishment service.
Improve customer interaction and loyalty: new way to engage customers, longer relationship through rentals or leasing contracts, greater customer satisfaction
Reference
Ellen macarthur Foundation - https://ellenmacarthurfoundation.org/
Circular Economy - Sustainable material management, Coursera.
