By Alex Stickelberger | VP BORN
We are all familiar with the linear economy: Natural resources are turned into products, which are sold, consumed, and then thrown away without regard to reuse or recycling. However, the linear economy is clearly less and less viable in today’s world when waste and the other byproducts of production and consumption pose an existential threat to our world.
Today’s enterprises focus more on sustainability in the broad sense, and one way to pursue sustainability is by embracing the circular economy. Instead of the take, make, waste dynamic of the linear economy, the circular economy encourages recycling, reuse, and repurposing in an effort to minimize waste through the entire value chain of a product. In a circular economy, all stakeholders benefit: companies and consumers as well as society as a whole through the obvious benefit of greater sustainability.
The term “circular economy” may not yet have the widespread currency of “sustainability,” but examples are all around us. More and more companies support re-commerce, a new-ish term for the age-old practice of buying and selling used products. Online platforms have amplified and magnified this business tremendously for every imaginable good (think Poshmark for clothes and Amazon and eBay for virtually every category).
Another example of the circular economy is the growing trend of “product as a service.” Aircraft engines, to cite just one example, are often sold as a service: Instead of buying a jet engine outright, an airline can essentially rent one on a per-hour basis. With this model, manufacturers take on the responsibility for product maintenance and recycling, and sometimes even outcomes; users of the service save in terms of capital expense and ongoing maintenance. Product as a service is becoming more common with the renewed interest in the circular economy, but it also has old roots. For decades, printers and copiers have been leased and contracted on a usage model instead of being purchased outright.
Contemporary enterprises engaged in the circular economy rely heavily on digital platforms. This is obvious for online marketplaces in which trading and marketplace platforms do the heavy lifting of onboarding, listing, discovery, transactions, and fulfillment logistics. Digital platforms also enable physical stores to manage similar functionalities with more efficiency. And in B2B marketplaces, digital platforms enable companies to trade or sell unused resources, such as raw materials or equipment, fostering greater efficiency in terms of production and distribution.
One of the key benefits of a circular economic approach is efficiency. But trade-in programs, automated and seamless recycling, and an intelligent customer experience can create a more sustainable consumption model and deepen customer engagement.
We believe it’s clear that the transition from a linear economy to a circular economy is accelerating. Here are some opportunities for rethinking business models and finding new opportunities to make your enterprise more sustainable, create new revenue streams, and deliver more value to your customers:
- Offer to lease: Consider building a platform that enables users to rent or lease products instead of selling them outright.
- Embrace re-commerce: Create an aftermarket platform where people can buy, sell, and trade products. This is a powerful way to deliver value to customers and improve sustainability. A good example here is Poshmark for clothes.
- Make recycling a seamless component of the customer experience: Design a value chain that makes recycling of products and components as straightforward as buying or using them. Apple makes this easy to do with any Apple product and will even accept non-Apple products.
- Facilitate efficient returns: Customer returns are inevitable and typically costly, so you can greatly improve sustainability and embrace the circular economy with a platform solution that makes returns as efficient as possible (which may involve working hard to avoid the necessity of returns).
Broadly speaking, you have two possible routes for platform design and development in pursuing circular economy business models: platform-agnostic or using SAP, which has a pre-built re-commerce solution and includes other functionalities that can improve sustainability. We work with clients to help them take the best route by evaluating their current landscape and technology stacks, by creating customized business cases (including ROI), and designing a proof of concept. Each approach has a different set of pros and cons, of course, but either should help you lean into the circular economy.
Finally, when you do embrace the circular economy with these kinds of initiatives, make sure your customers understand the what and the why of your strategies. Showcase the fact that you’re eco-friendly, committed to sustainability, and willing to try new things or change strategies. Promote your initiatives for reuse, recycling, and upcycling. Encourage your suppliers and competitors to join you on the journey. You could, for example, create your own “Green Report Card” and display it prominently on your digital channels.
Sustainability and the circular economy represent one of the best examples of a “win-win” strategy. Creating or adopting new business models that reflect this evolving approach can reduce your overall environmental impact, improve business performance, and deepen customer engagement and trust.
