Innovate demand-focused business models
Advancing new access-over-ownership and take-back models will further accelerate the adoption of circular economy business models because they drive the greater use of existing idle assets. Examples are office sharing as organized by LiquidSpace, and parking space sharing using the online tool ‘Park At My House.’ Better control over the fleet of products and embedded resources will be another benefit (via take-back schemes, for example, or rental/leasing models). Permitting the monetization of investment in the innovation/improvement of more circular designs will also encourage spread (e.g. higher-cost products with increased longevity for leasing model can compete with lower-cost products in traditional sale model).
It will also be helpful to segment products and services to identify how best to meet the company’s and consumer requirements when shifting to new business models. B&Q/Kingfisher has started to develop a segmentation approach for their portfolio along the dimensions of cost of materials and frequency of usage. Rental models are most applicable for high-cost products with short usage periods (e.g. flooring sander and Rug Doctor for specialized carpet cleaning), while end-of-use take-back for recycling would be best for those with low cost and heavy usage (e.g., clothing)116. The Forum’s Young Global Leader working group on The Sharing Economy has identified specific criteria for considering collaborative consumption business models. These include high liquidity of assets, significant idle capacity, high cost of ownership, rapid obsolescence, and no demand and supply limitations.117
Transfer business model solutions
Companies that have already ushered in new business models of this kind have sometimes even found they can transfer what they have learned to other businesses.
- Improving their relationship with customers. I:CO has noted that some of their partners’ stores with clothes collection schemes experienced an increase in foot traffic. In addition, the company noticed that providing incentives (with vouchers) and transparency on what happens to the collected clothes with in-store programme flyers encourages customers to take end-of-use clothes back to the store.118
- Monetizing idle capacity. Office space sharing at LiquidSpace, errand-running services at TaskRabbit and accommodation sharing at Airbnb (among many other examples) provide a platform for customers to trade idle capacity of their assets. Airbnb, launched in 2008, is currently valued at US$ 2 billion. An average New York Airbnb host user earns an estimated US$ 21,000 annually from the application.119
- Having better control of the product life cycle. Ricoh sells 60% of their products with a service contract, which allows it to orchestrate supply and demand planning, as well as set up efficient reverse logistics.120
- Creating stable revenue streams and premium. Companies may be able to achieve further differentiation by moving towards usage-based models. Airlines already extract premium by segmenting their passengers along usage patterns based (for instance) on their flexibility needs. Many companies are now increasingly using loyalty programmes and yield management approaches to maximize return from their fixed-asset base.
Mainstream the sharing economy and collaborative usage models.
To scale up the demand-focused business models, success stories and better demonstration of their economic and non-economic benefits are needed to encourage adoption by companies and cities/regions. The former will be able to create or revise related regulation to encourage further growth of the business models.