The biggest barriers to companies adopting the circular economy are the resistance to change. There is a perception that the consumer demand is lacking and that it will, therefore, reduce profit. I would argue that any business that still believes this, has not looked closely enough at learning to apply the elements of a circular business.
The number one reason companies become extinct is that they aren’t open to adapting to change. There are countless examples of companies that did not adapt to change and are no longer around. Think about Blockbuster Video. If they had adapted their business, they could have easily kept the market share that Netflix has now captured. People take more pictures than ever today, however, Kodak (once the world leader in photography) has barely survived. Blackberry had superior technology to other smartphones but didn’t think about the user experience as Apple and Android did. Companies that are resistant to change, and therefore do not adopt the elements of a circular economy, may find themselves at a severe disadvantage.
The circular economy business model creates value and positive cash flow through reduced costs, increased revenue, streamlined distribution, improved customer relationships, increased services, improved competencies, and created more efficiency in production. To debunk the theory that there is no consumer demand to adapting to the circular economy, or that it will reduce profits, we can go through the “7 R’s” to show that each of these can INCREASE revenue and INCREASE profits:
Reexamining the way in which we do business can be a fantastic way to increase profits while enhancing sustainability. For instance, thinking of the use of a product rather than the product itself can create a subscription or rental business that generates profits far beyond one sale. Reducing the amount of raw materials that go into a product can show improved gross margin. Increasing durability in products allows for longer use of the product but incorporating a feedback or product loop back to the manufacturer can increase long-term revenue at the same time.
Redesigning products so that they can be adapted to the circular economy can increase profits in several ways. Redesign can be the precipice for the other “6 R’s”, but it can also create increased revenue streams or a greater connection to the customer. By incorporating the Internet of Things into products, manufacturers can learn more about how products are used, who their end consumers are, and how to create a greater relationship with them. These all lend to the potential of using this information for increased future revenue.
Repurposing products is another element of the circular economy. For example, thrift shops have become popular which creates a fantastic avenue for reusability. Many companies could gain additional revenue streams if they implement reusability into their existing products, thus re-selling the same product multiple times. By building durable products that can be reused in the future, companies can generate loyalty in their customers and can then resell the same product multiple times. Repurchasing products can be done at a fraction of the cost of goods sold that are associated with a new product, therefore creating a healthy margin for reusability. Ikea has implemented a buyback program for used furniture, Patagonia sells used products on their website, and stores that feature new and used items also profit from reuse programs.
In the past three decades, many products have been designed to be purposefully unrepairable, so that planned obsolescence occurs, therefore increasing sales. By reimagining your process so that repairs return to the manufacturer, there can be increased revenue streams and a much higher gross margin. If the product is designed correctly, it can often be repaired rather than replaced. Once a product is out of warranty, this can create a revenue stream for the company.
Several innovative companies including Apple, Jura Coffee Makers and Patagonia have started to remanufacture products that are at, what was previously considered, “end of life”. By bringing the product back to the manufacturer and replacing worn out parts with new parts, the company can sell refurbished products at a significantly higher margin.
The earth has a finite supply of raw materials. Therefore, finding ways to reuse the materials that go into manufacturing, through recycling, can be an excellent way of reducing the dependence on raw materials. Recycled materials will continue to become more economical due to two factors; one is the supply and demand of limited raw materials, and the second is that greater demand for recycled products means it will be more efficient to recycle products.
Like recycling, there are many materials that go into the products that we use every day. Some of these materials are quite valuable, yet they end up in landfills. Both Tesla and Apple are working to recover valuable minerals that are used in their products, therefore reducing the need for virgin materials. This significantly reduces their cost for sourcing new materials.