Brands are adopting circular economy principles and boosting long-term competitiveness by becoming more circular, rethinking everything from product design to relationships with their customers. This trend report explores the circular economy as an alternative economic model, how this concept is gaining traction and implications for brands.
Among some of the world's top corporate leaders, there's a growing understanding that traditional business models - built on the presumption of unlimited and cheap natural resources - must be reworked for 21st century realities.
The circular economy represents a markedly different way of doing business. This alternative model that’s taking shape represents a substantial departure from the “take, make and dispose” mindset: The circular economy envisions a smarter, more restorative way to create, use and dispose of products that designs out waste.
The circular economy is an important topic not only because the approach is far better for the planet but because tapping into its principles may be essential to long-term competitiveness.
Like all major transitions in human history, the shift from a linear to a circular economy will be a tumultuous one. It will feature pioneers and naysayers, victories and setbacks. But, if businesses, governments and consumers each do their part, the Circular Revolution will put the global economy on a path of sustainable long-term growth—and, 500 years from now, people will look back at it as a revolution of Copernican proportions.
Frans Van Houten, CEO, Royal Philips
The circular economy is a concept dating back more than 30 years, so why is it getting attention and adoption now?
For businesses, the key reasons are practical (depletion of key natural resources, rising commodity costs) and technological (new tools make circular principles easier to implement). Greater urbanisation will also help to enable implementation. Meanwhile, more governments are getting behind the idea and consumers are embracing new ways of consuming.
This is not CSR or a sideshow, but is fundamental.
Dominic Barton, Managing Director, McKinsey
The shift to a fully circular system is complex, but many brands are taking steps toward this vision by rethinking elements of their business model. Brands from Puma and Ford to Ikea and Starbucks are upending various elements of the status quo: leasing rather than selling products, remanufacturing goods, finding more value in waste and seeking ways to extend the life of products or their components. In some cases brands are catalysing existing behaviours such as selling secondhand products and repairing worn goods, while in others it means embracing new concepts, like selling temporary ownership. These steps can move brands into a new, more ongoing relationship with consumers, who become a valued component in the circular system.
The circular economy represents a markedly different way of doing business, replacing established practices like planned obsolescence with new approaches to generating profits. This model forces companies to rethink everything from the way they design and manufacture products to their relationships with customers. For their part, consumers will need to adjust their habits and shed traditional ways of thinking about value, ownership and product use.
In the circular economy, products are designed to be durable and/or to be easily reused, upgraded and recycled—considerations that seldom play a big role in the purchase decision today. Circular goods that are leased or reusable may require a higher outlay initially but end up cheaper over the long term. Marketers will need to explain this embedded value to price-sensitive consumers trained to focus on the cost of single-use products at point of sale.
In turn, as people gradually become accustomed to this idea and more mindful about their consumption generally, we’ll see a heightened consumer focus on maximizing long-term value and on total cost of ownership.
For many businesses, the relationship with customers ends as soon as the purchase is made. In a circular system, however, products are often essentially leased, which means that periodic customers of a brand instead become ongoing users.
Companies will need to create these extended relationships so as to keep their goods within the closed loop. The possibilities are numerous, including monitoring the quality of parts digitally; creating financial incentives for the safe return of used goods, as several apparel retailers are doing; and giving consumers the means to easily repair or reuse goods.
These programs can make customers feel valued, as their participation becomes key to the success of the circular system. Companies can also crowdsource circular economy ideas from customers, further integrating them into the system.
Human beings don’t have a pollution problem; they have a design problem. If humans were to devise products, tools, furniture, homes, factories and cities more intelligently from the start, they wouldn’t even need to think in terms of waste, or contamination, or scarcity. Good design would allow for abundance, endless reuse, and pleasure.
Michael Braungart and William McDonogh, The Upcycle (North Point Press, 2013)
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