3 Examples of Circular Business Models
What if you could change your business model to:
- Avoid disposal and pre-production costs
- Reduce greenhouse gas emissions
- Open markets to low and middle-income customers
- Establish longer and stronger relationships with customers
Product-service systems or PSS is a new business model that uses a combination of products and services. By attaching services to products, companies aim to increase their profits.
This model could also help to drive the circular economy, an economy that generates value from what was previously considered waste. While not all PSS models result in environmental/social benefits, there is a strong potential for creating a greener and socially conscious system. This is especially true for companies that have been using the model to put on emphasis on repair, recovery, reuse, manufacturing, and recycling.
There are three types of PSS. Here are explanations for each type of PSS and examples of existing businesses using PSS models.
- Product-oriented PSS: selling a product with technical service(s).
In this model, the company provides a service for the customer while the product is in use. This helps the company increase service revenue, improve the product through customer engagement, and extend the product life through maintenance and repair.
Example: Hewlett Packard (HP) designs products that are easy to repair and offers a Customer Self Repair (CSR) service. HP provides options to either ship replacement parts to their customers or to provide specialists to assist their customers with troubleshooting. In this case, customers own the HP equipment, but they can extend the life of their equipment through product repair and maintenance.
- Use-oriented PSS: leasing a product with technical service(s).
In Use-oriented PSS, the customer does not own the product. The customer will use the product for the desired time and then return the product once the time is allotted.
Example: Rent the Runway allows for customers to rent one item of designer of clothing for a 4-8 day period or to be part of a monthly subscription which allows customers to rent out a few items of clothing per month. It’s also less expensive than buying designer clothing directly from the supplier. The technical service involves an intense data collection process which helps the company tailor recommendations of clothing to customers. The company will also provide cleaning services so that each item is ready to be re-rented after each time frame.
- Result-oriented PSS: selling the use of a product or service .
In this scenario, the company is the actual user of the product or service, so they are directly in charge of its maintenance, repair, reuse, and recovery. The customer is just paying for the product or service that they use.
Example: Philips’ Pay-per-lux model involves business customers paying a regular fee in exchange for Philips to handle their entire lighting service – design, equipment, installation, maintenance, and upgrades. The customer only ends up paying for the light that they consume. At the end of the contract period, products are returned to the production process, so raw materials may be reused.
Businesses are continuing to evaluate their environmental and social impact by setting and reaching certain sustainability targets. This is not surprising when you consider that global investments that account for ESG (environmental, social, and governance) are at a value of about $23 trillion. Adding circularity into an existing business model could help you reach your most pressing sustainability targets.
What is one thing that your organization could do to take advantage of a PSS business model?
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Yang, M., Smart, P., Kumar, M., Jolly, M., & Evans, S. (2018). Product-service systems business models for circular supply chains. Management of Operations, 29(6), supply chain operations for a circular economy, 498-508. doi:https://doi.org/10.1080/09537287.2018.1449247