October 08, 2021
Now in the wake of the pandemic, we have an opportunity to reflect on what we have learned and how we can use our learnings for the next big challenge: climate change.
When we were forced to work, consume and socialize from our homes, services were created in a short time that solved problems and filled needs - the transition took only a few weeks and digitalisation took a leap that would otherwise have taken several years. Imagine if we could take this knowledge and energy with us into the transformation to a circular economy and build the foundation for a prosperous, sustainable and just future! Digital technology, combined with business models that shift responsibility from consumer to producer, will play an important role in accelerating this transition.
From consumer to producer
A business model that we looked more closely at is the subscription model. The purpose of the European Commission's new action plan for the circular economy (11 March 2020) is to lead Europe away from the current linear economy to a circular economy and to keep resources alive for as long as possible. The action plan contains sustainability principles to regulate "incentives for product-as-a-service or other models where the manufacturer retains ownership of the product or responsibility for its performance throughout its life cycle". Going from ownership to usership, ie. to have access to and be able to use a product without owning it. Transferring responsibility for the product from the consumer to the producer means that the producer is more concerned about keeping the product longer in its life cycle.
Subscriptions are profitable
Subscriptions as a business model are being implemented by more and more companies. We already have a number of examples of industries where subscriptions have become a major source of consumption: music, movies, cars, newspapers, books and clothing to name a few. According to The End of Ownership Report (https://www.zuora.com/resource/the-end-of-ownership/), 78% of all adults have at least one subscription service (71% 2018) and 75% believe that people in the future will subscribe to more services and own fewer products. Subscription companies have consistently grown 5-8 times faster than traditional companies. In 2020, they showed sales growth of 11.6%, while revenues from product-based companies decreased by 1.6%. (Source SEI 2020: https://www.zuora.com/resource/subscription-economy-index/)
Digitization as a catalyst
Digitalization will enable the transition to a circular economy. Without digital services for renting, repairing and even taking back products for recycling, the circular economy cannot function. Another important digital technology for circular economy is the Internet of Things (IoT) which makes it possible to follow the product through its life cycle and plan for maintenance etc. Data from IoT can be used for other types of business models, such as charging the customer for uptime instead of a fixed monthly cost.
By selling subscriptions instead of products, your company extends customer loyalty and prolongs the customer journey. This also provides valuable customer data that can be used to develop new services that meet your customers' needs, now and in the future. We believe that the future of business will largely be defined by customer relationships, instead of the products themselves.
From thought to action
Valtech's Circular team have been working with the circular economy for 3 to 6 years. A large part of that has been to teach us and understand what the circular economy is. To make the shift to a circular economy, we realized early that we needed to start from the business, ie. find the economic benefits even if we are aware that the transformation costs.
With our methods in business development and circular design processes, we can help you understand your customers' needs, test ideas, develop prototypes and pilot projects along the way in your circular transition. We are happy to discuss circular thoughts and ideas with you.
Valtech is a global digital agency working on business transformation with clients such as L’Oreal, MAC Cosmetics and BMW. Valtech Future Studio is part of Valtech that focuses on R&D and innovation in cutting-edge technology. Valtech was founded in 1993 and has almost 4,000 employees with different skills in 51 offices in 18 countries.