Reshaping value propositions in capital equipment: The power of circularity

As more companies explore and adopt circular business models such as leases, pay-as-you-go, and everything-as-a-service (XaaS), they are discovering some unexpected challenges and opportunities in how circularity affects everyone, including their traditional business models. 

This year, the US Chamber of Commerce Foundation’s North American Capital Equipment Coalition brought together dozens of executives from 23 companies to compare notes and learn from each other about successful transitions to the circular economy. 

Here are some of the main topics of discussion:

1: Customers are interested in circular offers for both financial and liability reasons, but their relative importance depends on size and geographic location.

In terms of what brings customers to the circular table, companies reported that their customers are interested in both the financial and sustainability benefits of circular traffic, but prioritize them differently depending on the size and location of the company. is located 
Small businesses appeared to be more interested in the financial savings that circular subsidies can provide, perhaps because they are less likely to have sustainability or circularity targets that stakeholders require them to meet. 

In contrast, larger companies, especially Fortune 500 companies with climate-focused shareholders, have emphasized the importance of sustainability and reducing greenhouse gas emissions. These companies are looking for solutions to help them achieve these goals, although it is recognized that the ability to measure and report on these impacts is essential to supporting this value proposition.

Geography also influenced how companies prioritized and evaluated the cycle. The regulation of the European Union forces European companies to ask for more tours and, in some cases, to demand refurbished or updated products in their offers. In contrast, US companies may be less aware of or interested in circularity, and many are early in exploring XaaS models that allow original producers to retain product ownership and responsibility for the life cycle or other circular movements.

circular business model

2: Companies face various challenges as they transition from selling traditional linear models to offering new circular propositions to customers.

Communicating the benefits of recycling and overcoming misconceptions about recycled and new products Communicating the benefits of recycling in a way that is defensible, measurable, and easy to understand remains a common challenge. Current views can make this communication especially difficult. 

For example, while perceptions are already starting to change, the stigma of a “used” product may still be a factor for some buyers. To meet this challenge, companies are developing new ways to use different prices, better warranties, and quality tests to reassure customers. In addition, digital product passports that allow customers to link to comprehensive information about the production, characteristics, use, and value of an asset can help customers truly understand what they are getting with circular business models.

Create new models that do not harm existing businesses: The downside of stigmatizing used products is that refurbished or reconditioned products can be seen as creating competition and potentially dampening demand for new products. To address this problem, companies use differentiated aftermarkets and partnerships with third-party manufacturers to maximize the value they can get across their product portfolio, balancing new and refurbished products.

Adjusting the compensation structure for sales staff to account for differences between circular and linear business models Companies have realized that this is a critical area to address and that further action and innovation are needed. To overcome resistance from salespeople, it can be helpful to understand that some customers require cyclical business models for new offers, while other companies have corporate KPIs for cyclical sales that can help motivate sales teams.

Staff training to move from selling the product to selling the bottom line: Sales results require a different conversation with the customer, and in some cases, salespeople must understand the customer’s business in a different way, considering how the customer’s longer-term goals might reconcile with this. the circular model. Companies deal with this by bringing in people from outside the organization to lead training or by bringing in new sales staff to elevate existing teams. 

Sales teams also benefit from training that helps them adapt their messaging to who they speak to in the organization, whether it’s IT, sustainability teams, procurement teams, or others. Not all parts of the organization may be equally familiar with the principles of sustainable development or even with their corporate responsibility goals.

Managing shareholder expectations of how revenue and profit models change with cyclical business models Investors have chastised companies that have moved to XaaS models because they have seen revenue decline as they move from a single sale to a recurring revenue model, and companies are adopting pay-as-you-go, subscription, or other “as-a-service” models. Autodesk is an example of a company that was initially rejected by investors but celebrated when investors saw the value of the subscription model.

3: There are at least eight possible elements to the value proposition of a circular proposition.

What things do customers find most attractive when considering recycling products and services? The companies reported that these seven aspects of the circular offer were of most interest to the customers they spoke with, and each company prioritized these elements in their relationships.
Cost savings. Especially for small and American companies, the potential of circular business models to lower the cost of the same product, service, or performance is a key factor. Cost savings can be achieved through a combination of new and refurbished assets, a higher retention value during and after the economic life of the asset, a life extension that allows more value to be produced with the same asset, and business models that allow for rents or user fees. This can lower total and unit costs.
Lower risk: Circular business models can reduce customer risk in several areas, including cost, efficiency, maintenance, financing, and end-of-life management. In many circular business models, responsibility for risk management in these areas rests with the provider of the service or product rather than passing it on to the customer at the point of sale, changing the balance of risk and responsibility.
Better results and performance: When companies only pay for the results or performance they want and need, it inevitably provides better value for their investment. When customers and suppliers enter into circular product or service agreements that focus on achieving these outcomes, this aligns the incentives of all parties and can enable more efficient ways to achieve the agreed outcomes.

Reduction of greenhouse gases: For customers with GHG emission reduction commitments, the ability of circular business models to quantitatively reduce GHG emissions is very important and has tangible benefits for customers and supplier partners. 

This reduction can be attributed to various aspects of circular products and services, such as recycled parts or materials, refurbished items (which have a lower carbon footprint), renting or sharing models where companies share their GHG emission footprint with multiple actors, and life extension models, where use-specific greenhouse gas emissions are reduced by extending the useful life of the asset.

Supply Chain Flexibility: As companies face component shortages, there is an opportunity to further integrate recycling into supply chain sustainability strategies. In the case of shortfalls, companies can use the cycle to mitigate them and demonstrate business value.

Stay up-to-date: The shift from ownership models to performance-based or access-based models can allow manufacturers to provide their customers with the latest technology more seamlessly than before, when the onus was on the customer to keep up. In circular models, manufacturers are encouraged to keep all their assets up-to-date and use the latest and most efficient technology to produce the most common value.
Circular Business Styles: For companies that publicly lead the transition to circularity, the ability to tell the story and lead by example becomes part of the value proposition and can be the basis for building and strengthening relationships and acquiring new business. 

Attracting and Retaining Employees: In one of the most competitive labor markets ever, companies that manage turnover have an advantage in attracting top talent and can use their focus on turnover and sustainability to build internal morale that helps retain talent.

circular economy


4:Companies offering recycled products and services are still learning and reinventing their ways to optimize the value of recycling.

When designing customer value propositions, manufacturers and companies offering circular business models can optimize their value from these propositions.
Circular business models:can help increase customer retention because when suppliers and customers spend time together, moving from pre-sale (as in a linear ownership model) to post-sale (as in a circular model) creates an opportunity to strengthen and deepen a customer relationship. relationships Continuous engagement provides more opportunities to understand and meet customer needs and refine the value proposition, all of which support long-term customer retention.
“Renewed assets complement our portfolio”: When you discuss the risk of cannibalizing new product sales with used, renewed assets, companies have realized that this creates a false tension: there can only be one portfolio, and the company must figure out how to optimize value. the entire portfolio in the circular economy. Some firms saw the addition of used or refurbished assets as adding depth and complementing their portfolio, adding value to them and their customers, rather than jeopardizing it.
Lower inventory and maintenance costs: Companies that recover assets from customers find that this can allow them to purchase and hold fewer spare parts for assets than previously required, reducing costs over the asset’s useful life, which can be several years. Companies have come to see assets on the market as a kind of “storage of spare parts” that they can rely on over time to meet repair and maintenance needs. One challenge in using this value can be that it is realized in different industries or cost centers across the company, requiring departments to work together.
Companies must consider both the direct and indirect benefits of circular traffic. The above list of ways companies can reduce inventory costs while increasing asset recovery is one example of the need to consider the indirect benefits of circularity. to straighten Identifying these indirect benefits is necessary to strengthen the value proposition throughout the cycle and is evident during the transition of companies.

Despite the different motivations, priorities, and value propositions of companies around circularity, the roundtable discussion revealed that there is considerable interest in recycling and circular business models in the technology and manufacturing sectors. Whether companies are looking for cost savings, sustainability goals, deepening customer relationships, or strengthening their value proposition, the cycle guides new ways of thinking to achieve these goals. If everyone agreed on one thing, constant dialogue and cooperation would be the key to everyone’s success.

Acknowledgments: The US Chamber of Commerce Foundation thanks the CEC members who participated and invited peers and partners to participate in the discussion. The American Chamber Foundation also thanks CEC facilitators Ellie Moss and Kristina Gerken for leading the discussion and capturing it in this document.

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