Rental and the circular economy: from product to service – Doxee

The circular economy is a systemic approach to economic development designed with the primary purpose of safeguarding the environment, creating wealth for society, and providing sustainable growth opportunities for business. In contrast to the linear extract-transform-consume-waste model, a circular economy is designed to be self-regenerating and is aimed at gradually separating growth from consumption of finite resources.

As we shall see, a circular rental economy, i.e. one that favors a particular form of the so-called sharing economy, focuses on another, no less crucial step, one that shifts the perspective of companies and institutions from product to service. This is a real paradigm shift that has undergone considerable acceleration following the mass adoption of digital technologies.

The circular economy also aims to redesign the waste cycle and in doing so, introduces a rigorous differentiation between consumer and durable components of a product. Through the rental business model, the circular economy helps to actualize an equally significant transformation: it replaces the concept of consumer with that of user.

Today, more than 7.5 billion people live on the planet Earth. In 2050, there will be nearly 10 billion people competing for resources (which would not be enough even if we had three more planets to exploit!). Every year, the world economy consumes almost 93 billion tons of raw materials including minerals, fossil fuels, metals, and biomass. Of these, only 9% are reused. In the European Union alone, 2.5 billion tons of waste are produced each year.

The transition to a circular economy the only alternative to the current linear economic model that has proven largely insufficient can no longer be postponed. In March 2020, the European Commission presented proposals that move the conversation even further towards sustainable product design, waste reduction, and citizen-consumer empowerment through, for example, the right to repair (source: European Parliament).

The concern for an economic and production system that is no longer able to sustain itself is not only a concern of international institutions and the business world, but is also reflected in the choices we make every day. According to a recent analysis from PwC, Centromarca, and IBC, consumers would choose more and more healthy and responsible alternatives, guided by ethical values that would influence their purchasing decisions: eco-friendly packaging made without plastic; a willingness to pay a higher price for zero-kilometer and eco-sustainable products; attention to the origin and the entire supply chain.

Italy has the gold medal for circular economy among the leading economies of the European Union, as these statistics show:

We can be proud of these achievements, but we know that maintaining this position will require a high level of vigilance (source: Circular Economy Network).

In recent years, with the increasing focus on resource and environmental sustainability, the circular economy has become an increasingly popular topic in academia, business, and policy circles. In contrast to the traditional linear economic model of extraction-production-resource consumption-disposal, the circular economy presents a closed production cycle and flow, emphasizing that products should be used efficiently and recycled at the end of their life cycle. The profound meaning of the act of consumption takes on a broader scope, escaping the punctual meaning of a destructive and definitive action and is projected instead into a possible and distant time horizon.

This consideration leads us to reflect on a distinction, in terminology and substance, that is interesting for this discussion, namely that between consumers and users. In a circular economy, biological materials are the only materials that can be considered consumable, while technological tools are not consumed but are instead used. This is why it is inaccurate to say that we consume our household appliances or our means of transportation in the same way that we consume food. It is a subtle distinction, but an important one, because it helps us frame our relationship with objects and services differently.

It is a distinction that also raises a number of questions that revolve around the need to own products, or rather, that revolve around the traditional forms in which we experience this need to own.

What benefit is there in owning a drill when you just want to put holes in your wall to hang a picture? It is access to the service a product provides that is important, rather than the product itself. Understanding this shift in mindset lays the groundwork to many of the practicalities of shifting our economy from linear to circular. (Source: Ellen MacArthur foundation)

Circular solutions offer new ways to creatively engage customers. New business models, such as rentals or leases, establish long-term relationships as they multiply the number of touchpoints over the life of a product. These business models offer companies an extraordinary opportunity: the ability to gain unique insights into recurring usage and consumption practices that in turn can be used to optimize organizations processes, in a virtuous cycle that progressively enhances products, improves services, and increases customer satisfaction.

Responsible resource provisioning is at the heart of conscious rental activity, enabling more efficient use of equipment, and reducing demand for non-renewable resources, which is in line with the strategic thinking of the rental circular economy.

The rental circular economy promotes a type of sustainability-focused approach that aims to reinforce a long-term focus on responsible customer use of products and innovative modes of transportation, logistics, and procurement. It is also an issue of business ethics that is reflected in occupational health and safety initiatives, reducing environmental impact and taking an active role in the communities where the organization operates.

If we take the example of an area where the cornerstones of the circular economy) are increasingly finding application, namely the industrial and manufacturing sector, a rental circular economy rests on four key elements:

These cardinal principles of the rental circular economy are perfectly in line with the philosophy on which the circular economic model is based, and once they are put into operation, they become part of a virtuous flow, facilitating the transition to the circular economy, in a way that primarily benefits companies. If the transition to a circular economy means using fewer virgin resources and more recycled materials, then the company will gain a stronger position. For example, it will:

Business rental practices not only comply with the goals and principles of the circular economy, they also expand the boundaries of its scope. On the one hand, they improve product utilization and extend product life through shared use by multiple users. On the other, they ensure that consumption activities are increasingly integrated into the production process and the entire product life cycle, contributing to the formation of a continuum that proceeds seamlessly from sustainable consumption to sustainable production and back again.

Thanks to this bidirectionality, made possible by digital technologies at a level never experienced before, brands that adopt the rental circular economy as a business model are able to leverage data from customer interactions to enable a system of personalized recommendations within a more direct, participatory, and transparent customer experience.

(Source: How Does the Collaborative Economy Advance Better Product Lifetimes? A Case Study of Free-Floating Bike Sharing, Shouheng Sun)

The circular economy is thus an economy that is designed to be restorative and regenerative, where products, components, and materials are maintained in a state of maximum usefulness and value over time (source: The Ellen MacArthur Foundation Growth Within: A Circular Economy Vision for a Competitive Europe).

We can summarize the three factors that determine the value of the circular economy as follows:

For each of these factors, technological innovation and scientific research have played key roles in recent years.

Discoveries in the study of materials and advances in manufacturing technologies (for example, consider whats happening in Industry 4.0) have developed solutions to extend the reusability and durability of products.

The Internet of Things and Big Data make it possible to provide preventive and predictive maintenance, to monitor and track product activity, to update and optimize its use, and to improve remanufacturing and refurbishment to postpone the end of its life cycle.

In addition, with the rapid development of information technology and computing, digital platforms are making it possible for emerging economic models to have widespread, two-way communication and interactive functionalities that were previously unimaginable.

Among these models, which thanks to digitization are becoming a driving force for the circular economy, the most notable are those that are part of the sharing economy among which the circular rental economy stands out.

The collaborative economy, also called the sharing economy or collaborative consumption, refers to the temporary, collaborative use of products and services. It emphasizes consumption based on access to products and services in specific, time-limited use situations, rather than traditional ownership-oriented consumption.

Digitization is transforming our economies, our society, our relationship with businesses. It is designed to address complexities. It gives us the ability to interpret, manage, and share massive amounts of data, to:

Above all, digitalization creates the conditions to design and operate business models, products, and processes that are more circular and therefore sustainable, capable of radically changing the way we design, produce, use, reuse, repair, and finally manage the end of life of consumer goods (including recycling).

One such circular economic model which has proven particularly capable of incorporating technological innovation is definitely Rental. At the heart of its success lies the ability to grasp and support another important transformation, the one that sees consumers become active participants and co-creators of knowledge.

(Source: The circular economy: going digital, European Policy Centre)

At the heart of the rental circular economy is a business model with great potential: it allows for the more efficient use of resources (equipment, raw materials, skills, etc.) and facilitates the transition to a circular economy.

One of its key features is the redefinition of the concept of sustainability, which, while retaining its ideal meaning of ecological harmony and balance, is enriched with a central dimension for business: the ability to contribute to an increase in productivity by reducing costs that result from activities with a high negative environmental and social impact.

This is why we could perhaps define the circular rental economy as a model that is disruptive in some respects. Not so much because it introduces innovative technologies, but because it structurally modifies the value system at the basis of business culture: from product to service, as we have shown. And from product to consumer.

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Rental and the circular economy: from product to service - Doxee