The Circular Business Model: The Only Viable Economic Model by 2030?

According to experts, transitioning to the circular economy would be the only path to follow to preserve resources and achieve climate neutrality by 2050.

In the circular economy system, resources are used for as long as possible, without depleting primary resources.

However, things are expected to accelerate. Driven by consumers demanding brands commit to a more sustainable economy and with political support (notably from the European Commission), the European Union aims to transition to a circular economy to make Europe cleaner and more competitive.

Unlike previous changes that often faced public resistance due to the resulting societal change, today it is consumers who are pressuring companies to become climate neutral.

Circular Business Model Companies Changing Tomorrow's Economy

The change is indeed happening. Like DNVBs (Direct-to-Consumer brands) that have disrupted the market in recent years, we are now witnessing the birth of "born-circular" companies.

These companies are designed based on a circular business model. This means they have introduced circularity into all stages of the product lifecycle and usage.

Thus, from the start, these companies focus on extending product usage, ensuring they are:

• Repairable and upgradeable
• Easily reusable
• Easy to dismantle and refurbish
• Remanufacturable with recycling of all components

Moreover, "born circular" companies encourage and facilitate product returns from customers once they no longer need them.

This can take various forms:

• Planned return at the end of a rental contract
• Product as a service model

This isn't just a trend: just like DNVBs that challenged traditional companies in their linear operations, "born-circular" companies should rapidly develop and overtake traditional models.

Indeed, linear models are no longer sustainable. Changing consumer mindsets and ecological awareness will likely lead them to turn to companies that put the circular economy at the heart of their model.

Linear Models: Evolve or Perish?

The emergence of these new circular business models is pushing traditional operators to reinvent themselves.

Otherwise, even industry giants risk being dethroned by new leaders who base their model on both digital and the circular economy.

It is becoming increasingly likely that in the 2030s, the circular economy will not only represent the dominant economy, it will be the only economy.

So, what does this actually mean for traditional companies with linear models?

It's clear that transitioning from a linear to a circular model doesn't happen in a few days. The transition will probably be as difficult as that from traditional commerce to e-commerce.

Many traditional companies, due to their legacy, will struggle to make the turn in time. They will lose out to "born circular" companies that have:

• Lower costs
• Recurring revenue
• A more climate-friendly approach
• More attractive products
• A close relationship with their customers

How to Transition to the Circular Economy?

What will happen to traditional companies with linear models? Will any transition necessarily be painful, or even impossible?

Traditional companies can draw inspiration from some best practices of "born circular" companies to begin a smooth transition:

• Consider other ways of using their products: to do this, it's important to think in terms of "product as a service." How to maximize product usage so it serves the maximum number of customers and has a longer lifespan? How to make products more accessible to customers at a more affordable price?

• Reshape the customer relationship: unlike a traditional model where the customer relationship is often limited to the moment of one-time purchase, circular models build a much stronger bond with their customers. The models they use allow them to stay in constant contact with their customers and know how their products are being used.

Why should traditional players then consider the rental model?

Advantage	Description
Low-cost experimentation	The rental model allows experimenting with a new model at lower cost, offering customers access to an economical but quality product, while preserving the environment
Differentiating service	This model is an opportunity to offer an additional and differentiating service, as customers are relieved of the usual constraints of ownership, such as maintenance and repairs
Extended lifespan	Rental allows increasing product lifespan: offering products for rental means optimizing their usage rate, which helps preserve resources and extend the product usage phase
Strengthened customer relationship	The rental model completely reshapes the customer relationship, multiplying touchpoints with customers throughout the contract and better retaining them
Recurring revenue	By definition, rental is a long-term relationship, where it's easier to predict and generate recurring revenue, unlike one-time sales
Expanded clientele	To reach a broader clientele and move away from pure product logic. Indeed, offering a quality product, focusing on its usage and offering additional services, the product becomes a service

Which Products to Offer for Rental?

The rental model is gaining ground: clothing, furniture, children's items, home appliances or even sports equipment can be rented.

Since these products are used occasionally or for a limited time, many of them are largely underutilized and accumulate uselessly in closets. Rental therefore optimizes the lifespan of these products and prevents waste.

Fashion Sector

Thus, many clothing brands have already launched their first offerings. Among them, we find:

• Tommy Hilfiger
• Burberry
• Jean-Paul Gaultier
• Patagonia
• Kiabi

Home Appliances and Domestic Equipment

Other everyday products are also suitable, such as home appliances.

Thus, the French startup Kazoo offers its customers to rent appliances only when they need them and return them when they no longer use them, all without commitment.

Starting at 29 euros per month, customers can choose from products that are:

• Highly repairable
• With spare parts lasting more than 10 years
• Mostly produced in France and Europe

Sports and Mobility

To facilitate urban mobility, Decathlon launched Decathlon Rent, its long-term bike rental program, without commitment.

Everything happens online where the customer can choose from 5 bike models, including 2 electric ones, offered at attractive rates, ranging from €15 to €75 per month.

A true "turnkey" service, the rental includes:

• An anti-theft lock
• "Theft and breakage" insurance
• Regular maintenance

Decathlon plans to extend this model to other products and is currently testing on its platform the rental of:

• Camping equipment
• Fitness equipment
• Climbing gear

How to Overcome Technological Barriers?

"Born circular" companies are highly digitized. Technology allows them to build agile models and offer their customers to consume less but better, preserve resources and stop wasting...

However, many traditional companies face technological challenges.

Key Questions for Traditional Companies

• How to develop an offer specifically adapted to rental?
• How to build a platform capable of managing this new model from A to Z?
• How to guarantee a good customer experience?

Digital Transformation and New Economic Models

Digital transformation and new economic models like the circular economy and functional economy are becoming essential in the current context.

Adopting practices such as reuse and recycling, supported by digital technologies and agile digital transformation, is crucial.

Companies must integrate these models into their marketing strategy, focusing on customer experience and using tools like CRM and Big Data.

This not only creates added value for the consumer but also contributes to a social and solidarity economy.

Digitalization and Omnichannel Customer Relations

Digitalization plays a key role in implementing these economic models, offering an omnichannel and personalized customer relationship.

Companies, from start-ups to established giants, must consider these changes as levers for sustainable and responsible economic transformation.

Integrating digital channels is crucial for rental companies, facilitating the transition to a circular economy. Judicious use of digitalization, particularly via CRM systems and multichannel solutions, allows better understanding and serving customers.

Innovation and Personalization

Furthermore, start-ups and collaborative companies can innovate by creating enriched and personalized customer journeys, ensuring better customer retention and satisfaction.

Automation and customer data analysis can significantly improve the efficiency of rental services, by offering personalized experiences adapted to new consumer behaviors.

This creates significant added value, not only in terms of competitiveness but also in contributing to a more sustainable and responsible economy.

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[1] Circularity Gap Report, 2022

[2] Gartner