In 2022, 59.4 million tonnes of e-waste was generated and only 17% was properly recycled. The mountain of electronic waste will grow to 74 million tonnes a year by 2030. How to tackle this problem and reduce excessive waste?
Producing Less New Products
The main concern in tackling products’ impact on the environment is carbon emissions in the production phase. For example, brands who manufacture laptops use 80% of the energy when producing it. That’s why we need to maximise the value we get out of one product during multiple life cycles.
This new product is usually made from virgin materials and sold with market value to the customer who wants to have the latest and greatest. But a few years later, there will be new latest and greatest laptops on the market, and the same customer will buy a new laptop. Usually, the old one is left in a drawer, because selling a used laptop is quite a hassle.
How could we bring this used laptop to the next user who needs a computer which doesn’t have to be the newest and fanciest, so the brand wouldn’t need to produce a new laptop? Especially when we know that the product can last 10+ years and bring a lot of value to customers with different needs during its entire lifetime.
Financial Initiatives to Maximise Product Lifetime Value
There are several layers to maximise product lifetime value in the circular economy. In our experience, these layers should build on one another to get the most efficient result for consumers as well as brands and retailers interested in designing circular models for products.
First, a financial initiative needs to be created that allows the first user to only pay for the value used.
New product market value - cost of the 1st life cycle =
used product market value after the 1st life cycle
How to build up the financial initiative when we know that there are too many variables to reliably calculate the future market value of used products?
1. Price Analysis
You can start by analysing how much laptops have cost in the past and how much they go for on the secondary market to define how much value should be remaining after the first cycle. This analysis can be conducted based on similar products, as well as using external and internal data about expected depreciation.
2. Conditions for Using the Financial Initiative
The financial initiative can be made available conditionally: the used product needs to be in a good working condition, renewed in an expected time window, and it’s possible to require customers to upgrade to a new subscription plan to be able to renew the product.
3. Predictable Sales Process
From the moment of initial sales, it is known where and on which conditions the products could potentially be returned. That enables businesses to plan the sales process early on. If it’s clear that the expected value can’t be achieved through wholesale, product sales can move closer to the consumer and be done directly while increasing revenue from the used product.
4. Control Over Product Life Cycle
It is important to control the communication, logistics, and product assessment in each step to manage the speed, quality, sustainability, and cost of the entire product life cycle. This facilitates healthy customer relationships and enables customers to make conscious decisions.
5. Product Portfolio Diversification
Future economic value positions for many products across various categories can be managed over a period of time. If the committed position would be too high on laptops and low on phones, it is likely that those potential losses balance themselves out.
6. Motivation for Profit
Profits or losses shouldn’t be sought when managing the portfolio of used products. When managing the risk of market value of used products, the business model shouldn’t be built on speculation in the price differences of such products. It’s not a sustainable stream of income as the desire to earn more from secondary market sales would motivate to lower the price paid to consumers for the used product. This would reduce the financial initiative for consumers to stay in the subscription plan and renew products.
By keeping products in circulation for as long as possible, we can successfully maximise a product's lifetime value. This is key to the circular economy, reduces waste, and tackles the growing need for raw materials.
Fairown has built a sustainable product subscription model to maximise product lifetime value based on the steps described above. If you want to know how to make subscriptions work for your business, get in touch!