Overview

Circular business models are business models that employ circular strategies to reduce the resource inputs into and the waste and emission leakage out of an organizational system. [98]

Some of the distinguishing characteristics of circular business models include:

• Sales strategies tend to focus on selling high-quality products or offering access to products rather than transferring ownership. Less emphasis is placed on the traditional approach of maximizing sales volume of low-margin, short-lived products. [99]
• The business case often leverages the value of existing materials, components, and products. [99]
• There is a higher level of collaboration among different actors in the supply chain. [99]

There are various typologies for classifying circular business models, depending on the perspective the author takes. For example, one author might adopt a value chain perspective, classifying business models based on their position in the value chain. Another might classify them based on how they manage material flows in a circular economy. While the activities implicit in these typologies often overlap, they are frequently described using different terms. [99]

Value Chain Perspective

The Value Hill, Master Circular Business with the Value Hill, Circle Economy

Achterberg, Hinfelaar and Bocken (2016) illustrate the value chain using the “Value Hill”. It shows that value is added to a product as it is developed, indicated by the uphill slope on the left. At each stage of the pre-use phase (such as extraction, production and distribution), value is added to the product. The product reaches its maximum when it is at the top of the hill. In a linear economy, the value of the product goes down post-use indicated, by the downhill slope on the right. The goal of a circular economy is to keep products at their highest value (the top of the hill) for as long as possible.[100]

‘Slow the loop’ strategies, such as the design of long-life goods and product life extension, are implemented to keep the product at the top of the hill. After the use phase ends, other ‘slow the loop’ strategies, such as reuse, refurbishing, remanufacturing and recycling are implemented to retain as much value as possible during the downhill journey. [100]

Circular business models are classified based on the phase (Pre-use, Use, and Post-use) in which their business activities take place. [100]

• Uphill: Circular Design
  • This category corresponds to business activities in the Pre-use phase (or Uphill phase). It includes activities such as prolonging the use phase, accounting for end-of-life suitability, minimizing resource-intensiveness, and re-using existing products, components or materials. [100]
  • Business Model Sub Types
    • Circular product design
      • Designing products with their end-of-life in mind by making them easy to maintain, repair, upgrade, refurbish or remanufacture. [100]
    • Classic long life
      • Delivering longevity of a product with high levels of guarantees and services for a high price upfront. [100]
    • Circular materials
      • Utilize input materials such as renewable energy, bio-based-, less resource intensive- or fully recyclable materials. [100]
• Tophill: Optimal Use
  • This includes business activities in the use phase of a product. It includes activities such as optimizing the use of the product by providing services or improving the productivity of the product. [100]
  • Business Models
    • Life Extension
      • Sells consumables, spare parts and add-ons to support the longevity of products.[100]
    • Repair & Maintenance Service
      • Repairs, maintains and possibly upgrades products that are still in use. [100]
    • Product leasing (Product as a Service)
      • Delivers access to a product rather than the product itself so that the service provider retains ownership of the product. The primary revenue stream comes from payments for the use of the product and a single user uses the product at any given time. [100]
    • Product renting (Product as a Service)
      • Delivers access to a product rather than the product itself so that the service provider retains ownership of the product. The primary revenue stream comes from payments for the use of the product and different users use the product sequentially.[100]
    • Performance provider (Product as a Service)
      • Delivers product performance rather than the product itself through a combination of product and services, where no predetermined product is involved and the service provider retains ownership of the product. The primary revenue stream is payments for performance of the product, i.e. pay-per-service unit or another functional result. [100]
    • Sharing Platforms
      • Enables an increased utilization rate of products by enabling or offering shared use/access or ownership through which, different users use the product sequentially. [100]
    • Sell and buy-back
      • Provides a product and agrees on repurchasing the product after some time. [100]
• Downhill: Value Recovery
  • Considers business activities in the post-use phase of a product. It includes business models that generate revenue by capturing the value from used products (waste or by-products). [100]
  • Business Models
    • Recaptured material supplier
      • Supplies recaptured materials and components to substitute the use of virgin or recycled material. [100]
    • Refurbisher
      • Refurbishes used products if necessary and re-sells them. [100]
    • Second hand seller
      • Provides used products [100]
    • Remanufacturer
      • Provides products from recaptured materials and components [100]
    • Recycling facility
      • Transforms waste into raw materials. Additional revenue can be created through pioneering work in recycling technology. [100]
• Network Organization (Cross-Hill)
  • This category involves business activities that involve the management and coordination of circular value networks. This entails coordination and management of resource flows, optimizing incentives and other supporting activities in a circular network. [100]
  • This category of business models are also known as “Circular Support” business models. [100]
  • Business Models
    • Recovery provider
      • Provides take back systems and collection services to recover useful resources out of disposed products or by-products. [100]
    • Process design
      • Provides services around processes that increase the re-use potential and recyclability of industrial and other products, by-products and waste streams.[100]
    • Value management
      • Provides services around managing information, materials, transparency, payments and governance in a circular value network. [100]
    • Tracing facility
      • Services to facilitate the trading and the marketing of secondary raw materials. [100]

Material Flows Perspective

Figure 3, M. Geissdoerfer et al. (2020) - Circular business models: A review, Journal of cleaner production

M. Geissdoerfer et al. (2020) classify business models based on how the business manages materials as part of its business strategy. The following four strategies are considered to classify the business models - recycling measures (cycling), use phase extensions (extending), intensive use phase (intensifying), and the substitution of products by service and software solutions (dematerializing). [98]

The circular business model strategies based on this classification are as follows: