In the pursuit of a more sustainable future, the United Nations is currently engaged in negotiations to establish circular and conscientious approaches to plastic production and consumption. The imminent UN Treaty of Plastics, set to take effect in 2024, will propel circular economy business models to the forefront. As plastic remains a fundamental material in our global value chains, industries across the board will be significantly impacted by the legislation stemming from this treaty. Now more than ever, it is imperative to explore and embrace circular business models.
But how can the circular economy not only be environmentally beneficial but also economically viable? Simply attempting to reduce the one-time usage of polymer-based products without providing viable opportunities for businesses is destined to fall short. Enter the "as-a-service" economy, a concept that has evolved into a cornerstone for companies catering to an increasingly discerning consumer base. This trend, initially established in Business-to-Consumer interactions, is now rapidly expanding into the Business-to-Business domain, with a projected 200% growth in As-a-Service models in B2B this year according to MGI.
Furthermore, the inherent advantage of recurring revenues associated with as-a-service models is gaining substantial traction among investors. A staggering 70% of CEOs are planning to introduce recurring revenue business models, as highlighted by Gartner. It is thus highly plausible that circularity and as-a-service business models will go hand in hand, with the primary method of monetization being subscriptions based on recurring fees for usage entitlements.
Critical Success Factors for Circular Business Models (product-as-a-service):
- Key Activities and Key Partners:
- Design products in a way that their usage can be monitored remotely. Also, the product design should explicitly allow for repair and recycling.
- Consider establishing a partner ecosystem that drives the product lifecycle along implementation, maintenance and exchange.
- Establish maintenance, repair and extended value services around your product.
- Value Proposition:
- Ensure that the consumer benefit outweighs owning the product, compensating for the eventual access cost of recycling versus new production.
- Customer Relationship, Segments, and Channels:
- Prioritize digital interactions, focusing on individuality and service quality to strike the right balance between personalized service and cost-effectiveness.
- Revenue Streams:
- While the recurring fee forms the foundation, explore additional revenue streams through access fees for extra consumption or the inclusion of partner products.
- Information Technology:
- Implement a highly modular enterprise resource planning solution to seamlessly support the circular, recurring revenue business model.
At SAP, we are uniquely positioned to observe and contribute to the development of business models globally across diverse industries. With our SAP S/4HANA Cloud portfolio, we support circular, sustainable, and recurring revenue-based businesses. The trailblazers of tomorrow are now forging their paths with customer-oriented, solution-as-a-service, and circular business models.
Are you considering business models that combine circularity with subscriptions? Explore a plethora of expert perspectives within SAP's partner ecosystem, providing you with a broad array of opportunities to delve into this burgeoning market.
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