Topic 2 Circular business models categories

In these generic circular business models, value creation is designed around the use of materials that are renewable, recyclable or biodegradable. Clean loops business models focus on the regenerative feature of the circular economy definition and adopt the regenerating loop principle. By using renewable and recyclable inputs, the business model rationale enables materials to be returned to either the technical or biological cycle and enables 100% closed material loops. The central circular value dynamic is to retain value of the materials used while maintaining the quality of the materials for many consecutive cycles.

• The value creation mechanism is based on the integration of materials in products during the manufacturing/production stage, prior to the use phase.
• The value proposition in these business models focus on the benefits attached to a product made of renewable/recyclable materials, which may appeal to target customers, whether they are quality-conscious customers or green customers (think of a hotel bult with 100% certified wood).
• The value delivery is generally not differentiated on these business models (use of traditional distribution systems).
• The value capture is generally associated to additional product revenues (price premiums) associated to intrinsic quality of the product (i.e., organic, fully recyclable and recycled).

In these generic circular business models, value creation is designed around products manufactured for an extended life-time and additional value is created through services supporting the maintenance of the product for the same customer (repair,  upgrade), or different customers (reuse, remanufacture).

As the circulation of resources remain in the form of a product in Short loop business models, the loop between product provider and users is considered “short” as opposed to Long loop business models (see below) in which the loop is focusing on materials which inherently extends the length of the loop, including the participation of additional agents (waste processing and material manufacturers) in the cycle.

Short loops business models adopt two circular economy principles: the narrowing loop principle and the slowing loop principle. On one hand, by producing long-lasting products these business models eliminate the need to extract additional virgin resources in order to replace existing products, thus reducing the number of resources in circulation. On the other hand, by providing a full range of services aiming at extending the useful lifetime of products, they reduce the speed of circulation of materials and products. The central circular value dynamic is to retain value in the existing products for as long as possible during the use phase as well as in the post-use phase when recovering products to be remanufactured/refurbished.

• The value creation mechanism in place is based on designing long lasting products and on the other hand on using skills and competences supporting the maintenance, repair or upgrading of products for existing customers, or refurbishing/remanufacturing capabilities to recirculate products to new customers.
• The value proposition in the short loop business models focus on one hand on offering customers long lasting quality products, and on the other hand on a set of solutions supporting the sustainable functioning of these products by offering services such as repair, maintenance, upgradability.
• The value delivery presupposes on one hand the introduction of take-back systems in order to link existing customers to repair centers back and forth, as well as dedicated distribution centers delivering reused/remanufactured/refurbished products.
• The value capture is generally associated to payments related to the service offered (repair/upgrade), or to the costs savings associated to resource savings when refurbishing/remanufacturing new products using recovered products/components.

In these generic circular business models, value creation is designed around offering access to a solution through leasing/hiring/renting products without necessarily a change of ownership (Product-Service systems), or through a platform allowing multiple users to maximize the rate of utilization of products (Platform business models).

Access loops business models adopt two circular economy principles, the dematerializing loop and the intensifying loop. On one hand by focusing on the functional results rather than on the product associated to the solution, these business models dematerialize value creation through a focus on servitization. On the other hand, product use is intensified through an optimization of the value delivery, allowing multiple users to access one single product, therefore maximizing the use rate of the products. The central circular value dynamic is to optimize value during the use phase.

• The value creation mechanism is based on translating an offering from product to services.
• The value proposition in these business models focus on providing  the  functions  and   benefits  of  the  product  instead  of  the  physical  product  itself. The users’ needs are met without them having to own physical products. On the other hand, these business models facilitate the sharing of overcapacity or underutilization, increasing productivity and user value.
• The value delivery is performed through long-term contractual agreement between provider and customer  or through a market-place based approach allowing the sharing of goods and services (Platform).
• The value capture is generally associated to payments for function or results or payments per unit of service. In this approach, product longevity, reusability, and sharing are perceived are perceived as drivers of revenues and reduced costs (Accenture, 2014). Other value capture mechanisms include service fee or membership fees to access the associated platforms.

In these generic circular business models, value creation is designed around a multiplication of uses of materials to create new value from coproducts in multiple value chains within and between industries. Cascading loops business models adopt the cascading loop principle. In these process-orientated solutions, waste outputs from one process are turned into feedstock for another process or product line. The central circular value dynamic is to recover value.

• The value creation mechanism is based on recovering materials and energy from internal processes either to be reused internally or to be exchanged for the benefits of another industry. Cascading loops business models are inspired by the ecological principle called “waste is food”. In order to be implemented, skills and competences are required to reprocess waste and recover value from energy and material flows. 
• The value proposition in these business models focus on providing used resources to feed in another industry process or new products made from used resources to final consumers. The value proposition is considered multiple as with one set of resources, multiple customers from different industries and sectors can benefit from the solutions developed.
• The value delivery focuses on one hand on providing used materials, components or waste to be reprocessed by a third party, and on the other hand on taking back used components or materials to feed into own processes.
• The value capture is generally associated to additional revenues generated from the sale of materials or energy to be reused in other industries processes, as well as cost reductions from reusing materials and energy. Using the resources available in cascading systems, the waste of one product becomes the input to create a new cash flow.

In these generic circular business models, value creation is designed around recovering already used-resources from discarded products in order to extend the value of resource through recycling. Long loops business models adopt the closing loop principle. Materials are recovered to be reprocessed into new components or products. Long loop business models can provide downcycling solutions or upcycling solutions. In the latter, materials are reprocessed into higher-quality and value products, while downcycling generally decreased the embodied value of the recovered material. The central circular value dynamic is to recover value in the post-use phase, focusing on the recovered materials.

• The value creation mechanism is based on adopting waste handling and processing capabilities as well as reverse supply chains logistics allowing to take back used products or materials and recycle them for another lifecycle.
• The value proposition in these business models focuses on offering new products based on recycled waste/recovered materials or developing higher-level competences to support customers in handling and processing recovered waste.
• The value delivery in long loop business models is focusing on connecting suppliers of discarded material (companies or consumers) with new customers.
• The value capture is generally associated to the generation of additional product revenues.