Planned Obsolescence and The Linear Economy
If you have ever purchased a product only to find it break soon after the warranty has ended, you know the frustrations of planned obsolescence. According to Investopedia planned obsolescence is:
“A strategy of deliberately ensuring that the current version of a given product will become out of date or useless within a known time period. This proactive move guarantees that consumers will seek replacements in the future, thus bolstering demand.”
The process of planning for obsolescence not only hurts the consumer experience with a brand - leading to lower lifetime value but is also terrible for the environment.
When products are designed to break, the potential of their raw materials is not fully realized and instead often end up in landfills. Fresh raw materials are then required to manufacture new products. It’s a vicious cycle, with the environment taking the dual impact of raw materials extraction as well as an increase in waste.
With so many downsides, why do good companies focus efforts on making their products worse?
The Linear Economic Model
This is known as the linear economy, where raw materials are extracted and made into products that are then purchased, consumed and, ultimately, discarded. This process is often referred to as “take-make-waste”.
In a linear economy, value is created by producing and selling as many products as possible. This model grew out of the Industrial Revolution of the late eighteen hundreds. While companies have found ways to make each step the process more efficient, little has changed to update the incentive structure put in place by take-make-waste.
It is this incentive structure that drives brands to do the illogical and design products to be worse, not better - hurting consumers and the environment in the process. It would be beneficial to all if these efforts were focused on a fair value exchange where consumers, brands and the environment could co-exist together in a beneficial way.
A New Way Forward
Luckily, consumers are voting with their dollars and demanding more from their products and the companies that produce them. We are currently undergoing a flight to quality in consumer goods that benefits companies that produce high-quality, long-lasting products — creating loyalty and ultimately driving an increase in lifetime value.
Additionally, sustainability is becoming a topic of increasing importance, with consumers again opting to purchase products from companies that produce products in a sustainable way and work to increase recycling.
This begs the question, if brands need to invest more in sustainable production while creating products that last longer, how can these brands stay in business? A new system is needed where value is exchanged between brands and consumers throughout a product's life and, finally, repaired, upcycled or recycled.
Circular business strategies are increasingly becoming a competitive advantage for those looking to strengthen their position in the market over others offering traditional one-time sales.
Earlier we broke down the linear economic model and how it creates incentive structures that cause companies to plan obsolescence into their products. This not only creates a frustrating consumer experience, but also wastes long-term potential of raw materials — leading to significant and unnecessary ecological and economic waste.
When considering product development within the linear economic model, only incremental gains can be realized to reduce the impact of always needing to sell higher and higher quantities of products — again driven by the fact that brands can only realize value once: when a product is sold. Instead of thinking about products through a linear sequence of steps, companies should consider the full lifecycle of a product and its material components.
Enter the circular economy — also known simply as circularity. In a circular economy, products are kept in use for as long as possible, with their material components reused to create new products at their end of life to realize maximum potential.
With circularity, brands no longer need to constantly push new products and can instead focus on providing the maximum value possible through existing products and resources. In return for providing long-term value, brands can provide a better customer experience and charge for it accordingly. And because the full potential of material inputs is realized, waste is minimized while revenue is maximized. Circularity is the answer to bringing customer satisfaction, business success and environmental sustainability into a symbiotic state.
Circular business strategies are increasingly becoming a competitive advantage for those looking to strengthen their position in the market over others offering traditional transactional product sales. The circular model better fits the way consumers prefer to purchase products and services: with smaller payments at the time value is provided over large up-front investments.
Value can be created a number of ways within the circular economy. Let’s take a look at a few.
Product Service Systems
By now we are all familiar with the service economy. Services like Uber, Airbnb, and TaskRabbit provide users with what they want without the need to invest in purchasing a physical product. Applying this model to a physical good gives you a Product Service System, or PSS, where services are layered on top of product ownership adding a layer of value to the value chain.
Product Service Systems can be broken down into three main categories:
Product Oriented
Products are sold to consumers with additional services offered to increase the value of the overall offering.
Use Oriented
Products are not sold directly; instead, the function of the product is provided through leasing or renting the product. With this business model, ownership of the products remain with the company providing them.
Results Oriented
In this business model, products only play a role in helping provide a service to the user. For example, a car is used to transport consumers using ride sharing apps, but the car is never owned by the customer.
These business models form the foundation for companies to not only replace revenue from traditional, one-time product sales, but actually increase revenue and customer satisfaction by driving repeat usage of the services offered.
With circularity becoming an obvious evolution of current linear business model, brands need a way to execute on the above business model shifts. In our next piece we will discuss the tactics to transform any business into a circular one.
https://tinyurl.com/4uscwfun