Rethinking Ownership: Making the Shift from Consumer to User
“For a sustainable world, the transition from a linear to a circular economy is essential” – Frans van Houten, Philips CEO
The way the majority of the world’s economy works is ‘linear’. We take materials out of the earth, make them into marketable goods which we consume, and dispose of the goods when we’re done with them. It’s a system that really accelerated since the onset of the Industrial Revolution, when there was an abundance of cheap and easily accessible natural resources. Mass production made a lot of sense at the time and has since arguably raised our standards of living exponentially.
Fast forward 250 years and the earth’s resources are being depleted a lot faster than they can be replenished. We’re using 30% more resources than the earth can restore each year and a recent report from McKinsey predicts that 3 billion new consumers will enter the market from emerging economies in the next 30 years. We are coming to the end of an era of cheap oil and materials, and simply using less is no longer enough.
The idea of a performance-based circular economy is being touted as a way to rediscover progress in the 21st century whilst restoring our ecosystem. In this type of economy, a company’s growth no longer depends on the very use of these natural resources. Instead, it is achieved through the use of disruptive technology and business models that are based on more efficient use of resources through longevity, renewability, capacity sharing, and dematerialisation. The circular economy represents huge opportunities for companies to innovate their business models, products and services from the bottom up to create more value.
Part of the solution may lie in us moving away from owning stuff. What if we didn’t buy the goods themselves but rather the service? What if we chose access and performance over ownership? The thought of moving away from owning things might seem a bit weird and discomforting. Then again, so was the idea of renting out a spare room to a stranger 10 years ago. Today, this then radical idea has been normalised through Airbnb, a now 25 billion dollar company.
In this new paradigm, manufacturers and retailers would remain the owners of the product, with maintenance and repair becoming part of the deal. For instance, instead of buying lights for your apartment you would buy lighting as a service. With the manufacturers being fully responsible for the upkeep of the products, their incentives are now more aligned with where they should be, creating and maintaining products for optimal performance. Premature obsolescence of products will be phased out, as opposed to purposefully designed in (which is insane when you think about it).
It sounds utopian, but many companies are already putting this into practice. Here are 3 examples I came across of very different products which we use in our everyday lives:
(i) Renault became the first car company to have applied this thinking with their range of electric cars. In this business model, customers have to lease the batteries from the company. Why? In this way Renault can recapture a lot of value from reusing the precious materials of the old units. This is an innovative way for Renault to ensure full traceability of their batteries and an extremely high collection rate.
(ii) Tech giants Philips supply all the lighting for Schiphol Airport in Amsterdam as a service. In this agreement (the first of its kind), the airport pays for the lights used whilst Philips retain the ownership of the state-of-the-art lighting equipment installed. In this kind of business partnership value is created all around. Schiphol is able to install the best technology LED lighting without incurring high initial costs, and Philips maintain responsibility for the performance and durability of the system and ultimately its re-use and recycling at end-of-life, retaining all the raw materials in the process.
(iii) It’s probably easy to imagine giving up ownership of the not so sexy things like lights and batteries. But would you be willing to lease a pair of jeans? Mud Jeans, began a scheme in which customers pay a monthly fee for jeans, returning them at the end of the lease period. The company then cleans the jeans and makes any necessary repairs before re-leasing them or, if the jeans are beyond repair, recycling them through its denim manufacturer. This way, Mud retains ownership of the raw material, helping to protect the company from volatile cotton prices, while customers can update their denim annually without paying the high cost for a new pair of jeans.
These business models are just a handful of examples of how we’re finding new ways to scale up businesses without straining the world’s increasingly scarce resources. We’re also gradually seeing the emergence of a different type of consumer, who is interested in different ownership and business models such as the more hip Airbnb, Uber and Spotify. These consumers are more driven by access and performance rather than owning things. Services and not goods are helping to redefine the relationship between things and people.
One major challenge with this is that we have been born and raised into a world where we often perceive that what has been used is not good enough. The need for personal ownership is deeply ingrained in most of us. Changing this kind of mindset and culture is difficult and a process that might take decades. It really depends on whether as consumers we’re seeking the benefit obtained from the good as opposed to the benefit obtained from the actual ownership of the good. Shifting to performance based models presents a world of opportunity to businesses and individuals, and it seems like the shift is already well underway. Perhaps it’s not a new idea, but an idea whose time has come.