Received: Sep 09, 2022, Manuscript No. BSSJAR-22-76824; Editor assigned: Sep 12, 2022, Pre QC No. BSSJAR-22-76824(PQ); Reviewed: Sep 26, 2022, QC No. BSSJAR-22-76824; Revised: Oct 03, 2022, Manuscript No. BSSJAR-22-76824(R); Published: Oct 10, 2022, DOI: 10.36962/GBSSJAR/59.S1.002
Business model constructs are gaining popularity as a means of promoting CE as a catalyst for accelerating the transition to sustainability. Several countries, including the Netherlands, Japan, and Germany, as well as the European Commission and economic think tanks such as the Ellen MacArthur Foundation, integrate CE principles into business strategy in order to reduce resource throughput and increase cycling of products and resource materials within the economic system, reducing waste, emissions, and virgin resource use. Business models articulate what value an organization provides to meet the needs of customers, the infrastructure for value creation, and how the organization captures value.
With organizations under pressure to change their business models to align with the SDGs, the CE business model (CBM) has emerged as one archetype of a sustainable business model. According to CE proponents, in a Schumpeterian process of creative destruction, CE business models assist firms in redesigning and reorganizing value propositions, value creation infrastructures, and value capture practices by incorporating CE principles into strategic decisions.
The conceptual logic is to create economic value while also preserving the environment and society by reusing materials and products. The CE business model is viewed as a new type of narrative in the evolution of business models toward sustainability. Beyond monetary considerations, the goal of CBMs is to preserve ecosystems and their life support systems by contributing to the positive development of society and the environment.
Adoption of the circular economy necessitates that businesses abandon their traditional linear flow of "take-make-dispose" in favor of a new one of "take-make-recycle-reuse." Firms must manage reverse logistics activities such as product inspection, remanufacture, and recycling in addition to forward supply chain activities such as purchasing raw materials, manufacturing, marketing, and distribution. Advanced technical knowledge is required for the effective implementation of such practices. A systematic strategic approach is required to comprehend the value creation process throughout the value chain, as well as the complex interdependence of suppliers, retailers, and customers in the new value creation process. The life cycle assessment is critical for evaluating the performance of the circular business model.
In the CE framework, the value proposition of the business model represents a different approach in which companies are understood as service providers and customers are no longer owners, but users. As the CE transforms into a functional economy, the value of products is determined not by price but by the number of functional units in the life cycle in this business model of a product-service system. Customers in this model are expected to pay for the use of the product rather than its possession.
Business innovations are focused on designing new products with a longer life cycle that use fewer resources and energy during the use phase and are repairable and recoverable at the end of life. The customer value proposition requires new consumer relationships and a greater number of interactions to persuade customers to shift their consumption habits and consumption philosophy toward renting and sharing rather than owning. The creation of a brand-based and loyal customer is emphasized in business strategy, which ensures the degree of customer retention and maintenance over time by fostering a new way of the customer value proposition.
The quality and functional use of the product determine the flow of revenue in this pay per use model. The purchase of virgin materials and the use of energy are significantly reduced in the CE's closed supply chain model. This has a direct positive impact on the product's price because production costs are reduced significantly. The inclusion of recycling and recovery in the design of this model reduces waste disposal costs.
The implementation of CE principles in the business model can be measured along two broad dimensions: the value network and the customer value proposition. The value network describes how organizations interact with suppliers and reorganize internal activities in order to incorporate CE into business practices. The value network dimension reflects the level of circularity incorporated into operational practices and designs such as design for remanufacturing and reuse, design for recycling, design for disassembly, and design for the environment. The greater the adoption of circular practices during this design phase and the larger the value network involving a greater number of suppliers.
The customer value proposition explains how the application of circular principles in the business model was revealed while providing value to customers. It also shows how the adoption of this new business model has improved the company's competitive position. The price and promotion policy is critical for measuring the dimension. Price denotes how the firm offers value to customers, whereas promotion denotes how the firm promotes circularity content in its marketing strategy. This necessitates increasing consumer knowledge and awareness of the product's ethical, environmental, and economic value, as well as providing incentives to adopt new products through commercial initiatives, direct customer involvement in circularity initiatives, and extensive communication through advertising and sales personnel.