Demystifying the Case for Circularity #3 - “Circularity will cannibalise our current customer base”

Organisations are often held back from entertaining circularity as a business model option due to a belief that they will cannibalise their current business.

However, what if this assumption was wrong? What if it was actually holding your business back from creating new revenue streams, attracting new customers and moving into new markets?

Ricoh, a global printing solutions company adopted circularity by chance. They found that they were receiving many machines back at the end of their leases, most in excellent working order, creating a stockpile in their warehouses. Simultaneously, they were finding that UK and EU markets were maturing, limiting sales growth. Additionally market dynamics were shifting profit from machines ➡️ consumables i.e toner.

Something needed to change, and Ricoh felt that a 🔄circular business model could be the answer.

However, there were key strategic challenges in moving to a circular re-manufacture model;

🔹 How to position themselves in the market.

🔹 Concerns over brand reputation, specifically quality.

🔹 Resistance from sales teams over cannibalisation concerns.

How did they respond?

They took on the concept of circularity and overhauled their main tech engine to a modular design focused on re-manufacture and product longevity, this approach was aligned to BS8887-220 industry standard for re-manufactured products giving clairty and confidence to customers.

Additionally, they involved the sales team and empowered them to identify new channels where they had little or no presence, to align across markets on commercial strategy and re-vamped sales incentives - targets based on revenue for new and margin for re-manufactured products.

For Ricoh, this has resulted in;

🔹 Reduced manufacturing costs and enhanced product performance.

🔹 Increased revenue from pitching re-manufactured products in emerging markets where they had limited presence.

🔹 Gaining new customers by deploying a balanced approach, a mixed fleet of new and remanufactured devices at a lower overall price than is possible via new machines alone.

🔹 Enhanced functionality and data collection to improve efficiency and design.

🔹 Increased scale reduced reverse network costs, maximizing profits

🔹 Happy customers, who have been able to reduce printing costs.

The Ricoh story illustrates the growing potential of the circular model. By moving to modular design, Ricoh were able to prolong materials and products at their highest value for as long as possible. Allowing them to reach new markets, counter market uncertainty, reduce production costs, improve efficiency. Additionally their first mover advantage and organisaton capabilities allows them to take advantage of external systems enablers such as new regulations and standards vs playing catch-up.

As this case shows, established and profitable businesses are not immune to changing macro environment influences, competitive pressures, and technical innovation cycles, and shows the ability to extract higher value from reusing products, components, and materials at the end of their first-use phase, by thinking differently and approaching their business model in a novel fashion.

Ricoh has been clear on the tensions they faced internally, however they made a strategic decision to face into and resolve these tensions and challenges. They did this by breaking down department silos and including teams across the organisation to voice concerns and work together to solve them, empowering individual teams, such as a the sales team to come up with ideas on how to increase sales

Ricoh have proven that far from circular models cannibalising established customer bases they can actually re-invigorate a business and solve commercial pressures, attracting new customers and creating new revenue streams in the process.

Is it about time your business understood more about how adopting circular business practices can help drive growth for you?

The de-mystifying the case for circularity series aims to help readers understand the biggest perceived hurdles for circular business model adoption. Others in the series;

🟢 Demystifying the ‘Case for Circularity’ #1 - “Circular businesses can’t scale!”

🟢 Demystifying the ‘Case for Circularity’ #2 - “Customers aren’t that interested in sustainability ”

Ricoh case study information gathered from the following journal articles;

📰 How companies navigate circular economy paradoxes: An organizational

📰 Managing a Complex Global Circular Economy Business Model: Opportunities and Challenges