How would you feel if you no longer owned your own washing machine? Perhaps you already use a community laundry in the name of resource efficiency, but this would spell the end of a highly convenient domestic amenity.
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Instead, what if you still had a machine at home but you did not own it – the manufacturer has leased it to you? The amount you pay for the machine is directly proportional to the number of times you use it, and the manufacturer is required to perform maintenance when necessary and allow for upgrades when a more efficient model emerges. All transportation is arranged for you.
This concept of buying the use of the product rather than the product itself can be both appealing and alarming for consumers and manufacturers because it involves a fundamental shift in economic and customer approaches.
In a study called Moving Beyond the Circular Economy, researchers from Nottingham Trent University (NTU) examined how to roll out this leasing model. While the focus was on washing machines, they said the same prototype could be extended across the range of large household appliances (LHAs).
Leasing is a big shift, so it is likely we will see companies moving towards it in small steps, for example, moving [first] to product trade-in
Gerrard Fisher, WRAP
The potential for this so-called ‘cradle-to-cradle’ economic model is contentious given the pervasive linear model of ‘make-take-dispose’ in traditional consumerism. Leasing requires the extension of a product’s life, which could be an uphill struggle in the face of some manufacturers allegedly building obsolescence into their products to shorten lifecycles and increase profits.
There is a solid argument that a fully functioning circular economy would bring with it benefits ranging from jobs growth, environmental protection and increased resource security, as well as the aesthetic quality of an economy that insight is bordering on self-sufficient. But can the shift be driven by anything other than future scarcity of resources?
Gerrard Fisher, WRAP special adviser, said he believed that manufacturers and retailers will shift towards circular models when they understand the p wider benefits: “Leasing is a big shift, so it is likely we will see companies moving towards it in small steps, for example, moving [first] to product trade-in.”
Service-based business models or ‘servitisation’, which includes leasing, refers to any system which increases the effective use of assets. Employment and the Circular Economy, a report published by WRAP and the Green Alliance in January, said that deferring consumption to leasing and services can already be seen in business-to-business models such as Xerox leasing photocopiers or consumers using flat- and car-sharing sites such as Airbnb and Streetcar. But leasing of physical appliances is still on a very small scale.
Mariale Moreno, NTU research fellow in product life extension, said that economies need to move beyond recycling to the leasing or servicing model to gain the advantage of taking control of materials. But the complexity of the global supply chain for spare parts is seen as a major hindrance to remanufacturing and repair. She argues that there is a need for legislation to improve traceability of material.
The NTU researchers put forward two models for the LHA sector: upgrade and leasing; and community laundry.
An Ellen MacArthur Foundation paper Services, not Goods explained the leasing theory: “The washer would have a usage counter on it, like office photocopiers, and would be maintained by the manufacturer on a regular basis. If the machine ceased to provide its specific service, the manufacturer would be responsible for replacing or repairing it at no charge to the customer, because the washing machine would remain the property of the manufacturer.
“The concept could likewise be applied to computers, cars, DVD players, refrigerators and almost every other durable that people now buy, use and ultimately throw away.”
The NTU model suggests having regional distribution hubs for the supply of final goods, spare parts and for refurbishment of low energy efficiency- rated machines. However, transport was identified as a major cost factor because of the amount of product that centralised facilities might handle.
Robert Chapman, managing director of Chapman’s Electrical, a West Midlands company that offers localised rent and repair services for electronics such as TVs and washing machines, said he did not think widespread leasing was possible because of the complex chain from manufacturer to retailer to consumer.
He said that early disposal of items – aptly named ‘product euthanasia’ – was still rife. He attended a seminar in Spain, run by a major European manufacturer of white goods, where he heard that UK consumers replace fridge-freezers every 10-11 years compared with a European average of six to seven years. The manufacturer was discussing how to make UK consumers replace their fridges more often to increase sales.
If a consumer goes to a leasing model, he or she is saying that they don’t have enough money to pay for a washing machine. So changing those perceptions will be very important
Mariale Moreno, Nottingham Trent University
Effectively this is the anti-circular economy in action. But a spokeswoman for the Association of Manufacturers of Domestic Appliances (Amdea) said: “It is nonsense to suggest that manufacturers would risk damaging their brand reputation by designing-in obsolescence.”
She agreed that consumers may find it more economical to replace the cheapest products on the market rather than repair them. For instance, a consumer might be willing to spend £200 to repair a £2,000 washing machine but for a £300 model they would decide it was more cost-effective to buy a new one.
But Amdea members are concerned that consumers keep their very old domestic appliances for years beyond the point when it would be more sustainable to replace them with modern, energy- and water-efficient models.
The spokeswoman also doubted that the leasehold concept offered a more sustainable approach because it was possible that leasehold clients would expect their appliances to be replaced within a shorter timespan than was currently the case with owned items.
In any case, Chapman commented that some spare parts for white goods are not available after four years, while it can be as little as two years before some spare parts for brown goods, such as radios and computers, become unavailable. However, the use of extended warranties could be an initial step towards promoting reuse and remanufacture.
When asked about product obsolescence, Fisher said: “Manufacturers argue that they design to a price point. This price point limits the choice of components they can use in products which, in turn, define the lifetime.”
WRAP is working on the durability of lower-end and own-brand appliances with retailers because such items are more likely to suffer from low-cost component issues and lower durability, Fisher added.
Naomi Braithwaite, NTU research fellow in product lifetime, said the speed of technological advancement was a major problem and it was often the most innovative companies that failed to design-in reusability.
The gloomy outlook was confirmed during an industry seminar at NTU in June last year, where the participants – 22 consultants, academics, retailers and manufacturers – decided that there were currently ‘no incentives’ for business to shift to a service provision model. This was down to time constraints with added processing and maintenance; lack of knowledge in complex supply chains; and lack of expertise in transportation logistics.
However four factors were considered high-level drivers to encourage manufacturers to make the shift:
- prolonged commercial relationship with consumers
- building trust with consumers
- stabilised material prices
- lower risk of supply chain disruption
The NTU report said that changing consumer attitudes was also critical because implementing a leasing model could “represent additional costs without clear benefits for the consumer”. Seminar participants agreed that “price points need to be set such that switching from ownership is [considered] worthwhile”.
Moreno added: “It is about making [the circular economy] appealing because, at the end of the day, the consumer always goes for convenience, price and satisfaction of needs.”
Cultural characteristics were also found as a potentially major barrier. Moreno said: “Most current leasing schemes are targeted at lower levels of society, so now there is a misperception that if [a consumer goes] to a leasing model, he or she is saying that they don’t have enough money to pay for a washing machine. So changing those perceptions will be very important.”
If the circular economy is going to take off, giving consumers confidence in repaired and reused goods will be crucial
Marcus Gover, WRAP
This was also the case with the community laundry model. The UK was cited as a difficult place for them to flourish because of perceptions that they would not be hygienic and their use had connotations of low economic status. This is despite the model already proving successful with students and in other countries such as Sweden.
Despite the potential benefits of leasing or sharing, the NTU researchers echoed Chapman by saying that policy changes were essential to change behaviours, adding that legislation could help to increase awareness of end-of-life value by encouraging items to be kept in use for longer.
Braithwaite said that if companies made the shift at a local level, it could start a grassroots movement that would be difficult for larger manufacturers to ignore. This would also allow other firms to see that leasing “is feasible”.
Chapman said: “There is legislation in hand already. A product has to be manufactured so that it has a certain life expectancy and [the manufacturer] should keep parts in stock for a period of time after. This is UK law under the Sale of Goods Act, but it is not really enforced.”
To counter this enforcement issue, Moreno added: “An integrated product policy at UK and European level could be pushed forward to specify eco-design requirements that consider all life-cycle aspects.” She cited companies that are active in this area, such as Electrolux, Samsung and Fujitsu- Siemens, which have set in place takeback programmes to encourage reuse and remanufacture, with a business-to-business focus.
Repair and remanufacture would be a key part of a successful lease model, especially with the use of localised distribution hubs. MRW visited WEEE recycler Environcom’s Grantham facility in 2013, where washing machines were being taken apart for repair and then restored for reuse to a quality standard, including a guarantee when sold. These operations included fridges, laptops, TVs and other appliances.
WRAP director Marcos Gover wrote in MRW: “If the circular economy is going to take off, giving consumers confidence in repaired and reused goods will be crucial. The guarantee that came with the washing machine from Environcom is a key part of this.”
Findings from the Green Alliance/ WRAP Circular Economy report stressed the greater value of finished products compared with the raw materials they were composed of. For example, a used iPhone keeps roughly 48% of its original value compared with just 0.24% of its value as recyclate.
So it would seem that extending product lifetimes through reuse and alternative leasing models is a no-brainer, but the ‘iron age of consumerism’ stands firmly in the way.
While proponents of the circular economy often rely on legislative changes as the drivers for such models, shifting the consumer attitude is equally important. Manufacturers even doubt the sustainable credentials of leaseholds.
Short of being faced with serious scarcity of resources, it remains unclear how manufacturers can be turned away from the linear model of consumption, which has proven to be highly profitable for them.
Best intentions thwarted
Sweden’s Electrolux launched a scheme in which households paid for each use of a washing machine, based on smart metering applications. This allowed the company to develop more expensive, higher quality and greener technologies, which customers could afford because they were paying per unit of function and not for the product. However, this model was discontinued when the utility provider stopped the smart metering service.
The Ellen Macarthur Foundation paper Does It Actually Work? said: “The end of Electrolux’s experiment with its leasing business model shows that challenges may arise in the co-operation with business partners, which can hinder a new business model from becoming effective and profitable.
“Adopting more circular business models will therefore require skills in new forms of collaboration and alliance-building — but this, too, we see as eminently feasible and, indeed, quite lucrative given the potential rewards.”