A conjoint analysis of circular economy value propositions for consumers: Using “washing machines in Stockholm” as a case study

doi:10.1016/j.jclepro.2017.10.147

Journal of Cleaner Production

Volume 172, 20 January 2018, Pages 264-273

https://doi.org/10.1016/j.jclepro.2017.10.147 Get rights and content

Highlights

•
Empirical study of circular business approaches using washing machines in Stockholm.
•
Evaluates customer preferences for circular economy value propositions.
•
Includes price and payment schemes, environmental friendliness and service levels.
•
Quantifies utility and choice probability of various washing machine offers.
•
Identifies general interest in service-oriented offers with environmental benefits.

Abstract

Background

In industrial practice a transition from a linear (take-make-dispose) to a circular product system (considering reuse/remanufacturing/recycling) requires the change of business models through new value propositions. In doing so the focus of the value proposition shifts from selling a physical product to providing access to functionality through business innovation. One key factor related to circular business transitions is market acceptance. It is particularly challenging to understand what complexity a new concept like circular economy (CE) brings to established businesses where the success and the failure of the business is dependent on customer's acceptance of new value propositions.

Purpose

This paper empirically explores the opportunities of a circular business approach for washing machines in the city of Stockholm by quantifying and assessing customer preferences for CE value propositions for a business to customer (B2C) scenario.

Method

This study uses the method of choice-based conjoint analysis to investigate preferences based on the attributes price and payment scheme, environmental friendliness as well as service level.

Originality

This paper is the first of its kind to assess customer preferences from the CE market acceptance point of view using a conjoint approach and provides insight to what extent new CE value propositions may be adopted.

Findings

Results indicate that there is general interest in paying for access rather than for ownership. Service levels have the strongest impact on customer utility of a washing machine offer. If associated with reduction in CO₂ emissions the number of remanufacturing cycles can increase purchase probability. As a method choice-based conjoint analysis is highlighted as beneficial to break down CE value propositions and to identify to what extent particular service-related attributes and product-related attributes contribute to overall customer utility.

Introduction

The recent Circular Economy (CE) movement defined as “an industrial economy that is restorative or regenerative by intention and design” (Ellen Macarthur Foundation, 2013) has gained a lot of attention in industry. To the largest extent CE research has been carried out from the perspectives of waste generation, resource use and environmental impact while leaving business and economic perspectives aside (Lieder and Rashid, 2015, Geng et al., 2012).

When it comes to industrial practice of single manufacturers a transition from a linear (take-make-dispose) to a circular product system (considering reuse/remanufacturing/recycling) requires the change of business models through new value propositions. In doing so the focus of the value proposition shifts from selling a physical product to providing services through business innovation. This usually involves creating new markets or renewal of a market and leads to the question of customer adoption or rejection (Martin et al., 2016). As a consequence, CE business transitions bring manufacturing companies to an uncertain situation since the effects of business model changes are unknown. This scenario also poses the risk of inhibiting CE implementation as advantages for industry are not explicit.

In the given context, one key factor related to circular business transitions is market acceptance. It is particularly challenging to understand what complexity a new concept like CE may bring to established businesses, where the success and the failure of the business is dependent on customer's acceptance of new value propositions. In an industrially driven CE customers are perceived as integral part of the manufacturing enterprise (Rashid et al., 2013). As a result, customer preferences for different value propositions in different markets become a crucial aspect for successful CE implementation.

For a business to be successful it requires clear insight on how customers will decide and react to various competing alternatives on the market. Customers typically make trade-offs among several attributes of a product or service. In this view conjoint analysis is one of the most celebrated and used tools in marketing and consumer research since the 1970s (Green and Rao, 1971). It refers to estimating the structure of customer preferences and uses statistical design as well as parameter estimation models. Based on the discussion above, there is a lack of information in practice when it comes to adoption of circular business approaches since CE research is still in its infancy. A conjoint analysis that investigates value propositions of a circular business approach would enable manufacturers and researchers to gain objective insights on customer perception. This would support manufacturers in estimating market potentials in a quantified manner. Furthermore, the reaction of customers in terms of choice processes and trade-offs can be analyzed when exposing them to CE value propositions.

The objective of this research is to empirically explore the perception of circular business approaches using the method of conjoint analysis. Customer preferences for value propositions in circular businesses are quantified and assessed with focus on the attributes price and payment scheme, environmental friendliness and service level. Outcomes of this study will provide an indicative result for industry in terms of customer reactions when changing their business model from conventional sales to service-oriented offers in the CE context. Washing machines in the Stockholm city area have been chosen as study objects. The elements upon which this study has been based on are: 1) identification of relevant CE value propositions and attribute levels for the business to customer (B2C) market, 2) assessment of relative importance of different attribute levels, 3) evaluation of customer preferences for CE value propositions.

In the following section 2 the applied research methodology is presented. Section 3 discusses in more detail background and theoretical model at basis of this work. In section 4 the design of the conjoint study is described as well as how the study has been implemented and the data collected. Results are discussed in section 5 and conclusions are presented in section 6.

Section snippets

Research methodology

In the first step background information is provided on the purpose of conjoint studies in general, which is followed by a brief state of the art review and fundamental underlying theory. When it comes to the experimental design of the conjoint study the number of attributes and their levels are identified to represent real decision-making scenarios. Only a limited number of attributes and levels should be included in the conjoint analysis in order to keep the number of possible profiles to a

Why conjoint analysis?

When it comes to preference measurement there are three main elements to consider, i.e. a problem that a study addresses, a design for the preference measurement experiment including data collection approach and finally an estimation of a preference model (Netzer et al., 2008). In this context, conjoint analysis has become the method of choice for quantitative preference measurement that integrates all three elements in one analysis approach.

As main purpose, conjoint analyses are particularly

Attributes and levels for washing machines in a circular business scenario

In order to ensure alignment with corporate thinking and to motivate manufacturing companies to consider new (circular) business models, customer preferences are investigated for different B2C scenarios. These scenarios include purchasing, renting monthly and pay-per-use. The consideration of service-based offers enables manufacturers to create new sources of value since customer needs can be fulfilled in a customized manner allowing for sustainable customer relationships (Tukker, 2004). In

Results

The results of the CBCA are presented in Table 3. An estimation model has been created and the model fit has been tested with the -2log likelihood to identify how well the data obtained actually fits the model. Results indicate that the model fit is statistically significant at the level of 1% (Chi-square: 234,995; df: 3; sig: 0,000).

All three estimated coefficients for price and payment scheme, environmental friendliness and service level seem to have positive effects on the choice of washing

Conclusions

This paper provides researchers and practitioners with an empirical study on customer preferences to investigate the feasibility of circular business approaches for washing machines in the Stockholm city area. The study demonstrates how preferences for circular economy value propositions based on price and payment scheme, environmental friendliness and service level can be effectively investigated using a choice-based conjoint approach.

The results indicate that there is general interest in

Acknowledgement

This work has been conducted as part of the SerBIT project (E!10521) of the Eurostars-2 Programme, co-funded by EUREKA member countries and the European Union Horizon 2020 Framework Programme and as part of the ResCoM project that has received funding from the European Union's Seventh Programs for research, technological development and demonstration under Grant agreement No. 603843.

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A conjoint analysis of circular economy value propositions for consumers: Using “washing machines in Stockholm” as a case study

Highlights

Abstract

Background

Purpose

Method

Originality

Findings

Introduction

Section snippets

Research methodology

Why conjoint analysis?

Attributes and levels for washing machines in a circular business scenario

Results

Conclusions

Acknowledgement

J. Clean. Prod.

J. Clean. Prod.

J. Clean. Prod.

Transp. Res. Part D Transp. Environ.

Telecommun. Policy

Eur. Manag. J.

J. Bus. Res.

J. Clean. Prod.

J. Clean. Prod.

J. Clean. Prod.

Vaccine

CIRP Ann. - Manuf. Technol.

Energy Policy

Landsc. Urban Plan.

Product design and business model strategies for a circular economy

J. Ind. Prod. Eng.

Commercial use of conjoint analysis - a Survey

J. Mark.

Number of population for entire Stockholm city area as of December 31st 2015 (Folkmängd, Hela staden per 31 dec 2015)

Regression models and life-tables. Journal of the royal statistical society

Ser. B Methodol.

Unlocking value for a circular economy through 3D printing: a research agenda

Technol. Forecast. Soc. Change

Identification of customer preferences for new service development in the electricity domain