Week 13 - IBM_Channel Management (SW) v final.pdf

# Recommerce and the pursuit of pre-loved goods Recommerce is the growing trend of consumers purchasing and selling pre-owned goods, transforming a niche practice into a significant business, with broad implications across various industries [4](#page=4) [5](#page=5) [7](#page=7). ## 1. Recommerce and the pursuit of pre-loved goods ### 1.1 Defining recommerce and its consumer adoption Recommerce refers to the practice of consumers buying and selling used or second-hand items. This trend has seen substantial growth, with a significant percentage of consumers purchasing pre-owned goods regularly. Notably, younger generations like Gen Z and Millennials show high engagement with the second-hand market, often surpassing older demographics in their purchasing habits of pre-owned items. The second-hand fashion market, in particular, is projected to experience significant global sales growth in the coming years [4](#page=4). ### 1.2 Competing business models in recommerce The recommerce landscape features distinct business models, primarily: * **Customer to Customer (C2C):** In this model, individual consumers sell directly to other individual consumers. Platforms like Vinted exemplify this approach [4](#page=4). * **Customer to Business (C2B):** Here, consumers sell items back to a business, which then resells them. This can involve businesses offering credit or cash for used goods [6](#page=6). ### 1.3 Widespread application of recommerce Recommerce is not confined to a single sector; its application spans numerous industries, including: * Electronics [5](#page=5). * Clothing and fashion [4](#page=4) [5](#page=5). * Watches and jewelry [5](#page=5). * Sporting goods [5](#page=5). * Music gear [5](#page=5). * And many others [5](#page=5). ### 1.4 Challenges for traditional retailers The rise of recommerce presents significant challenges for traditional retailers whose business models are typically linear rather than circular. Integrating recommerce models requires a fundamental transformation of existing business strategies [7](#page=7). #### 1.4.1 Retailer initiatives and adaptations Some fashion retailers have attempted to enter the recommerce space. For instance, Zalando operated a C2C service called "Zircle" to compete with existing platforms. However, they later shifted to a C2B model where Zalando buys products back from consumers for store credit. Currently, Zalando's pre-owned service is operated in partnership with brands [6](#page=6). #### 1.4.2 The core issue: Business model transformation The fundamental issue is that traditional business models are not inherently designed for circularity. Resale platforms can directly compete with traditional retail channels, creating tension with brand-controlled sales. Consequently, a complete transformation of business models is often necessary for traditional retailers to successfully engage with and benefit from recommerce [7](#page=7). ### 1.5 The significance of digital transformation in recommerce Digitalization plays a crucial role in the growth of recommerce by providing scale, convenience, and accessibility to a practice that has long existed. This digital transformation enables the practice to evolve from a niche weekend activity into a significant business sector [4](#page=4) [7](#page=7). ### 1.6 Consumer motivations for engaging with recommerce Consumers are driven to participate in recommerce for several reasons: * **Income generation:** Making money from unused items [7](#page=7). * **Value realization:** Leveraging the residual value of high-quality purchases [7](#page=7). * **Decluttering:** Freeing up space by selling or donating unwanted items [7](#page=7). > **Tip:** Understand that the opposition of business models (brand/business-operated vs. C2C-led) is a key tension point in the recommerce landscape. Traditional retailers must address this by considering a full business model overhaul rather than superficial integration [7](#page=7). > **Example:** Zalando's shift from a C2C platform ("Zircle") to a C2B model for their pre-owned service demonstrates the strategic adaptations retailers consider when facing competition and integrating recommerce into their operations [6](#page=6). --- # Circular economy and business model transformation The transition to a circular economy necessitates a fundamental transformation of existing business models to move away from linear "take-make-dispose" systems and towards regenerative practices that keep resources in use and design out waste [13](#page=13). ### 2.1 Defining the circular economy The circular economy is conceptualized as a regenerative system that aims to preserve value by keeping products and materials in circulation for extended periods. This is achieved through various strategies such as sharing, leasing, reusing, repairing, refurbishing, and recycling. The ultimate goal is to design out waste and pollution, thereby benefiting the economy, society, and the environment, while reducing dependence on finite resources and regenerating natural systems [13](#page=13). ### 2.2 Inefficiencies in linear value chains Linear value chains are characterized by inherent inefficiencies that contribute to waste and resource depletion. These inefficiencies stem from a "take-make-dispose" approach where resources are extracted, processed into products, used, and then discarded, creating a constant flow of waste [11](#page=11) [13](#page=13). ### 2.3 Challenges in closing the loop Closing the loop, a core tenet of the circular economy, presents several challenges for businesses. A significant obstacle is the lack of transparency and anticipation concerning the deployment of circularity initiatives [12](#page=12). ### 2.4 Business model transformation for circularity Adopting a circular economy requires a profound transformation of business models, moving beyond incremental changes to a fundamental redesign of how value is created, delivered, and retained. This transformation involves a comprehensive rethink from product design to sales and reverse logistics, differing significantly from linear approaches from the outset [10](#page=10) [63](#page=63) [65](#page=65) [9](#page=9). #### 2.4.1 Key aspects of business model transformation The transformation involves several key areas: * **Redefining channels:** Circularity redefines distribution channels, shifting from simple selling to models involving collecting, repairing, refurbishing, and reselling products. This impacts distribution networks, inventory flows, profit margins, and the roles of partners [64](#page=64). * **Circular design models:** This involves designing for the circulation of technical and biological resources in cycles. At the product level, design focuses on resource productivity and extended product life with zero waste. At the service level, design addresses customer-centric problems and human needs, while at the ecosystem level, it tackles systemic inefficiencies, supporting standardization and collaboration [29](#page=29). * **Business model framework:** Making circularity work for a business involves defining opportunity ideas, economic value propositions and creation, profit generation (value retention), environmental value propositions and creation, and ensuring long-lasting environmental benefits (environmental value retention) [30](#page=30) [31](#page=31) [41](#page=41). #### 2.4.2 Circular business model archetypes and patterns Various circular business model archetypes and patterns exist, categorized by how they optimize resource use, capitalize on regeneration and restoration, valorize waste, and monetize extended product life. These patterns can be viewed from both supply and demand sides [16](#page=16) [17](#page=17) [19](#page=19) [20](#page=20) [21](#page=21). * **Supply Side Patterns:** * Green Operations [21](#page=21). * Secondary & Decarbonised Materials [21](#page=21). * Bio-Based Materials [21](#page=21). * Regenerative Premium [21](#page=21). * Ecosystem Service Solutions [21](#page=21). * Regenerative Infrastructure [21](#page=21). * Waste-to-Value By-Product Utilisation [21](#page=21). * Secondary Material Market Platforms [21](#page=21). * **Demand Side Patterns:** * Repair, Upgrade, Modularise [21](#page=21). * Recommerce [21](#page=21). * Reuse and Reverse Logistics Ecosystem [21](#page=21). * Pay-per-Use [21](#page=21). * Pay-per-Outcome [21](#page=21). * Sharing/Pooling [21](#page=21). #### 2.4.3 Challenges in creating ecosystems for circularity Creating successful circular ecosystems involves significant challenges: * **Aligning incentives and motives:** Ensuring that all ecosystem partners have aligned interests and motivations is crucial [29](#page=29). * **Looking beyond existing relationships:** Companies need to consider and engage with partners outside their current network [29](#page=29). * **Deep customer involvement:** Customers must be involved deeply in circular initiatives for them to succeed [29](#page=29). * **Planning for extended implementation:** Circular initiatives often require longer implementation timelines than traditional linear models [29](#page=29). > **Tip:** The complexity of achieving circularity is highlighted by the case of On Running, which faced difficulties in balancing "performance" quality with sustainability, the need for scale for industrial efficiency, and the scrutiny on all actors in the value chain [63](#page=63). #### 2.4.4 Business Case and Impact Case Framework A robust framework for making circularity work for a business involves considering both the business case and the impact case. This includes identifying opportunity ideas, defining economic and environmental value propositions, outlining mechanisms for value creation, and establishing strategies for value retention [30](#page=30) [31](#page=31) [41](#page=41). * **Opportunity idea:** What are the initial business concepts for circularity? [31](#page=31) [41](#page=41). * **Economic Value Proposition:** What is offered to the customer? [31](#page=31) [41](#page=41). * **Economic Value Creation:** How is the value proposition delivered? [31](#page=31) [41](#page=41). * **Economic Value Retention:** How are profits generated? [31](#page=31) [41](#page=41). * **Environmental Value Proposition:** What environmental problem is being addressed? [31](#page=31) [41](#page=41). * **Environmental Value Creation:** How is environmental value generated? [31](#page=31) [41](#page=41). * **Environmental Value Retention:** How are the environmental benefits made long-lasting? [31](#page=31) [41](#page=41). > **Example:** On Running's subscription model promoted use over acquisition, and their collaboration model focused on product innovation and recycling. While this aimed for ecosystem change, achieving this was complex and required a comprehensive rethink of design, sales, and reverse logistics [63](#page=63). ### 2.5 Key principles of the circular economy The circular economy operates on key principles that guide its implementation through various life stages of products and resources. These principles, when viewed through a channel management lens, reveal new stages and opportunities for value creation and resource circulation [14](#page=14). ### 2.6 The necessity of business model transformation Ultimately, business model transformation is presented not just as an opportunity but as a necessity for companies to maintain their "licence to operate" in an evolving economic and environmental landscape. The complexities involved demand a shift in perspective and strategy, acknowledging that achieving true circularity requires systemic change [63](#page=63) [65](#page=65). --- # Case studies in circular business models: Decathlon, Patagonia, and McDonald's This section examines specific corporate initiatives that embody circular business models through product lifecycle extension and waste valorization. ### 3.1 Decathlon's second-life program Decathlon has implemented a "Second-Life Program," also referred to as "Reverse Shopping," to extend the life of its products. This program involves dedicating specific staff, floor space, and IT support within stores for the grading and pricing of returned items. The initiative aims to create a consumer journey for second-hand goods within a physical retail environment. Decathlon's Non-Financial Reporting Declaration for 2024 acknowledges this program [22](#page=22) [23](#page=23) [24](#page=24). ### 3.2 Patagonia's Worn Wear program Patagonia has been an early adopter of resale strategies, launching its Worn Wear program in 2013 as pop-up events, which later became a permanent fixture in 2017. This program is powered by the resale technology provider Trove. The Worn Wear program accepts used Patagonia clothing and gear in good condition. Customers who participate receive a credit of up to 100 dollars per item, regardless of whether the item is subsequently sold. This credit can be used at Patagonia retail stores, WornWear.com, and Patagonia.com [25](#page=25). #### 3.2.1 Trove: The critical channel partner Trove serves as a crucial channel partner for Patagonia's Worn Wear initiative. Trove offers a comprehensive 360-degree approach to resale operations. A key integration achieved by Trove and Patagonia is the seamless presentation of both pre-owned and new products together, enhancing the customer experience [26](#page=26) [27](#page=27) [28](#page=28). ### 3.3 McDonald's waste valorization for jet fuel McDonald's is engaged in the valorization of its waste products, specifically used cooking oil, which is transformed into jet fuel. This initiative contributes to a circular economy by repurposing waste materials into a valuable energy source. Further information on this process can be found through links provided by McDonald's corporate website and Neste, a company involved in renewable fuels [18](#page=18). --- # On Running's Cyclon subscription model: A circularity case study On Running's Cyclon initiative represents an ambitious, subscription-based approach to circularity in performance running shoes, aiming to achieve both environmental sustainability and commercial viability. ### 4.1 Overview of the Cyclon initiative The Cyclon initiative is an "opportunity idea" by On Running focused on creating a fully recyclable, subscription-based running shoe designed to eliminate waste. The strategic intent behind Cyclon is to establish sustainability leadership, generate recurring revenue, and prepare for future regulations. The core question for Cyclon is whether it can be both circular and commercially viable [43](#page=43). ### 4.2 Business Model Framework Analysis #### 4.2.1 Environmental value proposition (impact case) The environmental value proposition of Cyclon addresses the significant problem of running shoes having a high volume and short lifecycle, with over 85% ending up in landfills. Traditional multi-material shoes are difficult to recycle, leading Cyclon to propose a mono-material design using PA11, which is theoretically fully recyclable. The promise of Cyclon is "zero waste performance running" and a "circular material loop," with a claimed lower carbon dioxide footprint [44](#page=44). A critical tension exists because the environmental impact relies heavily on user compliance for shoe returns. To create impact, On Running must ensure shoes are returned, materials enter a controlled recycling flow, and recycled PA11 is reused in new shoes, thereby displacing virgin materials in the long term. Environmental value retention requires stable subscription cycles, predictable return flows, scaling of recycling to reduce carbon dioxide per unit, maintaining durable mono-material design over years, and integrating recycled PA11 into new production [44](#page=44) [45](#page=45) [46](#page=46). #### 4.2.2 Economic value proposition (customer offering) On Running offers customers a high-performance running shoe, the Cloudneo, for a monthly subscription of 29.95 USD/CHF. This includes automatic replacement every approximately six months, with a simple process of sending back used shoes to receive new ones. The sustainability story is presented as straightforward: wear it, and On will recycle it [47](#page=47). The value to the consumer includes convenience, access to always-fresh shoes, and a feel-good sustainability factor. However, a conflict arises as runners do not typically buy shoes like razor blades, and subscription models do not align with common running consumer behavior. Additionally, performance trade-offs may occur due to the mono-material design [47](#page=47). #### 4.2.3 Economic value creation and retention On Running aims to deliver its value proposition through a system requiring reverse logistics, return shipping, take-back infrastructure, industrial-scale PA11 recycling, predictable customer replacement cycles, clean and sorted returns, and a subscription platform for payments, customer relationship management (CRM), and fulfillment [48](#page=48). A reality check reveals that reverse logistics are extremely costly, low return reliability can lead to contamination and loss of recyclability, customers wear shoes unevenly, and recycling at a small scale is not cost-efficient. The direct-to-consumer (DTC) model excludes retailers and can create channel tension [48](#page=48). Sustainable profits are generated through the business model logic of subscription revenue leading to predictable cash flow, potentially lower customer acquisition costs (CAC), and higher recurring lifetime value. The subscription model facilitates the "closed-loop" concept for recycling, guarantees service quality and performance during a transition to a service model, and ensures direct customer contact with the brand, aiding in channel conflict management. Subscribers can replace their Cloudneo as frequently as every 90 days, though an average replacement cycle of six months is anticipated [49](#page=49). ### 4.3 Consumer target group relevance The annual subscription cost for Cyclon amounts to approximately 420 CHF (12 months x 35 CHF), equivalent to two pairs of running shoes per year for someone running around 1,500 kilometers annually on a single model. While highly relevant for a specific segment of On's consumer base, it is not suitable for the entire customer base. On's core consumer is performance-driven, innovation-seeking, and urban premium, aligning well with Cyclon's innovation and sustainability narrative. However, subscription models primarily appeal to high-frequency runners who rapidly wear out shoes. Casual lifestyle buyers, On's fastest-growing audience, may not perceive value in a monthly subscription. Cyclon risks being too complex for mainstream users, who might question the necessity of returning shoes. Consequently, Cyclon serves as a strong halo innovation but has lower relevance as a mass-market proposition, fitting a narrow but strategically important portion of On's base, described as "affluent, green-conscious high-end performance runner[s]". This is framed as potentially "the most expensive pair of shoes you'll ever run with" [51](#page=51). ### 4.4 Extending circularity to apparel Extending the Cyclon model to apparel is technically possible but economically challenging. Apparel replacement cycles are typically slower, making subscription economics less attractive, and the reverse logistics cost per item becomes disproportionate. However, opportunities exist in capsule circular apparel lines using mono-material fibers, repair programs, take-back systems for store credit, and recycling partnerships. Circular apparel is feasible, but not via the same subscription model; On would need adapted circular mechanisms. A tee-shirt was launched, but not as a subscription model [52](#page=52) [53](#page=53). ### 4.5 Scaling the initiative and potential hurdles #### 4.5.1 Scaling across the core assortment vs. niche initiative The relevance of Cyclon as a mass proposition is lower than as a halo innovation. Scaling Cyclon across the core assortment would require overcoming significant hurdles related to cost, consumer behavior, and operational complexity [51](#page=51) [54](#page=54). #### 4.5.2 Potential hurdles to grow the initiative The main barriers to scaling Cyclon are: * **Operational hurdles:** These include the cost of collecting, shipping back, and processing used shoes; the still small-scale recycling infrastructure; and uncertainty in inventory planning for subscription cycles [54](#page=54). * **Consumer barriers:** These encompass subscription fatigue post-2023, a lack of understanding regarding recycling benefits, and the behavioral change required to return shoes [54](#page=54). * **Economic hurdles:** High costs of bio-based materials, recycling not fully offsetting virgin material costs, and difficulty competing with cheaper running models for high-mileage runners are significant economic challenges [54](#page=54). * **Channel conflict:** The subscription model is DTC-only, while On is increasingly reliant on wholesale partnerships (e.g., Foot Locker, JD Sports), making it difficult to integrate Cyclon into the global retail network [54](#page=54). Scaling requires major cost reductions, stronger incentives, and integration with the retail channel [54](#page=54). #### 4.5.3 Omni-channel expansion and retailer integration Opening the Cyclon program to physical retailers involves challenges such as retailer margin sharing, function and risk sharing (defining responsibilities), managing physical logistics for dispatch and collection, guaranteeing customer experience, and data collection and CRM [55](#page=55). #### 4.5.4 Potential issues with a subscription mode Various potential issues can arise with a subscription model for running shoes: * Injuries [56](#page=56). * Theft of shoes [56](#page=56). * Relocation to a different country [56](#page=56). * Gifting the shoes (e.g., for Christmas or birthdays) [56](#page=56). * Changes in credit card details [56](#page=56). * The customer liking the shoe and wanting to keep it [56](#page=56). ### 4.6 Alternative circular solutions More scalable alternatives for On Running to address the "opportunity idea" include: * A take-back system coupled with a credit system [57](#page=57). * A refurbishment program, such as "On Renewed" [57](#page=57). * Modular shoes with replaceable components [57](#page=57). * Material innovation focused on recyclability at scale [57](#page=57). * An apparel repair network [57](#page=57). * Partnerships with recycling specialists [57](#page=57). On can pursue a portfolio of circular strategies, with Cyclon as the "moonshot" initiative, supported by scalable, lower-barrier circular initiatives across both footwear and apparel [57](#page=57). ### 4.7 Product design for circularity and post-launch developments #### 4.7.1 Redesigning the shoe for bio-based mono-material The Cloudneo was redesigned to use a bio-based mono-material, promising near-complete recyclability. The final shoe design utilizes only two materials instead of over 20 components, simplifying recycling. The shoe is available in only one color, undyed, further aiding recyclability. The Cloudneo is engineered from two types of high-performance polyamides: the upper from PA11, a bio-based polyamide derived from castor beans, and the bottom unit from Pebax, an equally high-performance polyamide compound. The shoe is marketed as majority bio-based, 100% recyclable, and exceptionally high-performance. A few months after launch, On Running announced an updated 90% rate of recyclability [59](#page=59). #### 4.7.2 Post-launch reviews and investigations Reviews since the program's launch have raised critical questions about the financial model, with one reviewer stating, "The shoe is sustainable; the financial model is not" and suggesting customers end up "paying an eco tax". An investigation by RTS (Temps Présent) questioned the "false promise and greenwashing," investigating the production chain. The investigation highlighted issues such as Vietnamese workers being paid below subsistence wage, a high-risk factory in Marseille, and recycling lagging behind expectations, with recycling not having started after two years [60](#page=60) [61](#page=61). #### 4.7.3 Future product developments As of September 2025, the launch of the Cloudrise Cyclon 1.1 is planned, featuring a Speedboard® created from recycled Cloudneo shoes and leftover manufacturing materials [62](#page=62). --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Recommerce | The practice of selling pre-owned goods, often facilitated through digital platforms, which represents a significant shift from traditional retail models by embracing the secondary market. | | Circular Business Models | Business frameworks designed to operate regeneratively by keeping resources in use for as long as possible, extracting maximum value from them while in use, then recovering and regenerating products and materials at the end of each service life. | | Take-back System | A logistical process where consumers return used products to the manufacturer or a designated collection point, enabling the recovery of materials for reuse, repair, or recycling. | | Linear Value Chain | A traditional economic model that follows a "take-make-dispose" pattern, characterized by the extraction of raw materials, manufacturing of products, their use, and eventual disposal as waste, without significant recycling or reuse. | | Waste Valorization | The process of converting waste materials into valuable products or energy, thereby reducing landfill and creating economic opportunities from discarded resources. | | Servitization | A business model where a company sells the use or outcome of a product rather than the product itself, often involving services like maintenance, repair, and upgrades, fostering product longevity and resource efficiency. | | Mono-material Design | The intentional design of a product using only a single type of material, which significantly simplifies the recycling process and increases the potential for material recovery and reuse. | | Reverse Logistics | The process of moving goods from their typical final destination for the customer back up the supply chain for the purpose of capturing value, or proper disposal, such as returns, repairs, or recycling. | | Subscription Model | A business strategy where customers pay a recurring fee for continuous access to a product or service, often providing predictable revenue streams and fostering closer customer relationships. | | Eco-tax | An additional cost imposed on products or services to reflect their negative environmental impact, intended to incentivize more sustainable consumer choices and production methods. | | Green Washing | The practice of making an unsubstantiated or misleading claim about the environmental benefits of a product, company, or service, often to deceive consumers into believing that a company is more environmentally friendly than it actually is. | | Product Lifecycle | The entire journey of a product from its conception and design through manufacturing, distribution, use, and eventual disposal or recycling. | | Bioplastic | Plastic made from renewable biological sources, such as corn starch or sugarcane, offering a more sustainable alternative to petroleum-based plastics. | | PA11 | Polyamide 11, a bio-based high-performance thermoplastic derived from castor beans, known for its durability, flexibility, and resistance to chemicals, often used in demanding applications. | | Pebax | A thermoplastic elastomer known for its lightweight properties, high energy return, and flexibility, commonly used in performance footwear and sporting goods. | | D2C (Direct-to-Consumer) | A business strategy where a company sells its products directly to end consumers, bypassing traditional intermediaries like retailers or wholesalers. | | Wholesale Model | A business model where a company sells its products in bulk to other businesses (retailers or distributors) who then sell them to the end consumer. | | Circular Design | The design of products and services with the intention of minimizing environmental impact by considering the entire lifecycle, including end-of-life scenarios like reuse, repair, and recycling. |