Feb 04, 2022

Circular Economy Business Model – How On Running is Revolutionizing Footwear

Business Model Innovation
Business Model Pattern
by Maximilian Böger

According to Business Wire, over two-thirds of consumers rate sustainability as an essential criterion when making a purchasing decision. As the participant's age decreases, their concern for environmental impact increases. Using renewable resources and minimizing packaging is becoming standard practices but committing to a circular business model incorporates sustainability into the fabric of a company's core values.

In this post, we will break down the fundamental components of the circular model and show how a Swiss company is using the model to change the footwear industry.

What is a Circular Economy Business Model?

A circular economy (CE) business model is designed to keep materials in use for as long as possible. Companies that utilize this model achieve a circular economy in various ways; for example, some create repairable products, can be repurposed, or incorporate old materials in a brand-new commodity. 

Linear Vs. Circular Models

A linear business model is a typical approach to commerce. A company manufactures a product purchased by a consumer, and when it is worn out or doesn't have any value, it is disposed of.

A CE business model creates a manufacturing loop, keeping as many materials in the economy as possible for the longest period of time.

Apple is an example of a company that thrives off the linear model by degrading its own products after a new release. While this has worked in the past, Apple's smartphone sales in 2020 fell over 20% in the US and China. 

While Apple is still one of the most successful companies ever to exist, sustainability, materials, and supply chain issues are among the most significant challenges they will face in the next ten years. 

Advantages of Reusing Materials

Companies that utilize a circular economy model inherently avoid problems facing many companies as resources become limited and consumers become more environmentally conscious. Below we explain each of the three most significant advantages of the circular economy business model in detail.

Reducing Waste

Reusing materials puts less of a strain on the environment. Incorporating CE into a business model will reduce waste, provide an additional source of materials, and encourage consumers to support the brand.

Designing products that can be repurposed or broken down to loop back into the manufacturing process is incredibly challenging. While consumers value sustainability, a decline in adoption will outpace support if the products only offer value as an environmentally friendly alternative.

Securing Supply Lines

The global supply chain crisis caused by COVID-19 has affected nearly every country on Earth. While over 65% of US companies outsource materials, only 22% have a proactive supply chain network, and only 43% of small businesses track their inventory.

Utilizing a CE model forces companies to solidify their supply chain and create a new source of materials. However, the process is more complex than simply purchasing the materials needed to fulfill future orders. A great deal of planning and trial-and-error is necessary to pull off a circular economy business model successfully.

Encouraging Innovation

Limiting waste and securing supply chains requires companies to think outside the box, breakthrough centuries of manufacturing standard practices by creating innovative solutions.

Building Customer Loyalty with a Circular Economy Business Model

Possibly the most significant advantage of curating a thriving CE model is a passionate following that buys into more than just your products. When executed correctly, companies can corner the market.

On Cyclon by On Running

On Cyclon is a sustainable product created by On Running focused on reusing materials with a subscription model. The company has found a way to secure a market share in one of the most competitive industries on Earth. Adidas and Nike control over 75% of the sportswear market; there isn't room for companies that just make high-quality running shoes.

The Cyclon of On Running
The Cyclon of On Running
Copyright: On Running

The Swiss footwear company has carved out a piece of the industry by combining the subscription and the circular economy business model pattern

Subscription Business Model

Customers must pay a monthly fee of $39.99 for the undyed, 100% recyclable Cloudneo running shoes. When customers pay a monthly fee for their running shoes, they are fully committed to the brand.

The subscription model reduces waste, builds consumer loyalty, and keeps the materials in the manufacturing loop.

Customers Swap Shoes

Every six months, On Cyclon customers, are eligible to trade their old shoes for a brand new pair. Because the trainers are made from reusable materials, they can be broken down and reused. On Running uses only ten components to construct a high-end running shoe.

The Shoe You Will Never Own: The On Cyclon

On Cyclon Recycles Materials

The sportswear company can only accomplish the CE model because they have revolutionized the materials needed to create high-performance sneakers. The main component of the shoes is beans, allowing them to be broken down and reused multiple times.

On Running aims to use 50% recycled materials in their shoes and 30% in apparel. While On Cyclone is the only product that offers the subscription model, all On Running shoes and clothing are built with a percentage of recycled materials.

A Challenging but Rewarding Business Model Idea

Reducing waste, reusing materials, and building a following are rewarding traits of any company in 2022. However, fully dedicating every aspect of your company to the circular economy model is challenging.

However, if you can pull off the model, you can go head to head with any legacy brands that have built their companies using excessive material waste, exploiting natural resources, and creating products designed to be thrown away.