This paper introduces an agent-based approach to study customer behavior in terms of their acceptance of new business models in Circular Economy (CE) context. In a CE customers are perceived as integral part of the business and therefore customer acceptance of new business models becomes crucial as it determines the successful implementation of CE. However, tools or methods are missing to capture customer behavior to assess how customers will react if an organization introduces a new business model such as leasing or functional sales. The purpose of this research is to bring forward a quantitative analysis tool for identifying proper marketing and pricing strategies to obtain best fit demand behavior for the chosen new business model. This tool will support decision makers in determining the impact of introducing new (circular) business models. The model has been developed using an agent-based modeling approach which delivers results based on socio-demographic factors of a population and customers’ relative preferences of product attributes price, environmental friendliness and service-orientation. The implementation of the model has been tested using the practical business example of a washing machine. This research presents the first agent-based tool that can assess customer behavior and determine whether introduction of new business models will be accepted or not and how customer acceptance can be influenced to accelerate CE implementation. The tool integrates socio-demographic factors, product utility functions, social network structures and inter-agent communication in order to comprehensively describe behavior on individual customer level. In addition to the tool itself the results of this research indicates the need for systematic marketing strategies which emphasize CE value propositions in order to accelerate customer acceptance and shorten the transition time from linear to circular. Agent-based models are emphasized as highly capable to fill the gap between diffusion-based penetration of information and resulting behavior in the form of purchase decisions.
Since 2013 the Circular Economy (CE) movement towards “an industrial economy that is restorative or regenerative by intention and design” 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. In industrial practice a transition from a linear (take-make-dispose) to a circular product system (considering reuse/remanufacturing/recycling) requires the change of value propositions. In doing so the focus of the value proposition switches from selling a physical product to providing access to functionality through business innovation. 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.
From a socio-technical system perspective, a social network of actors and a physical network of technical artefacts together can form a complex adaptive system. In the CE context described above industrial businesses form such a complex adaptive system between customers (actors) andmanufacturing systems (technical artefacts) producing products.Thus, a multi-customer network determines the development, operation and management of the manufacturing system, which in turn affects the behavior of its customers. The CE-view increases the level of complexity in the system, because CE expands the perspective beyond the prevailing linear manufacturing systems in order to gain control about product returns. Since a fundamental assumption at the basis of the presented work is that customers in a CE are perceived as integral part of the manufacturing enterprise a reduction of complexity in socio-technical systems is pursued using simulation of customer behavior.
Using washing machines as example, service-oriented offers which provide access to functionality instead of product ownership have been examined in addition to conventional sales offers. In such a business model the return of the washing machine is determined by the chosen business rationale, i.e. leasing, pay-per-use or other, which in turn is dependent on market acceptance and behavioral aspects of the customers. As a result, the linkage between technical systems (e.g. manufacturing systems) and social systems (e.g. customer networks) becomes enormously significant and influential. It is a manufacturer’s objective to fully understand this linkage, particularly in how to handle the consequence and impact of business innovation in the form of newvalue propositions.An increased understanding in this area would enable manufacturers to gain control over the back end of the market, i.e. quality, quantity and timing of product returns which is considered as one of the critical barriers of CE implementation. Furthermore, moving towards an industrially driven CE consists of simultaneous consideration of business models, product design, supply chain design and technology. In this integrative approach business models are particularly important as they influence product design and supply chain design to maintain profitability. To date tools aremissing which can supportmanufacturing businesses to increase understanding regarding consequences of CE business model transitions.
In the provided context, the objective of this research is to bring forward an agent-based simulation tool to assist the CE paradigm and enable assessments of customer behavior as a consequence of business model changes. The elements upon which this tool has been based on are:
- agent-basedmodel (ABM) development describing purchase-decision processes on individual customer level;
- introduction of new business models using a washing machine case;
- computer simulation to show the effects of business model changes.
The applicability of the tool is demonstrated through an illustrative case scenario using the ASKO Classic washing machine from Gorenje. The case focuses on the introduction of a buy-back and pay-per-use offer for a washing machine in the Stockholm city area where washing machines are currently sold in a conventional manner. Additionally, a competitive offer is considered in themarket scenario. The resulting ABMis supposed to provide insights on customer acceptance and therewith facilitate decision-making for industrial organizations shifting from conventional product sales to service-oriented offers.
In its core this paper addresses a diffusion process and its consequence on customer behavior.Adiffusion process has been defined as “speed and degree with which newproducts, practices and ideas propagate through a society”. As a secondary purpose, the output of this model creates demand streams based on new offerings which serves as input to another model focusing on supply chain scenarios in CE context and which has been carried out in parallel to the work presented in this paper.