Circular Economy in the Furniture Industry

Alice's choice

Alice is a young doctor in Zurich. She rents a flat while completing her training at the surgical clinic in the city. She will stay in Zurich for at least two more years, after which she will probably move somewhere else to continue her training.

When Alice comes home, she wants to enjoy her short free time in the flat: Relaxing, meeting friends and reading a good book in the quiet hour. If possible, furnishings appropriate to her status as a doctor. She has two options for buying furniture: 

Figure 1: Low-end and high-end furniture juxtaposed.

Since she cannot plan for the long term, her free time is minimal, and she, therefore, has no time for various visits to second-hand shops. She decides to buy the furniture in a low-end furniture store. She forgoes status but retains flexibility for her future place of residence. 

After three years, she gives some of the furniture away to the second-hand shop for free. After that, the furniture lasts another 2 to 3 years with the secondary users; then, it is disposed of. 

Circular Economy for furniture

In the circular Economy, the value chains do not run linearly from raw material and production to disposal, but rather in a circular way. Materials remain in circulation. Mr Bonneville is the founder of a start-up, BonneF (name changed). BonneF's vision is to organise furniture production and consumption in a "circular" way. Important in the circular Economy is the idea of sustainability. The earth's limited resources should not be wasted in linear value chains and end up as waste after a few years. Instead, in the sense of sustainable economic activity, we should use fewer resources, and those already in use should remain in the economic cycle as long as possible. The Circular Economy solves two ecological problems: fewer resources are extracted, and less waste is produced. 

Figure 2: Linear vs circular value chains.

As introduced above, furniture production today divides into high-end and low-end furniture. In the former, the consumer buys a piece of expensive furniture and uses it for several decades. Usually, it's particularly decorative. In the low-end segment, consumers buy inexpensive furniture with a short lifespan.

Durable furniture made of sustainable materials can minimise the ecological footprint. We call the new category "sustainable-end".

But there are also good arguments for the low-end segment for customers:

• High mobility: frequent moving increases the uncertainty of whether furniture will still fit in later homes.
• Changing needs: The need for furniture depends on the phase of life: Education, single, family, senior, etc.
• General freedom in life and style: I don't want to be tied down in general, not even when it comes to furniture.
• High investment hurdle is undesirable, as the future does not want to be planned in the long term.
• The furniture should not fulfil more than the essential functional purpose for a few years.
• Fashion and style change over time. A piece of furniture from 1980 is no longer fashionable in 2020. 

The idea is to develop a business model that promotes the use of "sustainable-end" furniture and ensures that the furniture remains in circulation in the long term, e.g. in the form of rental or otherwise.

BonneF

BonneF is a start-up with very experienced people from the furniture industry. The team around Mr Bonneville has realised that the current manufacturers are not interested in developing long-lasting furnishings. Their business model depends on selling new pieces of furniture. That is why BonneF wants to create a business model with a rental model. You can find out more about what BonneF specifically offers from your coach.

Your skills are required!

As you might know from other case studies, there is a golden rule with start-ups (Thiel, 2014): 

"The perfect market for a start-up is a small group of particular people concentrated together and served by few or no competitors."

Mr Bonneville's goal is to find the most attractive customer segment to launch his idea. The tenant side has priority. He wants to identify the attractive customer segments and test them right away in a "Minimum Viable Product" (MVP). To reach this goal, the following two steps are necessary.  

Step 1: "Empathising" with a specific customer segment

Think about diverse customer segments and their life stages. Professionals in shared flats? DINKIS? Young families? Others? What are the needs of the customer segment? For this, use the tools of the "Value Proposition Canvas" (Osterwalder, 2014). Your coach will introduce you to the tool!

Use our template at the following link.

Step 2: Unique value proposition to the specific customer segment 

What product do we offer to the customer segment that satisfies their needs much better than the current solution? To do this, use the Alternative Map tool (Orengo, 2016):

The current solution for Alice is to buy cheaply and take some of the furniture to the scrapyard after few years. Alternatively, Alice could rent the furniture from BonneF and adjust or terminate the lease when she moves. However, it is likely that BonneF's value proposition is much more attractive to other customer segments.  

Again Mr Thiel, slightly adapted: 

"As a good rule of thumb, the solution must be at least 10 times better than its closest substitute in some important dimensions to lead to a real competitive advantage."

Have fun! Sharpen your skills to develop competitive businesses! Our coaches are looking forward to meeting you. Start the case right now, and you will begin an enriching learning experience that will be of great value to you in your future business decisions. That's a promise!

References:

Orengo, M. (2016). «Kundenorientierung. In Innovation, Marketing, Vertrieb, Organisation und Führung.» tredition Verlag: Hamburg.

Osterwalder, A., Pigneur, Y., Papadakos, P., Bernarda, G., Papadakos, T., & Smith, A. (2014). Value proposition design. John Wiley & Sons.

Thiel, P. (2014). «Zero to One: Notes on Startups, or How to Build the Future [Kindle Android version].» Retrieved from Amazon.com