Leasing Society

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* Report: Leasing Society. STUDY. By Susanne Fischer, Sören Steger et al. European Union: Policy Department Economic and Scientific Policy, European Parliament, 2012

URL = http://www.europarl.europa.eu/committees/en/envi/studiesdownload.html?languageDocument=EN&file=79330


Abstract

"The vision of a leasing society is characterised by a new relationship between producers and customers. This new relationship is based on innovative and more service-oriented business models to meet customer needs with novel approaches to ownership and responsibility. This study explores the leasing society in four chapters.


It

(1) examines the basic ideas behind the concept,

(2) presents a collection of case studies,

(3) summarises strengths and risks, and

(4) concludes with policy options that could support the transition to a leasing society."


Excerpts

Definition

"A leasing society is characterised by a new relationship between producers and customers based on (1) new and more service-oriented business models and (2) new ways to define product ownership and responsibility.

Changed ownership structures and increased producer responsibility may provide incentives for more resource-efficient product design, especially to prolong product life, optimise utilisation and enable easier remanufacturing or recycling

In a leasing society, the aim of business is to meet customer needs in the best possible way. Both innovative business models and customers willing to make greater use of product-service systems are needed to turn the economic and environmental potential of a leasing society into a reality."


The Vision of a Leasing Society

"A “leasing society”—as it shall be understood within this study—is much more than just a widespread leasing of goods in the conventional sense. Rather, a leasing society stands for a society that is characterised by a new relationship between producers and customers. It is based on (1) new and more service-oriented business models to fulfil customer needs and (2) on new ways to define product ownership and responsibility. As those kind of characteristics are also typical for traditional leasing contracts, this economywide change of producer-customer relationships could be called a leasing society.

A leasing society would change the way business is done. It could lead to changed production and consumption systems, and thus impact how resources are used and reused. In the big picture, this could contribute to a more resource-efficient economy.

This chapter presents a vision of a leasing society. It focuses on three key changes:

  • Products and services: In a leasing society, what business sells to customers

(their value proposition) is different. Products are still manufactured, but from the customer perspective they are complemented—if not substituted—by services. Product-service systems (PSS) will become a more mainstream element of typical business models.

  • Property and responsibility: Changed ownership structures in a leasing society

transfer responsibility for upkeep, maintenance and disposal from customers to producers/retailers. This creates incentives for more resource-efficient and durable production. It also re-orientates the value chains for physical goods toward more circularity (products are returned to the “owner” at the end of use instead of disposal). As such, the leasing society indicates a shift in both producer and consumer thinking that is more in line with the ideas of a circular economy (Braungart 1991).

  • Product use and consumption: The vision of a leasing society implies changed

ways of by whom and how the products are used or consumed. Exchange relationships between private customers could partly replace traditional businesscustomer relationships in the future.

The vision of a leasing society is characterised by new economic structures and consumer behaviours. It could contribute to shifting conventional production and consumption models, largely based on linear supply chains, toward more circular valuechains. Increased producer responsibility for products in their use phase may provide incentives to extend the life of products. Recent press articles suggest that the concept of a leasing society could play a role in making Europe more resource-efficient (Marsden 2012; Merkies and Lowitt 2012; Merkies 2012a; Merkies 2012b). The three characteristics of the vision, as well as their implications, are presented in more detail in the following sections."


Five reasons why the leasing society could be an attractive business model

"The added value of a leasing society no longer lies in the production of goods, exclusively. Products are manufactured, but not primarily to be sold to the customers but rather to use them for meeting the real needs of a customer by offering different product-services. In addition, the economic and ecological benefit of business in a leasing society could increase by enhanced remanufacturing and recycling activities. Realising the transition from the present economy into a leasing society needs proactive and innovative partners in business. The question is, why should business engage in new ways of delivering products and services?

A leasing society might emerge as an attractive business model for the following reasons:

  • Customer retention and loyalty: Due to changed property issues and new

modes of product use and consumption in a leasing society, additional communication between producers and customers is created, which intensifies and improves customer retention. As the new business model replaces the short moment of the actual sale transaction by a contractual relationship, customer retention and loyalty might be strengthened, which could be a basis of future sales.

  • New market opportunities: A leasing society implicates a reinterpretation of

customer demand. Resulting innovations in products and services could create new markets and gain new customers. Proactive business can be rewarded with first mover advantages and can co-determine “the rules of the game” (Sommer 2012, XI).

  • Saving costs for raw materials: With longer product durability and life-cycles

and a bigger focus on services, business may be less dependent on raw materials and fluctuating commodity prices.

  • New business opportunities: Profit-generating activities in a leasing society are

no longer exclusively based on the linear business model of manufacturing and disposing products. By integrating remanufacturing and recycling activities, business may pursue circular value-adding strategies that enable new business opportunities.

  • Improving social responsibility: Finally, leasing society business models could

help companies to improve their social responsibility. "


EXECUTIVE SUMMARY

"The shift toward a leasing society could be one opportunity for business to increase competitiveness in an environmentally friendly way. While a leasing society could become a key element of a resource-efficient Europe, it is probably not a solution in and of itself. This study presents both (i) a vision of a leasing society, characterised by innovative business models and customers willing to make greater use of new product-service systems, and (ii) the risks if development follows conventional leasing models and business-as-usual trends.

The vision of a leasing society is characterised by much more than just a widespread leasing of goods. Rather, it is about finding the best way to fulfil customer needs, generally in new and more service-oriented ways. It implies a new relationship between producers and customers as it changes traditional notions about product ownership and responsibility.

Increased producer responsibility may create incentives for more resource-efficient product design, especially to prolong product life, enable easier remanufacturing and optimise utilisation.

Case studies reveal that the theoretical advantages of service-oriented business models can result in real benefits. Especially examples of companies offering services, like chemical management and mobility, instead of selling products, like chemicals and cars, are widespread. Nevertheless, these kinds of business models are offered and requested by only a few enterprises.

Moreover, it is difficult to assess the potential macro-economic impacts based on single case studies. Product-service systems can be connected to considerable trade-offs. If a leasing society develops toward conventional product leasing alone, it could be more environmentally harmful (e.g. if it leads to rebounds in customer behaviour regarding the turnover of goods) and contribute to negative social impacts (e.g. outsourcing jobs at lower pay and worse conditions).

Strong policy direction is needed to mitigate risks and encourage development toward the vision of a leasing society. Current policies, like the Eco-Design Directive, could be enhanced to promote a leasing society. Policy instruments like taxes could also be used. For instance, a leasing society could be supported by a shift in taxation from labour towards resource consumption, reduced VAT rates for extended maintenance and repair, and extended depreciation rates.

In summary, this study concludes that a leasing society has the potential to bring economies onto a more sustainable pathway. However, economic, social and environmental impacts depend on both the choice of product-service systems and how they are implemented. Further research is necessary to expand knowledge and understanding of the complex macroeconomic impacts of service-oriented business models in a leasing society.

INTRODUCTION

The European Commission (EC 2011) has identified a dual challenge for Europe: “of stimulating the growth needed to provide jobs and well-being to its citizens, and of ensuring that the quality of this growth leads to a sustainable future.” These challenges are rooted in the fact that business-as-usual patterns of production, consumption and disposal cannot be sustained in an equitable way over the long term.

Global resource extraction and use increased by 78 % between 1980 and 2008 (SERI 2011). The EU imports around 6 times more materials than it exports (EEA 2010) and per capita material consumption in Europe is around 40 % higher than the world average (Dittrich et al. 2012). The EEA (2010) highlighted the fact that the world is experiencing environmental change at an unprecedented speed and scale. Although many of the immediate impacts have been outside of Europe’s direct influence, interconnected risks and increased vulnerabilities pose new challenges “for the resilience and sustainable development of the European economy and society” (EEA 2010).

Recognizing these challenges, the European Commission has made resource efficiency one of the seven flagship initiatives of the Europe 2020 strategy for smart, sustainable and inclusive growth. Activities to develop targets for reducing resource consumption are underway at the European level. The key question facing policy makers, industries, business and citizens is how to decouple primary resource use from wealth and well-being.

A significant reduction of primary resource consumption will most likely require structural change in the way economies use resources. It will mean a transition away from linear models of increasing extraction, production, consumption and disposal to more resilient circular models of efficient as well as consistent resource use and re-use. This is the basic idea behind a green economy, a circular economy and a resource-efficient Europe. A so-called “leasing society” could become one of the key elements of a green economy and resource-efficient society. The concept of a leasing society has received a lot of attention recently, especially as a win-win solution for increasing competitiveness in an environmentally friendly way. This report puts a leasing society into perspective by asking what it is, what it can achieve, where its limits are and how it can be fostered at a policy level.

This report argues that how a leasing society is implemented is key to maximizing economic, environmental and social benefits. While there are a number of success stories, evidence of potential macro-economic benefits or drawbacks is largely missing. Anecdotal evidence indicates that the type of leasing is important. Novel and innovative productservice systems to meet customer needs in a resource-efficient way are the pinnacle of a leasing society. Conventional product leasing may represent the beginning of such a society, but measures to ensure that activities progress toward more result-oriented and resource-efficient services are needed.

Chapter 1 begins by presenting a vision of a leasing society. It describes the implications of a leasing society on products and services, property and responsibility, and use and consumption. Chapter 2 takes a detailed look at actual business cases where leasing was made a successful part of business models. It summarises key barriers and drivers identified from the case studies. Chapter 3 assesses the possible strengths and weaknesses of a leasing society. It argues that different types of product-service systems have different economic, social and ecological impacts. Chapter 4 examines policy instruments with the potential to support the transition toward a leasing society. It highlights how existing measures could both contribute to and be enhanced, as well as what new instruments could be used, to promote development of a leasing society in the EU."