Reimagining Black Friday: Business Models Based on Services, Not Stuff
This blog post originally appeared on Forbes.com.
Black Friday. The name sounds ominous, but for retailers, it’s a day for thanksgiving after Thanksgiving. Historically, it’s the biggest shopping day on the U.S. calendar, so named because it puts businesses in the black. Somewhere in our psyches, though, we know our acquisition habits are excessive.
Our economy grew 20-fold in the last century and is forecast to grow 20-fold again by the year 2100. That’s 400-fold growth over 200 years. At the same time, our use of resources has grown even faster than our economy, such that we are close to reaching or even exceeding our planetary limits.
In the course of our work, we have travelled to India, Brazil and Europe and the same goes there: Shopping is touted as an antidote to depression—not the half-joke of retail therapy to brighten a bad day, but as an antidote to economic depressions. To grow the economy, governments want people to buy stuff. Most business models are predicated on selling more stuff to more people, and as citizens, we tend to want to own more. So, this Black Friday we will go out to the malls and shop. We will shop online to buy even more and, just in case the 24-hour wait for delivery is a barrier, we can be tempted to look forward to a future when, with a push of a button and the help of a drone or driverless car, we can have even more immediate gratification.
But as markets such as China, India, Africa and Brazil strive to lift their people out of poverty, they present a conundrum: If they follow Western patterns of consumption, there simply will not be enough raw materials at the start of the consumption cycle or a planetary ability to absorb the waste at the end of the cycle. Without a change in business models, environmental concerns will be a brake on growth and our ability to deliver prosperity.
Companies and countries are starting to see that they won’t be able to serve the growth in emerging economies without significant change. It is a tough discussion when so much is predicated on our current market models, but we have a precedent. Innovative companies in India and around the world are already future-proofing on energy and climate change by de-linking business growth from carbon emissions growth. Now companies need to look at how to de-link business growth from materials consumption. The change we need must happen at every stage in the business cycle: design, innovation, manufacturing, distribution, brand and marketing. But business model innovation will be the driver; tomorrow’s markets will depend not on selling more stuff to more people, but on selling more services to more people. We need to transform our business models if we are to have inclusive economic growth and societal well-being.
The good news is that it is possible. We even know a little about what that future might look like.
We can envision stepping into a Walmart, Target or Carrefore in 2030 and seeing three separate departments: one selling new stuff, one repairing or upgrading existing stuff and one reselling previously owned stuff. The companies will make just as much money selling these services as they currently do selling just new stuff. They’re also likely to employ more people, since services generally require more personnel support than products, bringing a double contribution to growth and well-being. These are the markets for tomorrow.
We are seeing the beginnings of such models in the household goods sector. Steve Howard of Ikea speaks about peak stuff, and how that might transform the global giant’s business model. Progressive companies in the apparel sector are experimenting with disruptive models, leading to pilot projects such as Schwopping at Marks and Spencer and recycling at scale at H&M.
In online markets, there is potential for a parallel innovation. Right now most retailers have ceded their second-hand markets to low-value exchanges. EBay seems to be doing a good job here of capturing Ikea’s market for example. But by capturing their own second-hand online markets, brands could create additional value, additional jobs and additional quality assurance while ensuring that natural resources are never a brake on their growth.
Progressive companies in the auto industry are looking to tomorrow’s markets now, too. It is not just about clean fuels. It is about transformative business models in which vehicles are designed for sharing markets and circular economies. The leasing business is the beginning of that model, in which drivers may never own a car, just seek the use of one when they need it. The car companies that thrive will be those that adapt their models to ones with less volume but much higher utilization, less ownership and more sharing, and less focus on the driving experience and more on what else a driver can do while in the vehicle. Ford is one company that is re-imagining car ownership as a shared experience.
A transition from products to services is the innovation we need: changing the question from “What do we own?” to “What can we do?” While technological innovation will be required, it will not lead. Technology innovation will follow business model transformation.
On this Black Friday, we should all be thinking about business models that provide for sustainable growth. Whether you are an investor, a business person or a consumer, or indeed, if you work in government and set policy, consider how your choices lead us towards transformational business models for a thriving future.