A circular product does not become a viable business model merely because the organisation can recover, restore and resell it.
Many circular-economy programmes begin with an engineering question: can the product, component or material be recovered and returned to useful service?
That question matters. It is not enough.
A technically successful remanufacturing process can still fail commercially if retailers prefer new products, customers distrust restored products, return flows are unreliable, warranty responsibilities are unclear, pricing cannibalises the wrong revenue pool or one participant captures value while another carries most of the cost.
Circularity therefore changes the commercial system, not only the material flow.
The Strategic Context
Zhao, Li, Xu and Dong's 2017 study of collaborative marketing governance for remanufactured products examined this issue through extended producer responsibility and supply-chain governance. The authors developed alternative decision models for different degrees of dependence between producer and retailer, including collaborative arrangements under stronger interdependence.
The important executive insight is not the specific mathematical formulation. It is that the best commercial arrangement can depend on how value, effort and dependence are distributed across the channel.
A conventional linear product model is comparatively simple. The producer sells forward. The channel markets forward. The customer consumes. End-of-life responsibility may sit elsewhere.
Remanufacturing adds reverse flows and additional decisions: who retrieves the core, who owns it, who assesses condition, who finances inventory, who guarantees quality, who markets the remanufactured offer, how is new-product cannibalisation managed and how are returns encouraged?
Those are governance choices.
Related article: Waste Is Not a Resource Until the System Can Capture Value
What Leaders Commonly Misread
The first misread is to treat reverse logistics as the principal constraint. Physical recovery can be difficult, but a well-designed collection network will not solve conflicting incentives.
The second is to assume that lower input cost automatically creates a lower-priced product with an attractive margin. Remanufacturing economics include inspection, uncertainty in returned condition, disassembly, testing, rework, certification, inventory complexity and warranty exposure. A recovered component may have low acquisition cost and still be expensive to commercialise reliably.
The third is to treat the retailer or distributor as a passive route to market. In many models, channel partners influence customer trust, product presentation, returns, service and the relative emphasis placed on new versus remanufactured products. If their economics favour the linear offer, the circular offer may remain strategically peripheral.
The fourth is to assume that customers evaluate remanufactured products only on price. Reliability, warranty, availability, perceived risk, brand legitimacy and product category can matter as much as the discount.
Reframing the Issue
The circularity question should move from "Can we recover this product?" to "Can the whole commercial system repeatedly create and distribute value from recovery?"
That system includes at least four linked flows.
There is the material flow: products, cores, parts and waste moving forward and backward.
There is the information flow: product condition, ownership, provenance, demand, warranty history and inventory visibility.
There is the cash flow: deposits, credits, buy-backs, channel margin, service revenue and working capital.
There is the decision flow: authority over pricing, acceptance criteria, marketing effort, customer promises and disposition.
Weakness in any one flow can constrain the others.
A circular business model is therefore an interdependence problem. The more participants rely on one another to create the customer proposition, the more important commercial governance becomes.
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Value Must Be Designed Across the Channel
Imagine a hypothetical industrial-equipment manufacturer that can remanufacture a high-value module at materially lower resource intensity than producing a new one.
The technical team proves the process. Finance confirms an attractive internal unit cost. Yet distributors earn a larger absolute margin on new units. Sales incentives reward new-product revenue. Customers are uncertain whether a remanufactured unit carries the same service support. Returned cores arrive unpredictably and remain legally owned by customers until a credit is processed.
The business has a circular technology but a linear commercial architecture.
Leaders should diagnose where value is created, where cost is incurred and where decisions sit.
If the manufacturer receives the environmental and material benefit while the distributor funds customer education and manages difficult returns, collaboration will erode. If customers provide the valuable core without a clear incentive, return rates may remain weak. If one participant sets the selling price while another carries warranty risk, behaviour can diverge.
The solution is not automatically vertical integration. Nor is collaboration always superior. The right structure depends on dependence, bargaining power, capability and transaction economics.
Cannibalisation Is a Portfolio Question
Remanufactured products can compete with new products. That is often described as a problem to be minimised.
At enterprise level, cannibalisation should be treated more carefully.
If a remanufactured offer protects a customer relationship, enters a price segment the company would otherwise lose, extends service revenue, stabilises supply or reduces exposure to scarce materials, some displacement of new-product sales may be strategically rational.
The wrong metric is therefore "new sales protected". The better metric is total lifecycle value across the product portfolio and customer relationship.
This is where portfolio leadership matters. New, remanufactured, repaired, upgraded and service-based offers may need to be governed as a system rather than as competing business units.
Extended Responsibility Changes the Value Equation
Extended producer responsibility can increase the importance of product take-back, recovery and end-of-life accountability. The exact legal obligations vary by jurisdiction and product category and should be verified before practical implementation.
Strategically, however, the direction is clear: when producers retain more responsibility after sale, design decisions made at the beginning of the lifecycle affect later cost and value.
A product that is easy to disassemble, identify, upgrade and recover creates options. A product that is difficult to inspect or contains inseparable materials creates liabilities.
Commercial governance should therefore connect product design with channel and recovery economics. Circularity is strongest when the forward proposition and the reverse system reinforce each other.
Decision Framework
A circular offer should pass six commercial-governance tests before scale.
Customer proposition: Why would the customer choose the remanufactured offer? The answer should go beyond "cheaper" and address reliability, availability, warranty, service and trust.
Value-pool map: Where are savings, revenues, avoided costs and strategic benefits created across producer, channel, customer and recovery partners?
Burden map: Who carries collection effort, inventory, inspection uncertainty, warranty, financing and compliance?
Decision rights: Who controls price, acceptance criteria, marketing, disposition and customer promises?
Incentive alignment: Do channel margins, sales rewards, return credits and service incentives support the behaviour the model requires?
Portfolio effect: What happens to new-product sales, service revenue, customer retention, capacity use and future design choices?
An attractive remanufacturing process that fails one of these tests is not necessarily a bad idea. It is an incomplete business model.
From Strategy to Execution
The immediate action is to select one circular offer and map the full commercial system around it. Follow one unit from original sale through use, return, assessment, remanufacture, resale and second-life support. Identify every transfer of ownership, information, cost, margin and decision authority.
The second step is to test incentives with actual participants. Ask a distributor what behaviour the current margin structure rewards. Ask service teams what creates return friction. Ask customers what evidence would make a remanufactured product acceptable. These conversations often reveal constraints that process maps miss.
Medium term, the organisation may need new commercial mechanisms: deposits, core credits, guaranteed buy-backs, differentiated warranties, shared marketing funds, service bundles or revenue-sharing arrangements. These should be tested rather than assumed.
Longer term, circularity can reshape the product architecture itself. Design for disassembly, digital product history, modular upgrades and standardised interfaces can reduce future recovery uncertainty. At that point, circularity is no longer an end-of-life initiative. It becomes part of product strategy.
Related article: Supplier Relationships as a Source of Innovation, Resilience and Competitive Advantage
Governance Should Match Dependence
Where producer and channel can operate independently, simpler transactional arrangements may be sufficient. Where the remanufactured proposition depends on shared customer education, coordinated pricing, reliable return flows and joint service performance, stronger collaboration may be required.
That does not mean more committees. It means clearer rules for decisions that cross organisational boundaries.
Leaders should specify which decisions are unilateral, which require consultation and which require agreement. They should also define how disputes are resolved and how economics are reset when market conditions change.
A circular model that works only while all parties voluntarily absorb unfunded effort is structurally fragile.
Signals to Monitor
Return rate is an obvious signal, but it is incomplete. Leaders should also monitor return quality, time between collection and processing, acceptance yield, warranty performance, price realisation and channel participation.
Watch the mix between new and remanufactured offers. A shift is not inherently good or bad; the question is whether total contribution, customer value and strategic resilience improve.
Monitor channel behaviour for signs of incentive conflict. If distributors technically offer the remanufactured product but rarely recommend it, the economics or customer proposition may be misaligned.
Finally, monitor product-design decisions. If new generations become harder to recover or repair, the organisation may be undermining its own circular strategy upstream.
Questions for the Leadership Team
- Where is the largest value pool in our circular model, and who currently captures it?
- Which participant carries the largest unfunded burden or uncertainty?
- Do our sales and channel incentives support remanufactured products or quietly favour the linear alternative?
- What evidence does a customer need before a remanufactured offer is treated as a credible substitute?
- How would greater remanufacturing affect the economics of our new-product, service and spare-parts portfolios?
- Which product-design choices today will determine our recovery economics five or ten years from now?
Closing Perspective
Circularity is often presented as a problem of material recovery. At scale, it is a problem of coordinated value creation.
The organisation has to make the return worthwhile for the customer, the sale worthwhile for the channel, the recovery worthwhile for the producer and the proposition credible enough to protect the brand.
That requires commercial rules, not only reverse logistics.
When circular products are governed as part of a wider business model, remanufacturing can become more than a waste-reduction mechanism. It can create supply resilience, customer options, service revenue and strategic control over materials. But those benefits emerge only when the economic and decision architecture is designed as deliberately as the physical recovery process.
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