Good for the Environment and Good for Business: How Circular Take-Back Programs Enhance Consumer Valuation

As sustainability concerns take center stage, prominent companies like Apple, H&M, and Zara have rolled out circular take-back programs to address environmental concerns and evolving consumer expectations.

In a new Journal of Marketing study, we shed light on the growing trend of circular economy practices and their acceptance by consumers. We delve into how these initiatives facilitate the return of used products to the production cycle and impact consumers’ valuations of products and their willingness to pay for circular take-back products.

Governments worldwide view a circular economy as part of the solution to the climate crisis. In the U.S., several states such as California, Connecticut, Maine, Oregon, and Vermont have implemented Extended Producer Responsibility (EPR) laws that hold manufacturers accountable for the entire life cycle of their products, including disposal and repurposing. However, implementing circular take-back programs under EPR regulations faces challenges as policymakers grapple with prioritizing these programs when faced with limited consumer awareness and support. Manufacturers resist these programs due to potential cost escalation, shrinking profit margins, and the perceived burden of passing costs onto consumers, potentially compromising their competitiveness in the market.

Consumer Interest in Take-Back Programs

We discover that consumers exhibit a higher willingness to pay for products that are part of a circular take-back program in comparison to when they are not. The driving force behind this willingness lies in a concept known as psychological ownership. Circular products offer control over the disposal of the product, which taps into consumers’ sense of ownership, prompting them to place higher value on these items. This finding could alter how businesses and policymakers approach the implementation of circular programs.

A circular economy can decrease supply chain risk by increasing the security and price stability of a company’s supply chain through the use of recovered materials. Circular programs may also allow firms to develop new markets, gain new customers, and build their brands and reputations as environmentally friendly and innovative organizations.

Several companies have recognized the benefits of the circular economy. For example, clothing retailer H&M encourages consumers to participate in its circular take-back program by returning their used clothes to the retailer. Depending on the type of clothing and its condition, H&M donates the clothing to charity, recycles it, or reuses it to make new clothing to sell. IKEA has committed to being 100% circular by 2030 and has implemented a take-back scheme promoted extensively in stores. Zara has expanded its “Closing the Loop” initiative to include home collection services.

Across eight experiments in which we study a variety of products and use externally valid take-back program promotional materials, we find that people ascribe more valuation to circular program products. The increase in valuation is due to a factor unique to circular program products: disposal control. This control does not in itself increase valuation; rather, it increases the capacity for a circular economy product to evoke psychological ownership.

Lessons for Marketers and Policymakers

Our study offers valuable lessons for chief marketing officers:

Manufacturers need to reassess their concerns about cost implications. Our study illuminates the potential for consumers to accept price adjustments associated with circular programs.
Companies can make take-back programs product-specific and allow consumers to directly return products they no longer need to the manufacturer or retailer. This gives consumers more control over disposal, as opposed to relying on a broader curbside recycling system.
Implementation of a take-back program does not seem to require product discounts or the need for companies to offer convenient pick-up services.

We also emphasize lessons for policymakers:

Foster awareness and understanding among consumers and boost political will for these programs.
Focus on policies that can lead to increased investment in regulatory frameworks, infrastructure, and financial incentives to support such programs.
Promote policies and encourage companies to participate in these programs by providing them with guidelines on how to do so. When companies are informed that consumers value circular program products, they may be more willing to invest in them, creating a potential positive cycle of engagement in which consumer demand and corporate engagement reinforce each other.

The insights from this research hold important conclusions. Businesses can align their strategies with consumer values, policymakers can foster support for sustainable initiatives, and consumers can make choices that resonate with their values. It is time to embrace the circular economy not just as a theoretical concept but as a tangible force for positive transformation in our society.