Leasing or buying white goods: comparing manufacturer profitability versus cost to consumer

Journal article, 2020

Remanufacturing can create opportunities for companies to become more sustainable while remaining profitable. However, not all companies will be able to profit from moving towards a closed-loop business model. This paper investigates the profitability of leasing and remanufacturing washing machines for a large white goods producer based on data provided by them. A simple analytical model is built to simultaneously estimate the costs for consumers and costs and profits for the manufacturer under the leasing system. The results are compared with the costs and profitability of the linear system where premium, economy, and budget washing machines are sold to consumers. A sensitivity analysis is conducted on important factors such as repair, administration and transport costs. Using the replacement chain method, we show that the consumer costs of budget washing machines in the sales system is significantly higher than the costs for premium washing machines. Consequently, those consumers would benefit most from a circular system in which premium washing machines are leased against acceptable fees. However, the additional costs for the manufacturer make it a challenge to generate the same level of profit as in the linear system. The research discusses important cost components companies will have to address when making a move towards a circular business model with leasing and remanufacturing.