Harnessing Platforms to Generate Circular Revenue
Lessons from Five Leading Firms
The circular economy offers the opportunity to generate revenue through the resale and refurbishment of products. A growing number of prominent firms have successfully capitalized on these opportunities, generating millions or even billions of dollars annually. Companies can establish resale programs that involve buying back used products from customers, generating new revenue streams while enhancing customer engagement and reducing environmental impact. Harnessing the power of platforms is also a way to achieve scale through wholesale auctions, retail online marketplaces, or both.
Prominent examples of companies that are leveraging platform business models to generate circular revenue include Cox Automotive through Manheim and Autotrader.com, which generate revenue through resale-as-a-service offerings largely to auto dealerships. Similarly, Verizon's Certified Pre-Owned program encourages trade-ins of older smartphones and enables resale through its dedicated eCommerce website. Flex leverages FreeFlow a platform it recently acquired to manage surplus electronic equipment. Companies like Harley-Davidson and IKEA also exemplify this trend. Harley-Davidson's H-D1 Marketplace enables the resale of certified pre-owned motorcycles while IKEA has introduced initiatives to buy back used furniture, allowing customers to return items for resale through a platform it is currently testing.
These examples illustrate how businesses can activate blended revenue models that combine traditional linear revenue (sale of new products) with revenue generated from selling previously owned products. The following sections describe the elements that make up circular revenue and provide more detail on how five companies from very different industries are capitalizing on this source of value.
Circular Revenue
The concept of circular revenue can be understood through direct and indirect revenue generation, with online platforms playing a central role in both aspects.1 Direct revenue generation involves activities that create immediate financial returns from products and services designed for reuse, refurbishment, or recycling. For instance, companies implement take-back programs to collect used products for recycling or refurbishment, allowing them to recover valuable materials for resale, refurbish and resell products, and offer recycling services to other businesses. Additionally, businesses can generate revenue by selling excess inventory through various channels, such as B2B marketplaces or discounted sales to consumers. This approach not only helps recover costs but also minimizes waste by repurposing materials for new product lines. Furthermore, companies can facilitate the resale of pre-owned products through online marketplaces or trade-in programs through various resale-as-a-service models.2
Indirect revenue generation refers to the broader economic benefits that arise from adopting circular practices. While these benefits may not translate into immediate cash flow, they contribute to long-term profitability and brand value. Research indicates that consumers are often willing to pay a premium for products associated with circular take-back programs due to perceived value and psychological ownership. This willingness can enhance brand loyalty and market share over time. Additionally, circular models can lead to reduced material costs and lower supply chain risks by utilizing recovered materials, which stabilizes pricing and fosters a more sustainable business model that attracts environmentally conscious consumers. Lastly, companies that adopt circular practices can build their reputation as innovative and environmentally responsible organizations, leading to increased customer engagement and loyalty.
Platforms can facilitate both direct and indirect revenue generation within the circular economy.3 These digital marketplaces connect buyers and sellers in ways that traditional brick-and-mortar retailers cannot, allowing for the efficient exchange of pre-owned items. By extending the lifecycle of products and reducing the demand for new goods, online platforms minimize waste while promoting sustainability. They also serve as essential tools for compliance with regulatory measures aimed at promoting a circular economy, such as the European Union's Circular Economy Action Plan. Furthermore, digital platforms enable businesses to tap into new revenue streams by selling refurbished and recycled products, catering to a growing market demand for sustainable options.
Moreover, online platforms enhance consumer engagement by providing clear information about product availability and sustainability practices, fostering trust between buyers and sellers. The network effects generated by these platforms create a positive feedback loop; as more users participate, the efficiency of transactions improves, attracting even more participants. This interconnectedness not only drives business growth but also contributes positively to environmental outcomes by promoting resource conservation and minimizing waste throughout the supply chain.4
Cox Automotive, Verizon, Flex, Harley-Davidson, and Ikea do not release specific figures regarding the amount of circular revenue they generate from their resale platforms. However, the total merchandise value (GMV) transacted across the platforms they operated exceed $130 billion annually. As discussed below, these companies benefit from fees and various value-added services that they provide to support circular transactions.
Cox Automotive - Manheim and Autotrader.com
Cox Automotive exemplifies this model in the automotive sector by leveraging its platforms, Manheim and Dealer Auction, which primarily focus on wholesale markets. Manheim serves as a leading vehicle auction service, while Dealer Auction provides car retailers with access to vehicle stock through a digital platform. This strategy enables Cox Automotive to generate revenue from transactions that extend vehicle lifecycles and promote a circular economy within the automotive industry.5
Manheim focuses primarily on the wholesale market, serving as a leading vehicle auction service where dealers can buy and sell vehicles in bulk. One of its standout characteristics is the ability for sellers to remarket their vehicles earlier in the remarketing cycle compared to traditional live auctions. This feature allows for quicker transactions and more efficient inventory management for dealerships. Additionally, Manheim provides comprehensive analytics and consulting services to help dealers optimize their business strategies and maximize profits, which is not commonly offered by other used vehicle platforms.
On the other hand, Autotrader.com caters to the retail market and is recognized as the most visited third-party car shopping site. It aggregates a vast database of over 3 million vehicle listings from both dealers and private sellers, attracting more than 13 million qualified buyers each month. Autotrader.com enhances the car shopping experience through innovative features such as detailed search functionality, multiple photo uploads, and a user-friendly interface that simplifies the process of researching, locating, and advertising vehicles. Unlike many other platforms, Autotrader also offers an auction-style listing option that allows sellers to engage with a broader audience without incurring selling fees, making it accessible for mainstream consumers who may be hesitant to participate in traditional auction formats.
Cox Automotive's Manheim platform generates revenue through multiple channels within its wholesale auction ecosystem. As a leading vehicle auction service, Manheim facilitates transactions representing nearly $80 billion annually, earning fees from each auction. The platform offers various subscription services to dealers and commercial clients, which may involve recurring fees. Additionally, Manheim provides value-added services such as vehicle inspections, detailing, and logistics, all of which contribute to its revenue stream. The company's data and analytics capabilities also play a role, potentially generating income through market insights and consulting services offered to clients.
Autotrader.com, Cox Automotive's retail-focused platform, employs a different revenue model tailored to its consumer-facing market. The platform primarily uses a tiered, pay-for-placement model where dealers can choose different levels of listing visibility. On average, dealers pay around $2,500 per month to list their entire inventory for 30 days. Autotrader.com also likely generates revenue through lead generation, connecting potential buyers with sellers and facilitating transactions. Additional income may come from advertising opportunities offered to dealers and related businesses. Like Manheim, Autotrader.com benefits from Cox Automotive's data and analytics capabilities, which enhance its value proposition and may create supplementary revenue streams through market insights and consulting services.
Verizon's Certified Pre-Owned (CPO) platform
Verizon operates in the smartphone sector with its Certified Pre-Owned (CPO) platform, which focuses on retail markets.6 This initiative allows customers to purchase rigorously tested refurbished smartphones that come with warranties. By encouraging trade-ins of older devices and facilitating the resale of pre-owned phones, Verizon fosters a circular flow of resources in the electronics market while enhancing consumer confidence in buying used devices.
Verizon's CPO platform distinguishes itself from other used device platforms through a combination of rigorous quality assurance and customer-centric features. At the heart of this program is a comprehensive 100+ point quality check that spans 10 key categories, including multiple power cycles and thorough functional testing. This meticulous process ensures that each device meets Verizon's high standards before being offered to consumers. To provide transparency, Verizon employs a clear grading system, categorizing devices as "Like New," "Great," "Very Good," or "Good." This grading, coupled with a 90-day limited warranty, offers buyers confidence in their purchase. Furthermore, CPO devices are eligible for Verizon's Total Mobile Protection plan, which includes benefits like same-day device replacement and unlimited cracked screen repair.
As a major carrier, Verizon guarantees full network compatibility for all CPO devices, a significant advantage over third-party platforms. Verizon enhances accessibility through flexible payment options, allowing customers to spread payments over 36 months. The comprehensive nature of Verizon's Total Quality Inspection, which covers everything from battery health to software updates, further sets this platform apart. These features collectively make Verizon's CPO program a unique and reliable option for consumers seeking quality pre-owned devices with the assurance of a major carrier backing.
Verizon's platform generates revenue through a multifaceted approach that capitalizes on the resale of used smartphones while offering additional services and benefits. The primary revenue stream comes from the sale of CPO devices at discounted prices compared to new models. Verizon enhances this income by offering monthly payment plans to qualified customers, potentially earning interest on these financing arrangements. The platform also contributes to accessory sales, as chargers are provided with CPO phones. A trade-in program encourages customers to exchange their old devices, creating a cycle of inventory that Verizon can refurbish and resell. Additionally, CPO phones are eligible for Verizon's Total Mobile Protection plan, starting at $12 per month, providing a recurring revenue stream. The platform serves as a customer retention tool by offering more affordable options, potentially leading to long-term service revenue.
Flex- FreeFlow platform
Flex takes a different approach in the electronics space through its FreeFlow platform, which it acquired to bolster its capabilities in reverse logistics.7 FreeFlow operates in wholesale markets by enabling businesses to sell surplus and returned inventory efficiently. This not only protects primary sales channels but also creates additional revenue streams while promoting sustainability through second-life products.
Flex's FreeFlow platform distinguishes itself in the electronics resale market through its unique combination of features tailored to business needs and environmental concerns. As a B2B digital marketplace, FreeFlow enables companies to efficiently manage surplus and returned inventory while safeguarding their primary sales channels and brand integrity. The platform's integration into Flex's broader product lifecycle services portfolio offers comprehensive support from design to post-sale capabilities. FreeFlow's digital circular economy tracking and reporting functionalities provide valuable insights into product lifecycles, empowering businesses to make informed decisions about manufacturing, reuse, and recycling. Additionally, the platform's carbon impact reporting feature aligns with growing sustainability initiatives.
The Flex FreeFlow platform generates revenue tailored to its B2B digital marketplace model. While specific details are hard to come by, the platform earns transaction fees from each sale facilitated through its marketplace. FreeFlow's core service of enabling customers to sell surplus and returned inventory probably involves fees for managing this asset disposition process. The platform's advanced features, such as digital circular economy tracking and reporting capabilities are offered as value-added services, creating additional revenue streams.
As a comprehensive marketplace manager, FreeFlow likely charges for its services in connecting sellers with a global network of registered buyers. The platform's focus on improving profitability through the strategic use of existing and alternative channels may involve a revenue-sharing model based on the increased value recovered from excess inventory. Additionally, as part of Flex's expanded services, FreeFlow offers sustainability analytics, which could serve as another source of income.
Harley-Davison H-D1 Marketplace
Harley-Davidson's H-D1 Marketplace stands out in the used motorcycle market due to its unique features and strategic approach compared to other platforms.8 Launched in July 2021, H-D1 Marketplace marked a significant shift for Harley-Davidson, which had previously allowed third-party websites like eBay and Craigslist to dominate the resale of its motorcycles. This platform represents the company's first major effort to create a comprehensive, company-backed online destination for pre-owned Harley-Davidson motorcycles. One of the key differentiators of H-D1 Marketplace is its integration with the Harley-Davidson Certified program, which ensures that each pre-owned motorcycle undergoes a rigorous 110-point inspection performed by the company's dealer network. This certification process not only maintains the brand's reputation for quality and performance but also provides buyers with peace of mind when purchasing a used Harley.
Initially, the H-D1 Marketplace focused on listings from authorized dealers, ensuring that customers have access to a curated selection of high-quality pre-owned bikes. This dealer-centric approach is complemented by the platform's expansion in January 2023 to include listings from private sellers, further enhancing its inventory and appeal. The platform's design facilitates a seamless purchase experience, allowing customers to browse, customize, and finance their purchases directly through Harley-Davidson Financial Services.
Another notable feature is the "Sell My Bike" option, which allows customers to sell their motorcycles directly into the Harley-Davidson dealer network. This not only simplifies the selling process for consumers but also strengthens the connection between buyers and authorized dealers that might not otherwise happen. This strategic focus on enhancing customer experience aligns with Harley-Davidson's broader "Hardwire" strategic plan, which emphasizes building lasting relationships with riders and recognizing their contributions to the brand. The platform typically lists between 24,000 and 26,000 bikes for sale and involves 540 participating U.S. Harley-Davidson dealers.
Harley-Davidson generates revenue from its H-D1 Marketplace in several ways. The company charges a small fee for each bike listed on the platform.9 The inclusion of H-D Certified motorcycles, which undergo inspection and reconditioning, potentially generates revenue through certification fees and higher sale prices for these bikes. The platform is powered by H-D Financial Services, offering financing solutions that likely generate revenue through interest and fees on loans. By connecting customers directly to the Harley-Davidson dealer network, the company may earn revenue from increased dealer sales and services. The 'Sell My Bike' feature, allows customers to sell their motorcycles directly to the dealer network, which generates fees on these transactions.
IKEA Preowned
Finally, IKEA has recently entered the circular revenue generation arena with its IKEA Preowned initiative, currently being trialed in select European markets.10 This peer-to-peer marketplace allows customers to buy and sell used IKEA furniture, promoting sustainability by encouraging recycling rather than disposal. By tapping into the second-hand market for home goods, IKEA creates new revenue opportunities while aligning with its commitment to environmental responsibility.
Unlike general resale platforms, Preowned exclusively focuses on IKEA products, creating a curated marketplace for buyers familiar with the brand. The platform's user experience closely mirrors IKEA's regular e-commerce site, providing a seamless and familiar interface. A standout feature is the use of artificial intelligence to automatically enhance seller listings with original product images and dimensions, ensuring high-quality and consistent product information. This aligns with IKEA's broader sustainability goals, supporting the circular economy by extending product lifecycles and reducing waste.
To incentivize participation, sellers can opt for IKEA vouchers with a 15% bonus instead of cash, fostering continued engagement with the brand. The platform also includes a section for ordering spare parts and materials, encouraging product refurbishment and longevity. While not explicitly stated, IKEA's involvement suggests a level of quality assurance that may not be present on general resale platforms. With plans for expansion beyond its initial pilot phase, Preowned has the potential to become a global marketplace for secondhand IKEA goods. These features collectively make IKEA Preowned a unique platform that integrates seamlessly with IKEA's existing ecosystem and sustainability initiatives, setting it apart in the home goods resale sector.
IKEA may also introduce a nominal fee for listings in the future, as hinted by Ingka Group CEO Jesper Brodin.11 An indirect but potentially significant revenue opportunity lies in the platform's ability to collect valuable consumer behavior data, which could be monetized or used to inform future business strategies. Additionally, the platform opens possibilities for generating revenue through associated services like furniture transport, financing, and rental options. Currently, in a trial phase, IKEA Preowned represents a strategic investment in exploring new business models that align with the company's sustainability goals and evolving consumer preferences.
Conclusion
The strategies adopted by Cox Automotive, Verizon, Flex, Harley-Davidson and IKEA illustrates how business practices can be focused on circular revenue generation. Some, like Cox automotive, have become deeply embedded in doing this across an entire industry. Others like IKEA are just starting to explore circular revenue opportunities and how best to go about it. By developing innovative resale programs and leveraging advanced platforms, these organizations are not only extending the lifecycle of their products but also creating new sources of value creation.
To successfully implement circular revenue models through resale programs, companies should consider developing circular platforms, either organically or through acquisitions that bring together buyers and sellers of preowned products. As the number of transactions scale, platforms provide the potential to create various direct and indirect circular revenue streams.
The shift towards circular revenue is not just a trend; it represents a way businesses can create new sources of competitive advantage. As economic and regulatory pressures move the world to a more circular economy, these frontier companies offer important lessons for others seeking to establish circular revenue opportunities.
Footnotes
