Deep Dive: Circular Design & Product-as-a-Service — The Fastest-Moving Subsegments to Watch

The circular economy is transitioning from conceptual framework to regulatory mandate. The European Union's Ecodesign for Sustainable Products Regulation (ESPR), which came into force July 18, 2024, establishes Digital Product Passports (DPPs) as mandatory for most physical products sold in the EU by 2030. Batteries lead the implementation timeline with requirements beginning February 2027, followed by textiles, furniture, and electronics through 2028-2029.

For product teams, this regulatory shift coincides with proven business model innovations demonstrating that circular approaches can outperform linear alternatives on both environmental and financial metrics. Over 70% of manufacturers expect circular business solutions to increase revenue by 2027. The $4.5 trillion global circular economy opportunity is no longer theoretical; leading companies are capturing tangible value from design for disassembly, product-as-a-service models, and take-back programs.

Why It Matters

Traditional product design optimizes for initial sale, often at the expense of durability, repairability, and end-of-life value recovery. This linear model generates enormous waste: products designed for obsolescence, materials that cannot be separated for recycling, and business models that externalize environmental costs onto society.

Circular design inverts these priorities. By optimizing for total lifecycle value, including manufacture, use, repair, refurbishment, and materials recovery, companies can capture revenue streams that linear models forfeit. The economic logic aligns with environmental imperatives: extending product life and recovering materials reduces both virgin resource consumption and waste disposal costs.

Regulatory pressure is accelerating adoption. The EU's DPP requirements will force transparency on material composition, carbon footprint, repairability, and recyclability. Products without DPPs will be blocked from EU market entry. Companies that view this as mere compliance burden will miss the strategic opportunity; those that embrace lifecycle transparency can differentiate on sustainability performance and capture circular value pools.

The shift affects product teams directly. Design decisions made early in development determine lifecycle outcomes years later. Designing for disassembly, material recovery, and extended use requires changes to engineering processes, material specifications, and business model assumptions. Teams that integrate circular thinking from concept stage will outcompete those attempting to retrofit sustainability onto linear designs.

Key Concepts

Digital Product Passports (DPP)

Digital Product Passports are digital data containers attached to physical products containing comprehensive lifecycle information. Under EU ESPR requirements, DPPs must include:

Unique product identifiers compliant with ISO/IEC 15459:2015, enabling individual product tracking throughout the lifecycle.

Material composition and substances of concern, providing transparency on inputs for recyclers and regulators.

Carbon footprint data with standardized methodology, enabling procurement decisions based on verified emissions.

Reparability and recyclability information, including disassembly instructions and material recovery guidance.

Lifecycle traceability documenting maintenance, repairs, and inspection history.

The technical implementation uses machine-readable formats (JSON-LD) accessible via QR codes, NFC tags, or RFID. Data access levels differentiate between public information (carbon footprint, certifications) and restricted data (detailed material composition for authorized recyclers).

Design for Disassembly

Design for disassembly applies engineering principles that enable efficient product separation at end of life. Key practices include:

Modular architecture that isolates components for independent replacement or upgrade without affecting other modules.

Reversible fastening using screws, clips, and connectors rather than adhesives, welding, or other permanent bonds that impede separation.

Material identification through marking systems that enable automated sorting and prevent material contamination during recycling.

Standardized interfaces that allow component interchangeability across product generations, extending useful life through upgrades.

The upfront investment in disassembly-oriented design yields returns through repair revenue, component recovery value, and reduced end-of-life processing costs.

Product-as-a-Service (PaaS)

Product-as-a-Service business models shift value capture from product sale to ongoing service provision. Rather than selling a physical product, companies sell the function or outcome the product provides while retaining ownership throughout the lifecycle.

Subscription models provide regular payments for ongoing access, with the provider responsible for maintenance, repair, and end-of-life management.

Pay-per-use models charge based on actual consumption or output, aligning provider and customer incentives around efficient operation.

Performance contracts guarantee specific outcomes, with the provider bearing risk for underperformance.

The ownership retention fundamental to PaaS creates powerful incentives for durability and repairability. When manufacturers bear lifecycle costs, design decisions favor longevity over planned obsolescence. The model also ensures product return at end of life, enabling materials recovery that sales-based models cannot guarantee.

Take-Back Programs and Reverse Logistics

Effective circular models require infrastructure to recover products from customers. Take-back programs establish collection mechanisms, whether through retail locations, mail-back systems, or pickup services.

The economics of reverse logistics often determine whether circular models succeed. Products designed for easy return, rapid refurbishment, and efficient material separation reduce processing costs. Geographic concentration of customers, product value retention, and refurbishment labor costs all influence viability.

Fastest-Moving Subsegments

Lighting-as-a-Service

Commercial lighting represents one of the most mature PaaS applications. Providers install, maintain, and eventually recover lighting systems while customers pay for illumination output. The model works particularly well because lighting represents a non-core function for most organizations, technology evolution is rapid, and energy savings can offset service fees.

Philips (now Signify) pioneered the approach and continues to lead the segment. Their circular lighting model retains ownership of fixtures, enabling recovery of materials including rare earth elements used in LED phosphors. Customers benefit from guaranteed performance levels, technology upgrades without capital expenditure, and simplified budgeting through predictable operating costs.

Textile Rental and Resale

Apparel faces intense pressure from both environmental impact and changing consumer preferences. Fast fashion's linear model generates enormous waste, with the average garment worn only seven times before disposal. Rental, resale, and repair models extend garment life while capturing multiple revenue streams from single production runs.

Rental platforms serve occasions where ownership provides little value, including formal wear, maternity clothing, and children's outfits that quickly become obsolete. Resale platforms like ThredUp and The RealReal have proven substantial markets exist for secondhand apparel, particularly at premium price points where quality and brand value persist.

Brand-operated programs like Patagonia Worn Wear capture both environmental and strategic benefits. By managing their own resale and repair, brands control customer experience, maintain price integrity, and capture data on product longevity that informs future design decisions.

Electronics Refurbishment and Remanufacturing

Consumer electronics combine high material value, rapid technology cycles, and design complexity that often impedes repair. The subsegment is bifurcating between manufacturers enabling circularity and those resisting.

Apple's Self Service Repair program, while limited, represents acknowledgment that repair access affects brand perception and regulatory exposure. Framework laptop has built an entire brand around modular, repairable design, demonstrating premium pricing power for circular approaches.

Corporate IT represents a more mature refurbishment market, with companies like Dell and HP operating take-back programs that recover devices for refurbishment and resale. The business case is straightforward: refurbished devices command substantial prices while avoiding manufacturing costs.

Industrial Equipment Remanufacturing

Business-to-business applications often present more favorable economics than consumer markets. Industrial equipment carries higher value, more predictable usage patterns, and established maintenance relationships that facilitate recovery.

Caterpillar's remanufacturing program, one of the longest-running in the industry, returns components to like-new condition at 50-60% of new part cost while using 85% less energy than new production. The program generates over $1 billion in annual revenue.

Automotive remanufacturing represents another mature application. Renault's remanufacturing program generates €120 million annually while using 80% less energy and 88% less water than virgin production. Starter motors, alternators, and transmissions are routinely remanufactured and sold with warranties equivalent to new parts.

Real-World Examples

Philips Lighting-as-a-Service: Schiphol Airport

Philips' installation at Amsterdam Schiphol Airport demonstrates commercial-scale lighting-as-a-service. Rather than purchasing lighting fixtures, the airport pays for light output while Philips retains ownership of physical assets. The arrangement enabled a major LED upgrade without airport capital expenditure while guaranteeing energy performance levels.

When technology improves or equipment reaches end of life, Philips recovers materials for remanufacturing or recycling. The model captures value from rare earth phosphors and aluminum housings that would otherwise be lost in conventional disposal. Energy savings exceed 50% compared to previous installations, with ongoing maintenance included in the service contract.

Interface: Carbon Negative Carpet Tiles

Interface, the modular carpet manufacturer, has pioneered circular approaches including take-back programs that recover old carpet for recycling into new products. Their ReEntry program collects used carpet from customers and separates materials for reuse.

The company's modular tile format is itself a circular design choice: individual tiles can be replaced without replacing entire floor installations, reducing material consumption by an estimated 80% over conventional broadloom carpet. Their Climate Take Back initiative has achieved carbon-negative products, with materials sequestering more carbon than manufacturing releases.

Patagonia Worn Wear: Integrated Repair and Resale

Patagonia's Worn Wear program integrates repair services, trade-in programs, and resale of used garments. The company repairs over 100,000 garments annually through mobile repair trucks and retail repair services, extending product life while reinforcing brand values.

Trade-in credits encourage customers to return products rather than discard them, ensuring high-quality inputs for the resale program. Used Patagonia products sell through dedicated Worn Wear channels at prices that maintain brand positioning while providing entry points for price-sensitive customers. The program directly supports the company's mission to reduce environmental impact while generating meaningful revenue from products that would otherwise exit the system.

Action Checklist

• Audit current product designs for disassembly barriers including adhesives, permanent fasteners, and mixed materials that prevent separation
• Map DPP compliance requirements for product categories with EU exposure; batteries by February 2027, textiles and furniture in 2027, electronics in 2028-2029
• Pilot take-back programs with select products or markets to develop reverse logistics capabilities and test customer response
• Evaluate PaaS business models for products with high service intensity, rapid technology evolution, or non-core customer functions
• Establish material recovery partnerships with recyclers capable of processing returned products and providing verified circularity metrics
• Integrate lifecycle costing into product development decisions, accounting for repair, refurbishment, and end-of-life value alongside initial manufacturing cost
• Design modular architectures enabling component replacement and upgrade without whole-product obsolescence
• Implement product tracking systems using unique identifiers compatible with DPP requirements to enable lifecycle data collection

FAQ

Q: When do Digital Product Passport requirements take effect?

A: The EU's ESPR regulation established DPP requirements with phased implementation. Batteries (EV, industrial, light transport) begin February 18, 2027. Textiles, furniture, tires, mattresses, and detergents follow in 2027. Steel, iron, aluminum products, and electronics phase in through 2028-2029. By 2030, nearly all physical products sold in the EU (approximately 30 categories) will require DPPs. Products without compliant DPPs will be blocked from EU market entry.

Q: What infrastructure do companies need for product-as-a-service models?

A: PaaS requires capabilities beyond traditional manufacturing: service delivery networks for installation and maintenance, IoT and tracking systems for asset management, reverse logistics for product recovery, and refurbishment operations for returned products. Financial systems must support subscription billing and asset depreciation over extended lifecycles. Most companies partner with service providers for initial pilots rather than building all capabilities in-house.

Q: How do circular models affect product margins?

A: Initial evidence suggests circular models can improve margins despite higher service complexity. Renault's remanufacturing achieves 50-60% cost reduction versus new manufacturing while maintaining equivalent pricing. PaaS models generate recurring revenue with higher lifetime customer value than single-sale transactions. Material recovery reduces input costs. However, the transition period requires investment in new capabilities before full economics materialize.

Q: Should companies prioritize repair services or take-back/recycling programs?

A: Repair and take-back serve different points in the product lifecycle and often complement rather than substitute for each other. Repair extends useful life during active use, generating service revenue and customer loyalty. Take-back captures end-of-life value when products are no longer economically repairable. Companies should sequence investments based on product durability, customer relationships, and material values. Products with high repair potential and engaged customers favor repair investment; commodity products with valuable materials may prioritize recovery infrastructure.

Sources

• European Commission. (2024). Ecodesign for Sustainable Products Regulation (ESPR). https://data.europa.eu
• KNOWRON. (2025). Digital Product Passport (DPP) in the EU: Full Guide. https://www.knowron.com/digital-product-passport
• Fluxy.One. (2025). Digital Product Passport Explained: 2025-2030 Timeline and Compliance Guide. https://fluxy.one/post/digital-product-passport-dpp-eu-guide-2025-2030
• Ellen MacArthur Foundation. (2024). Circular Economy Overview. https://ellenmacarthurfoundation.org/
• European Circular Economy Stakeholder Platform. (2024). Product as a Service. https://circulareconomy.europa.eu/platform/en/sector/product-service
• OECD. (2024). Business Models for the Circular Economy. https://www.oecd.org/en/publications/business-models-for-the-circular-economy_g2g9dd62-en.html
• World Economic Forum. (2024). 5 Circular Economy Business Models That Offer a Competitive Advantage. https://www.weforum.org/stories/2022/01/5-circular-economy-business-models-competitive-advantage/