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 / Winter 2010 / Issue 61(originally published by Booz & Company)


Reduce, Reuse, Recycle…or Rethink

Additionally, innovative design can reduce the energy consumption of the phone, therefore reducing the cost to the consumer and increasing demand. In some cases, new technology can save up to 90 percent of the energy consumption in the usage phase. Changes in design that reduce the quantity of precious metals in cell phones can also be critical. For example, from 1999 to 2003 the amount of gold in phones was reduced by an estimated 25 percent; however, the tiny gold concentration in cell phones (0.03 percent) accounts for up to 80 percent of the recycling revenue. The downside is that if cell phone manufacturers keep decreasing the amount of gold, recycling will become unprofitable (unless gold prices continue to increase or government regulation provides incentives or makes recycling mandatory).

These trade-offs illustrate that cell phone companies need to rethink their design efforts. Although process innovation has the potential to affect costs, and product innovation can increase the demand for the product, the short-term benefits of innovation for recovery are less apparent. Cell phone manufacturers may invest in design that affects the end-of-life stage only if they are required to take back their own products (not just subcontract collection and disposal via a third party, as they do today) or if they incorporate refurbishing and recycling activities as part of their business strategy. Because innovation can be applied to different aspects of design, manufacturers need to rethink where changes in design can be most effective economically and environmentally.

The second opportunity is in refurbishing older phones. Our research into smartphone pricing in a monopoly environment — such as the U.S. partnership between Apple and AT&T for the iPhone or Sprint and HTC for the Android-based Evo 4G — indicates that a service provider could significantly increase profits by offering refurbished models along with new ones. Careful pricing of refurbished phones can entice traditional handset users to upgrade from voice-only to data plans — while minimizing the cannibalization of new product sales. Our research shows that sales of smartphones could go up if the introduction of a remanufactured version induced the service provider to lower the price of new models. Such a price reduction would prove optimal because the manufacturer would sell more new units at a lower price. This in turn would encourage a second tier of consumers to upgrade to the data plans. In short, a service provider such as AT&T or Sprint could use refurbishing to expand its market by actively creating a secondary market to serve a more cost-conscious set of consumers.

The environmental and societal impacts of such a refurbishing strategy, however, would require further assessment. On the one hand, refurbishing a used smartphone consumes less energy than manufacturing a new one. For that reason, a refurbished phone — which requires about 7 megajoules (MJ) of energy for collection and refurbishment — places far less demand on the environment than a new phone, which consumes about 200 MJ. On the other hand, in this example, refurbishment does not displace production but instead is used to expand the market.

Some of this negative impact could be offset by expanding processes to collect the phones after the second use. ReCellular Inc., founded in 1991 in Dexter, Mich., dominates the market for reclaiming cell phones in the U.S. after their first use, with a market share exceeding 50 percent, thanks in part to its in-store take-back partnerships with Verizon, Motorola, Walmart, and others. But ReCellular captures less than 5 percent of retired phones. With a sufficiently scaled “closed loop” supply chain, service providers and OEMs might be able to dramatically increase the collection rate at the end of both first and second lives, thereby reducing the longer-term environmental threat from millions of stockpiled smartphones. Ultimately, a service provider like AT&T might find it necessary and lucrative to expand geographically to developing regions to control both the demand for the refurbished products and their eventual collection and disposal.

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