Economic reasons for manufacturers to embrace repair
Making products repairable has many well-touted benefits for the environment and society. It reduces waste from discarded products and lowers carbon emissions from producing new ones. It facilitates a more efficient use and recovery of valuable resources, particularly critical raw materials, whose extraction has adverse effects on communities and the environment at extraction sites. Moreover, repairing products fosters local prosperity by helping develop technical skills among consumers and technicians. And it builds a sense of community when repairs are done collectively. As Mathew Lubari said in a speech at Fixfest 2022, repairing products collectively “promotes peace”. So, repairing products is an effective way to contribute to sustainability.
Despite all these benefits, in the business world, it’s the bottom line that counts. Financial targets are typically prioritized over sustainability targets. Businesses need to make profit to stay in business. So what, if any, is a manufacturer’s financial interest in making products repairable? It turns out, repair is more than just good for people and the planet—it’s good for profit too.
We often hear from repair-reluctant original equipment manufacturers (OEMs) that if people fix their stuff, they won’t buy more (new) stuff. They feel that repairable products jeopardize the sales of new products, bringing profits down. The truth? That is just thinking within the box, or line, of the linear economy. Repair offers the opportunity to keep products valuable for longer. And thus, it opens up opportunities for new business models, including parts sales, take-back programs, service programs, selling used or refurbished products, and the sale of modular, fashionable upgrades. By implementing these circular economy strategies, businesses can create new revenue streams. So, even if people choose to buy fewer new items, it doesn’t necessarily result in a loss in revenue or profit.
Repair Increases Service Revenue
In fact, services provide stable revenue—and often higher margins—than the sales of new equipment. This could include providing aftermarket services like making spare parts available for purchase, facilitating repair, and providing product maintenance.
A McKinsey study across 30 industries showed that the average earnings-before-interest-and-taxes (EBIT) margin for aftermarket services was 25%, compared to just 10% for new equipment. In addition, facilitating repairs provides OEMs with valuable insights into their products. They can assess the performance of the product in real-world conditions, evaluate its reliability and durability for future designs, understand how customers use them, and identify their support needs. Moreover, servicing products allows OEMs to develop a comprehensive understanding of the entire product lifecycle, including factors such as aging, long-term performance, and wear. Besides generating new revenue streams, servicing products offers the opportunity to expand product knowledge beyond before-market insights.
Repair Boosts Sales
Even outside of creating new business models—making products repairable and showcasing repairability has shown to increase the number of sales. When Patagonia launched its Common Threads Program, their ambitions were twofold. First, they wanted to encourage customers to fix their damaged clothing, and second, they wanted to create a second-hand market for preloved Patagonia garments. They published do-it-yourself guides and provided affordable repair services for their clothing. They created a marketing campaign showcasing customers around the globe who treasured their worn, patched-up Patagonia garments with pride. Furthermore, in 2011 they launched a campaign to dissuade customers from purchasing new clothing that they did not really need. They published an ad featuring a picture of one of Patagonia’s highest grossing fleece jackets below the words: “DON’T BUY THIS JACKET.” Despite Patagonia’s efforts, sales increased by approximately 30% in the nine months following the ad. Most likely their ad helped them engage with conscious consumers who chose Patagonia over less sustainable brands.
More Repair does not Mean More Cloning
Another misconception OEMs often raise is that making repairable products means that they are easier to clone. But, to date, we have no evidence supporting that claim. And it is hard to imagine that repairable products will be cloned more than products are being cloned now. In fact, a paper on Intellectual Property Law and the Right to Repair deems this argument as a scare tactic.
The paper goes on to say that providing repair information would not increase intellectual property theft because the business model behind counterfeit products is to produce low quality products. Counterfeits are made to mimic the look of the cloned product, but not to mimic the functions or quality of the product in great detail because that would increase the costs–and its price. The selling point of counterfeit products is not quality—but low price. Therefore, even if repair information helps understanding of how the product works, it would not contribute to better counterfeits.
Cloning normally occurs through the process of reverse engineering. Counterfeit manufacturers get a genuine sample of the product they want to clone and disassemble it to examine its components. Then, they replicate it and sell it. So, when a product is introduced to the market, there is always a risk of cloning. Product repairability itself is unlikely to be a key enabler for counterfeit manufacturing. Making a product repairable doesn’t provide all the information that is needed for cloning it.
Repair Reduces Costs
It’s not only late in the product lifecycle that repair makes cents. Making a product repairable can reduce costs for the manufacturer at various stages of a product’s lifetime. First, designing for repair and recycling facilitates the extraction of components and valuable materials. Therefore, it increases the potential of recovering critical raw materials, and can contribute to a reduction of costs in raw materials. For instance, recycling aluminum requires only a fraction of the energy needed to extract it from its ore. And products made from recycled plastics are around 80% cheaper than those using new materials—if the costs of collecting, sorting, and processing are kept low. Following design for repair and recycling approaches also helps OEMs to be prepared and build resilience against the price volatility of commodities, such as copper.
Designing for repair can also reduce component costs. If components from used, unsold, and returned products can be easily harvested and used in other products for servicing purposes, the cost and sourcing-time can be reduced, easing the supply chain. Moreover, designing for repair reduces service costs during and after the product warranty period. If product components are modular and easily accessible, and fasteners are reversible (think screws, not glue!) repair and maintenance services become less risky, quicker, and more cost effective—all of which increase profit margins. For example, HMD Nokia made design-for-repair changes to their G22 model. They swapped from a glued back cover to a clipped one, and changed the type and amount of glue used to fasten the battery to the main frame. These changes lowered the time to swap a dead battery from 85 minutes to just 5 minutes. The new back cover also allows consumers to perform the repair themselves, slashing their service costs for in- and after-warranty servicing.
Repair Provides Additional Sources of Revenue
Repair and maintenance services aren’t the only revenue stream in a more circular model. Designing for repair creates an additional source of revenue from preowned products. Companies like GE Medical Systems (GEMS), IBM, Compaq, Dell, GE Capital, Stamford Computer, and NEC have take-back policies in place. They are selling pre-loved equipment in good functional condition—and making money.
For example, IBM’s Global Asset Recovery Services profits from the reselling of refurbished or reconditioned pre-owned and end-of-lease equipment. IBM Global Financing, which is the leasing company, refurbishes computer systems for retail sale to large corporate customers, educational institutions, small businesses, and resellers. GEMS profits from selling their own and other manufacturer’s remanufactured equipment and components.
The other cited IT leasing companies make more revenue by remarketing end-of-lease mainframes and PCs than by selling them to wholesale brokers or recyclers. They offer them to retail and refurbished resale, or spare parts to in-house maintenance departments. NEC refreshed PCs resells computers from a buyback program,which also provides them with an additional stream of revenue.
Repair Provides Strategic Advantage
Adding to the economic benefits, repairable products give OEMs strategic advantages. Making products that last longer is a great long-term business plan. Repairable products will reduce compliance costs and potential fines associated with new Right to Repair legislation which is already being enforced in the US and EU—and continues to expand.
Recent developments in the US come from the Digital Fair Repair Act. The law, already enforced in New York State and Minnesota, asks manufacturers to make repair parts, tools, and documentation, including schematics, available to the public and independent repairers.
In the EU, the Ecodesign Directive provides a framework of requirements to extend the lifetime of products. Legislation on batteries of electronic devices and lifetime extension requirements for smartphones and tablets are currently under discussion.
Repair Builds Brand Loyalty
Repairable products also create brand identity and brand loyalty. They result in higher trust and higher appreciation from the consumers. Companies embracing repairs are seen as a sustainable choice. And OEMs who embrace sustainability are seen as pioneers leading a global initiative to advance the circular economy and more sustainable business practices, which is a growing societal trend.
Identifying with sustainable movements such as repair can increase market share and customer satisfaction. And help to engage with a new customer segment. For consumers who are likely to repair, designing for repair and facilitating a repair ecosystem influences future purchase behavior and their recommendations to others.
But repair not only allows OEMs to tap into this new customer segment. It allows for longer-term, higher-engagement interaction with that customer base. Rising inflation and higher costs of living are pushing more consumers to repair and reuse products. Creating a repair ecosystem can be a good way to keep a relationship with customers in times when they have less access to disposable income.
Welcome to the Repair Revolution
Facilitating repairs promises a win-win situation for both OEMs and consumers. OEMs need to understand how repairable their products are and what is their aftermarket lifetime value—that is, the revenue OEMs receive from core aftermarket services (e.g., spare part sales, repair, and maintenance). Both product design and lifetime value can be improved to maximize the revenue from aftermarket services. The best part? It doesn’t have to happen all at once.
Designing for repair and building a repair ecosystem can be complex. It involves a lot of stakeholders and dynamic, interconnected problem solving. But getting started doesn’t have to be difficult. Often, increasing aftermarket revenue requires establishing a take-back system from used products or parts. Most critically, it requires an organizational shift towards a repair-oriented, sustainable mindset. And the fact that you’re reading this now means you have already taken the first step. Welcome to the repair revolution!