Recycling Versus Leasing in Closed-Loop Supply Chain: A Comparative Analysis Anchored on Consumer Ownership Perceptions

Abstract

Manufacturers increasingly recycle end-of-life products to realize residual economic value and mitigate environmental impacts on the economic system. Concurrently, with the burgeoning growth of the product-service system, leasing models offer an alternative method to complete the material loop without direct collection. While prior research has delved into recycling channels, incentive mechanisms, and remanufacturing within closed-loop supply chain management, a comparative analysis between recycling and leasing strategies remains under-explored. This study seeks to bridge this gap by elucidating the manufacturer’s strategic decision-making process, factoring in consumers’ product ownership perceptions. We propose a manufacturer decision model anchored on consumer choices and segment it into three scenarios based on varying ownership perceptions. Our analysis contrasts market demand and profit outcomes across these scenarios. Notably, we discern that a hybrid strategy is optimal when ownership perception is low; however, when such perception is heightened, a dedicated recycling strategy proves more advantageous. Importantly, introducing a leasing option does not entirely overshadow the conventional sales market but is susceptible to being overshadowed itself. From a managerial standpoint, while integrating a leasing program might augment revenue streams, sole reliance on it is inadvisable. Furthermore, reshaping consumption paradigms to emphasize product functionality over ownership can pave the way for more expansive leasing strategies, optimizing revenue generation within a closed-loop framework.