Climate change, biodiversity loss, waste generation, and resource scarcity are no longer abstract risks. They are impacting industries across the board, and the hospitality sector is particularly vulnerable.
Over recent years, hotels have taken steps to mitigate their own environmental impact, often inspired by the 3Rs principles, namely “Reduce, Reuse, and Recycle”. These have been the dominant strategies used for promoting the sustainable circulation of products and materials, thereby lowering waste and pollution.
While these have made a significant difference to how hotels operate and their carbon footprint, they increasingly seem limited in the face of the scale of the challenges. The circular hotel business model has emerged as one of the most promising frameworks for meeting these challenges, transforming how hotels create, deliver, and capture value.
Not only does the circular hotel business model offer operational benefits, but it can also generate higher customer satisfaction.
In this article we explore the circular business model in more detail and examine why it may be time to rethink our approach.
Recent research, including studies from EHL Hospitality Business School, shows that while the 3Rs remain essential, they are no longer the most effective drivers of customer engagement or willingness to pay.
In fact, rethinking and redesigning hotel operations can generate far more positive guest perceptions than visible cost-cutting measures packaged as sustainability.
Most hotel guests over the past decade will have encountered the familiar bathroom message:
“Help us save water by reusing your towels.”
While this appears aligned with sustainability for zero-waste hotels, and so called eco-friendly hotels, guest interpretation of such instructions can vary dramatically. While some visitors will appreciate the environmental steps being taken, others view it as an attempt to reduce laundry costs.
This perception impacts various circular economy solutions that focus on resource reduction rather than on addressing the underlying operational design.
For example:
A growing body of research on the circular economy in hospitality confirms that brand perception, guest satisfaction, and willingness to pay all increase when hotels implement measures that require internal investment. Design-led sustainable hospitality can ultimately improve both environmental and financial performance.
Business sustainability experts increasingly argue that the 3Rs lack the potential to be genuinely transformative without broader structural changes. These changes are characterized by a rethink-and-redesign approach, requiring investment, training, and the reorganization of workflows.
When these new circular economy principles are applied to hospitality, it can have a range of operational outcomes.
These include:
Rather than simply reducing the frequency of cleaning, hotels can train staff to clean more efficiently, using zoned energy systems, low-flow equipment, and biodegradable products. This increases the perceived authenticity of eco-friendly hotels.
The adoption of solar arrays, smart room controls, heat-recovery systems, and similar technology demonstrates a tangible investment in energy efficiency. This is a key pillar of the UN’s strategy for reducing the carbon footprint of the global tourism industry.
Instead of eliminating items, sustainable hotels rethink and redesign their supply chains. Typically, they will make the switch to refillable amenities, compostable materials, and locally produced goods.
Circular F&B strategies are an integral operational component of zero-waste hotels and can deliver significant financial and sustainability benefits. Hotels may incorporate on-site composting, redistributing surplus food, and sourcing ugly or imperfect produce that would otherwise be discarded.
All of these redesign-driven initiatives have a stronger psychological impact on customers, signaling a genuine commitment rather than superficial greenwashing and cost savings.
Research by EHL aimed to find out whether a combination of reusing, reducing, or recycling alongside a rethink or redesign approach had a more positive impact on customer willingness to pay a premium price than the 3R practices alone.
A website for a fictitious hotel was set up, presenting six circular practices. Three were introduced as traditional 3R practices, including placing recycling bins in rooms, reusing towels, and reducing energy use through simple measures like turning off lights.
The remaining three were presented as rethink or redesign practices. These highlight systemic changes that demonstrate a meaningful and authentic commitment.
Examples included staff training to optimize water and energy use without compromising guest comfort, implementing smart energy management systems, and redesigning housekeeping processes that reduce waste while maintaining high service standards.
A survey was then conducted with 706 participants, who explored the fictitious hotel website and answered questions about their attitudes and willingness to pay (WTP) for a stay. The results it generated were clear:
Guests clearly reward authentic action that combines environmental responsibility with thoughtful service delivery.
The study emphasized the importance of transparency and communication. Practices framed as genuine commitment rather than just cost-saving measures were well received.
For instance, when participants understood that staff had received training to reduce energy use and water consumption without affecting guest comfort, their perception of the hotel significantly improved.
This contrasted with initiatives perceived as superficial or primarily cost-driven, which had less impact and, in some cases, could negatively affect perception if not thoughtfully presented.
The graphic below shows the average answer (on a scale from 1 to 7) to the question “Are you willing to pay a higher price than for other hotels of the same category?” The sample size was 706.
By clearly communicating their efforts to guests, eco-friendly hotels can achieve stronger economic outcomes and greater brand loyalty while having a more meaningful impact on environmental stewardship.
Guests are not only sensitive to whether sustainability measures are genuine or mere cost-saving strategies. They also appreciate the effort, investment, and commitment required to implement it.
EHL researchers illustrate this using an analogy to charitable giving. A wealthy donor giving $1,000 may be appreciated, but a low-income donor giving the same amount is often admired more for the personal sacrifice involved. The effort behind an action communicates commitment, with the perception strongly shaping attitudes.
When it comes to hotels, rethink or redesign practices can involve a substantial investment. Whether it’s new staff training, infrastructure upgrades, solar installations, or other long-term operational planning, guests recognize and appreciate these efforts.
When guests perceive the hotel as genuinely committed to environmental and social responsibility, they are willing to reward those efforts by paying premium prices.
This connection is supported by the Theory of Planned Behavior, suggesting that desirable outcomes, such as a willingness to pay a premium, are influenced by attitudes formed from perceived authenticity and intent.
When sustainability practices are authentic rather than superficial gestures, and are framed and implemented as such, guests respond positively. A circular hotel business model rooted in rethink and redesign is valued by guests, who subsequently demonstrate trust in the hotel’s brand through a greater readiness to pay more for their stay.
Hotels that embed circular economy principles into their core operation signal authenticity and responsibility, directly translating into enhanced guest satisfaction and increased willingness to pay.
Effective sustainability messaging is essential to shaping guest perception, but it must be handled carefully. EHL research discovered that it can occasionally have a negative impact on how guests regard the brand.
A striking example of this is the use of graywater. Although recycling water for toilets and backyards is an environmentally sound practice, guests often reacted negatively when this was highlighted.
Several factors have been suggested to explain this response. Pandemic-era sensitivities have heightened concerns around sanitation and cleanliness, making guests more cautious about anything that might be perceived as a health risk.
The term “graywater” can also raise hygiene concerns due to its association with contamination, even if the water is safe. Finally, misunderstandings about the process, such as not realizing that graywater is treated before it’s used, made some guests uncomfortable.
This case underlines two essential rules for sustainability communication in hospitality. Initiatives need to be presented in ways that are perceived as safe, premium, and aligned with guest expectations.
Organic food sourcing and energy-efficient lighting, for example, resonate more positively because these practices are seen as adding value to the guest experience and increasing comfort. Guests want to feel that environmental responsibility enhances their experience rather than diminishing from it.
Communicating the circular economy in hospitality requires careful framing. Eco-friendly hotels need to carefully choose which initiatives to highlight and how they are presented. Positive sustainability messages need to be tailored to reinforce trust and brand value.
A lingering assumption in hospitality is that sustainability initiatives are more relevant for eco-budget or mid-range hotels, while luxury properties are less likely to benefit commercially from their implementation.
In practice, while guests at 3-star hotels show a stronger willingness to pay (WTP) for circular economy practices, this impact is smaller but still meaningful at 5-star hotels.
This may be partly explained by the “sustainability liability” effect, where luxury guests worry that eco-friendly measures may compromise comfort or service quality. For high-end hotels, the challenge lies in embedding circular strategies that enhance the guest experience, and then communicating that confidently.
Practical circular economy solutions that add value include energy-efficiency upgrades, such as smart HVAC systems, occupancy sensors, and renewable energy integration.
Zero-waste hotels implement on-site composting, food waste analytics, refillable amenities, and bulk products. Water circularity initiatives, such as rainwater harvesting and water-efficient laundry, reduce resource use while maintaining guest comfort.
Circular F&B operations leverage local sourcing, local grower partnerships, and closed-loop systems better align with sustainability expectations.
It’s not just about infrastructure; a circular hotel business model also requires cultural change. Staff must understand why circular practices are important, communicate them effectively, and maintain service standards.
Successfully embedding circularity in a hotel involves creating a workplace culture where every team member, from housekeeping to management, feels a sense of ownership over sustainability goals.
A robust circular hotel business model combines both physical infrastructure and culture of shared commitment. When implemented correctly, sustainability can enhance value across all hotel segments while delivering a meaningful guest experience.
By moving beyond the traditional 3Rs of reduce, reuse, and recycle, hotels can embrace more comprehensive rethink-and-redesign approaches that demonstrate a genuine commitment to sustainability.
Such strategies not only reduce environmental impact but can also enhance guest experiences, fostering trust and increasing willingness to pay across a range of hotel segments.
The circular hotel business model provides a practical pathway to environmental stewardship and a future-proofed business strategy.