Planned Obsolescence

AAA

DEFINITION of 'Planned Obsolescence'

A manufacturing decision by a company to make consumer products in such a way that they become out-of-date or useless within a known time period. The main goal of this type of production is to ensure that consumers will have to buy the product multiple times, rather than only once. This naturally stimulates demand for an industry's products because consumers have to keep coming back again and again.

Products ranging from inexpensive light bulbs to high-priced goods such as cars and buildings are subject to planned obsolescence by manufacturers and producers.

Also known as "built-in obsolescence".

INVESTOPEDIA EXPLAINS 'Planned Obsolescence'

Planned obsolescence does not always sit well with consumers, especially if competing companies offer similar products but with much more durability. Pushing this production too far can result in customer backlash, or a bad reputation for a brand.

However, planned obsolescence doesn't always have such a negative connotation. Companies can engage in this activity solely as a means of controlling costs. For example, a cell phone manufacturer may decide to use parts in its phones that have a maximum lifespan of five years, instead of parts that could last 20 years. It's unlikely most consumers will use the same cell phone five years after purchase, and so the company can lower input costs by using cheaper parts without fearing a customers backlash.

RELATED TERMS
  1. Obsolescence Risk

    The risk that a process, product or technology used or produced ...
  2. Functional Obsolescence

    A reduction in the usefulness or desirability of an object because ...
  3. Disposable Income

    The amount of money that households have available for spending ...
  4. Succession

    The action of one party, person or product being replaced by ...
  5. Obsolete Inventory

    Term that refers to inventory that is at the end of its product ...
  6. Property, Plant And Equipment - ...

    A company asset that is vital to business operations but cannot ...
Related Articles
  1. Investing Basics

    Industry Handbook

    In this feature, we take an in-depth look at the various techniques that determine the value and investment quality of companies from an industry perspective.
  2. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  3. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  4. Budgeting

    A Day Without Spending, A Lifetime's Worth Of Lessons

    Financial guru Suze Orman once challenged her fans to go a day without spending any money. Here are the lessons learned from this exercise.
  5. Credit & Loans

    The Disposable Society: An Expensive Place To Live

    Resisting the trend toward consumption will boost your bottom line and bolster the environment.
  6. Home & Auto

    Wheels Of A Future Fortune

    Buy a quality car without driving your expenses through the roof.
  7. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  8. Personal Finance

    Why Are Tesla Cars So Expensive?

    What makes Tesla cars so expensive? Short supply and pricey parts is a good place to start.
  9. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  10. Investing

    Why Are Consumers In Hesitation?

    Diverging monetary policy globally and a stronger dollar continued to be key drivers of the recent underperformance and last week’s tumble in U.S. stocks.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center