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A manufacturing decision by a company to make consumer products in such a way that they become out-of-date or useless within a known time period.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".

BREAKING DOWN '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. Property, Plant And Equipment - ...

    A company asset that is vital to business operations but cannot ...
  4. Voluntary Simplicity

    A lifestyle that minimizes consumption and the pursuit of wealth ...
  5. Absolute Physical Life

    The length of time that it takes for an asset takes to become ...
  6. Life Cycle

    The course of events that brings a new product into existence ...
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. Fundamental Analysis

    What Causes Inflation in the United States

    Inflation is the main catalyst behind U.S monetary policy. But what causes this phenomenon of sustained rising prices? Read on to find out.
  8. Economics

    The Problem With Today’s Headline Economic Data

    Headwinds have kept the U.S. growth more moderate than in the past–including leverage levels and an aging population—and the latest GDP revisions prove it.
  9. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
  10. Investing Basics

    10 Companies That Yuppies Love

    Learn about 10 companies loved by the modern Yuppie, including how this demographic's impressive buying power has boosted these companies' earnings.
RELATED FAQS
  1. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  2. How can I invest in electronic retailing (e-tailing)?

    Electronic retail is one of the fastest growing segments of the economy. Every year, more people are choosing to purchase ... Read Full Answer >>
  3. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>
  4. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  5. What economic indicators are important to consider when investing in the retail sector?

    The unemployment rate and Consumer Confidence Index (CCI) rank as two of the most important economic indicators to consider ... Read Full Answer >>
  6. What factors make it difficult to compare performance ratios between retail stocks?

    Companies that operate in the retail sector significantly differ in terms of their profitability and efficiency, making stock ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  2. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  3. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  4. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  5. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  6. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!