Planned Obsolescence

What is 'Planned Obsolescence'

Planned obsolescence is a manufacturing decision by a company to make consumer products in such a way that they become out-of-date or useless within a known time period.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. Functional Obsolescence

    A reduction in the usefulness or desirability of an object because ...
  2. Obsolescence Risk

    The risk that a process, product or technology used or produced ...
  3. First In, Still Here - FISH

    An accounting buzzword that describe when companies still have ...
  4. Inventory Accounting

    The body of accounting that deals with valuing and accounting ...
  5. Investment Strategy

    An investor's plan of attack to guide their investment decisions ...
  6. Consumer Goods

    Products that are purchased for consumption by the average consumer. ...
Related Articles
  1. Markets

    Vital Link: Manufacturing And Economic Recovery

    Manufacturing output is one of the clearest signs that an economy is recovering from a recession.
  2. Managing Wealth

    10 Risks That Every Stock Faces

    As an investor, the best thing you can do is to know the risks before you buy in. Find out about 10 common stock risks you should look out for.
  3. Investing

    The Disposable Society: An Expensive Place To Live

    Resisting the trend toward consumption will boost your bottom line and bolster the environment.
  4. Personal Finance

    How Cell Phones Have Changed Your Budget

    The cost of owning a cell phone wasn't a factor for people less than two decades ago. Today, there seems to be no end to the additional charges that come from owning a smartphone.
  5. Entrepreneurship & Small Business

    Understanding Market Research

    Market research is the process a company uses to assess the viability of a new product or service.
  6. Markets

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  7. Financial Advisor

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
  8. Personal Finance

    Consumer Discretionary Sector: Industries Snapshot

    Discover the consumer discretionary sector, industries within this sector and companies producing goods that fall under the consumer discretionary definition.
  9. Trading

    These Financial Products Are Too Complex For The Average Joe

    Structured financial products are so elaborate that investors are unable to assess costs and risk.
  10. Entrepreneurship & Small Business

    Understanding Marketing

    Marketing includes all of the activities of a company associated with buying and selling a product or service.
RELATED FAQS
  1. What are the similarities between product differentiation and product positioning?

    Learn how two marketing strategies, product differentiation and product positioning, are similar and work together to effectively ... Read Answer >>
  2. Is there any way to reverse the law of diminishing marginal returns?

    Learn more about how consumer spending, supply and demand impact production decisions. Find out more about the law of diminishing ... Read Answer >>
  3. What are some ways a company can expand its product line?

    Understand what a product line is and why it's important. Learn about specific ways in which a company can expand its product ... Read Answer >>
  4. How are industrial goods different from consumer goods?

    Understand the difference between industrial goods and consumer goods, and learn the different types of industrial goods ... Read Answer >>
  5. What are the differences between product bundling and product lines?

    Understand the differences between product bundling and product lines. Learn why a company would want to expand its product ... Read Answer >>
  6. Do production costs include the marginal cost of production?

    Learn more about marginal costs of production and production costs. Find out how businesses can use marginal cost calculations ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center