What is 'Planned Obsolescence'

Planned obsolescence is a purposefully implemented strategy that ensures the current version of a given product will become out-of-date or useless within a known time period. This guarantees that consumers will demand replacements in the future, thus naturally supporting demand. In some instances, this can even motivate multiple sales of the same object to the same consumer. Obsolescence can be achieved through introduction of a superior replacement or a product design meant to cease proper function within a specific window, or by cultivating desirability of new versions over older ones.

BREAKING DOWN 'Planned Obsolescence'

Fashion and technology are known to be popular arenas for planned obsolescence, with stockings and personal electronic devices such as smartphones among the most cited targets of the strategy. It is widely accepted that nylon stockings are designed to ladder, thereby requiring replacement. The replacement cycle for mobile phones has been two to three years, as components begin to wear down and new generations of software or operating systems grow less compatible with the aging hardware. Software is also often designed to include new features and file types that are incompatible with old versions of the program. Automobile manufacturers began rolling out new versions of their models on an annual basis to combat market saturation achieved in the early 20th century.

Consumer Reaction

Consumers often react negatively to planned obsolescence, especially if new generations of products offer insufficient improvements over the prior versions. The strategy can be rendered ineffective in highly competitive markets, in which participants may compete on the basis of price or durability. Brands can be tarnished by artificially stoking demand through this method, ultimately driving customers away. 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.

Appleā€™s Planned Obsolescence

Apple Inc. has frequently been at the center of skeptical consumer discourse. The company announced a plan to accept direct payments from iPhone users for hardware that could be exchanged annually. Observers noted the clear intent of the company to shorten the replacement cycle, which was viewed by many as an obvious attempt to stimulate demand at the consumer's expense. Skeptics doubted Apple's ability to engineer meaningful improvements to functionality so quickly, a problem many phone makers already faced with two and three-year replacement cycles.

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. Versioning

    A business practice in which a company produces different models ...
  4. Inventory Accounting

    The body of accounting that deals with valuing and accounting ...
  5. First In, Still Here - FISH

    An accounting buzzword that describe when companies still have ...
  6. Replacement Rate

    The percentage of a worker's pre-retirement income that is paid ...
Related Articles
  1. Small Business

    2 Key Tactics Retailers Use To Increase Sales

    Many companies use versioning and bundling to increase sales. These strategies can offer value to consumers, but they also mean higher costs.
  2. Investing

    A Primer On Investing In The Tech Industry

    The tech sector can provide fantastic returns for investors with a little know-how in the field.
  3. Personal Finance

    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. Investing

    Financing iPhones: The Next Apple Move (AAPL)

    Look at how Apple's plan to finance the purchase of new unlocked iPhones will impact choices of carriers as well as profits for both Apple and the carriers.
  6. Small Business

    Understanding Market Research

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

    Vital Link: Manufacturing And Economic Recovery

    Manufacturing output is one of the clearest signs that an economy is recovering from a recession.
  8. Trading

    3 Questions To Find Your Trading Plan

    Ask yourself these three questions to figure out which strategy is best for you.
  9. Insights

    A History Of Apple Stock Increases

    Apple's innovative products are always in demand, but do Apple's product launches immediately lead to higher prices?
RELATED FAQS
  1. What is the average price-to-earnings ratio in the insurance sector?

    Discover the role the chip cycle plays in the electronics sector. The electronics sector is highly sensitive to shifts in ... Read Answer >>
  2. Is an individual/independent 401(k) a qualified plan?

    Surpassing the SEP IRA plans previously popular with self-employed individuals, the individual 401(k) plan is a qualified ... Read Answer >>
  3. What are the main factors that drive share prices in the electronics sector?

    Discover the main factors that drive share prices in the electronics sector. The electronics sector is capital-intensive ... Read Answer >>
  4. What are some of the most prominent companies in the electronics sector?

    Explore some of the most popular, technologically innovative and widely held companies that are prominent in the consumer ... Read Answer >>
  5. Are there any exceptions to the law of demand?

    Learn more about the law of demand and if exceptions exist for different products. Find out more about how price elasticity ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center