What is 'Planned Obsolescence'

Planned obsolescence is a deliberately implemented strategy that ensures the current version of a given product will become out of date or useless within a known time period.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 want 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 the 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.

Computer hardware is also a candidate for planned obsolescence because computing power in microprocessors typically has followed Moore's Law, which observes that the number of transistors able to fit on an integrated circuit doubles about every two years - and likewise the cost of processing power halves every two years.

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 cellphone 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.

While Apple has refused to acknowledge that it engages in deliberate planned obsolescence, a study put out by researchers at Harvard found that some iOS upgrades have slowed down the processor speed of older iPhone models, but not for the explicit purpose of driving new iPhone sales. On Dec. 21, 2017, a class action lawsuit was filed against Apple over this issue.

Of course, while Apple is thought to be notorious for this practice, it has not been proved unequivocally. And even if it were the case, some economists argue that planned obsolescence drives technological progress, and that the mass adoption of the latest version can have real benefits. Besides, other manufacturers, such as makers of Android phones or tablets, also release new versions on almost a yearly basis and need to drive sales.

RELATED TERMS
  1. Obsolescence Risk

    Obsolescence risk is the risk that a process or product used ...
  2. Functional Obsolescence

    Functional obsolescence is a reduction of an object's usefulness ...
  3. Moore's Law

    Moore's Law is the observation made by Intel co-founder Gordon ...
  4. Make To Order - MTO

    Make to order is a business production strategy that typically ...
  5. First In, Still Here - FISH

    First In, Still Here is an accounting buzzword that describes ...
  6. Apple Pay (AAPL, GOOG)

    Apple Pay is a payment system that allows users to pay for products ...
Related Articles
  1. Investing

    What to Expect From Apple's Tuesday Event

    Apple is expected to discuss the new iPhone, Apple Watch, Homepod and plenty of other exciting developments during its September 12 event.
  2. Investing

    Apple to Launch Latest Batch of Updated iPhones

    Apple is reportedly gearing up new pricier phones with updated internals but with existing designs.
  3. Investing

    S. Korea Joins List of Countries Investigating Apple Slowing Down Phones

    Seoul prosecutors launched a probe after a local consumer group accused Apple of scamming customers into buying new iPhones.
  4. Investing

    Apple's 3 Key Financial Ratios (AAPL)

    Find out that even for Apple, not every financial ratio reveals all things positive, and how a particular ratio may point to potential future business changes.
  5. Small Business

    Apple Stock Falls on iPhone Production Cuts (AAPL)

    Consumers are holding on to their phones longer, presumably in anticipation of the iPhone 7 launch in September.
  6. Insights

    What Makes Apple So Valuable?

    Apple seems to have secured its spot as the most valuable company in the world. Here's what's driving its growth.
  7. Investing

    Apple Unveils iPhone X, 8, New Watch, Apple TV 4K

    Apple made it official for the new iPhone X, the iPhone 8, 8 Plus, Apple Watch 3 and Apple TV 4K.
  8. Tech

    Xiaomi Unveils iPhone X Rival at Half the Cost

    The news comes as Apple faces off against a growing number of iPhone rivals offering lower-cost smartphones in China.
RELATED FAQS
  1. Who are Apple's main competitors in tech?

    Explore Apple's competitive position in the many industries in which it operates. Learn about the different products and ... Read Answer >>
  2. Why are efficiency ratios important to investors?

    Learn about efficiency ratios, such as the asset turnover ratio, and why these metrics are important to investors when analyzing ... Read Answer >>
Trading Center