Planned obsolescence (business)
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Planned obsolescence is the marketing strategy of deliberately introducing obsolescence into a product strategy. Obsolescence, in general, is the process of passing out of usefulness. In a business context this means the object is no longer perceived as having value, that is, a product is no longer wanted even though it is still in good working order. This can be contrasted with deterioration, which is a process of disintegration or degeneration. The difference is that obsolescence is a perception about the usefulness of an object whereas deterioration is a physical process. The two concepts are highly correlated, but neither is a sufficient or necessary condition of the other. That is, you can have obsolescence without deterioration, and you can have deterioration without obsolescence.
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Rationale behind the strategy
A new product development strategy that seeks to make existing products obsolete may appear counter intuitive, particularly if you are a leading marketer of the existing products. Why would a firm deliberately endeavour to reduce the value of its existing product portfolio? The rationale behind the strategy is to generate long-term sales volume by reducing the time between repeat purchases, (referred to as shortening the replacement cycle). Firms that pursue this strategy believe that the additional sales revenue it creates more than offsets the additional costs of research and development and the opportunity costs of existing product line cannibalization. However, the rewards are by no means certain : In a competitive industry, this can be a risky strategy because consumers may decide to buy from your competitors.
Shortening the replacement cycle has many critics as well as supporters. Critics such as Vance Packard claim the process wastes resources and exploits customers. Resources are used up making changes, often cosmetic changes, that are not of great value to the customer. Supporters claim it drives technological advances and contributes to material well-being. They claim that a market structure of planned obsolescence and rapid innovation may be preferred to long-lasting products and slow innovation. In a fast paced competitive industry market success requires that you make your products obsolete by actively developing replacements. Waiting for your competitor to make your products obsolete is a sure guarantee of your future demise.
The main concern of the proponents of planned obsolescence is not the existence of the process, but its possible postponement. They are concerned that technological improvements are not introduced even though they could be. They are worried that marketers will refrain from developing new products, or postpone their introduction because of product cannibalization issues. For example, if the payback period for a product is five years, a firm might refrain from introducing a new product for at least five years even though it may be possible for them to launch in three years. This postponement is only feasible in monopolistic or oligopolistic markets. In more competitive markets rival firms will take advantage of the postponement and launch their own products. The recent US legal proceedings that concluded that Microsoft was acting as a monopolist made reference to this postponement strategy.
Types of planned obsolescence
Functional obsolescence
Planned functional obsolescence is a type of technical obsolescence in which companies introduce new technology which replaces the old. The old products do not have the same capabilities or functionality as the new ones. For example a company that sold video tape decks while they were developing DVDs was engaging in planned obsolescence. That is, they were actively planning to make their existing product (video tape) obsolete by developing a substitute product (DVDs) with greater functionality (better quality). Another example is the replacement of telegraphs with telephones.
Associated products that are complements to the old products will also become obsolete with the introduction of new products. For example video tape holders saw the same fate as video tapes and video tape decks. Likewise, buggy whips became obsolete when people started traveling in cars instead of buggies.
Systemic obsolescence
Planned systemic obsolescence is the deliberate attempt to make a product obsolete by altering the system in which it is used in such a way as to make its continued use difficult. For example new software is frequently introduced that is not compatible with older software. This makes the older software largely obsolete. For example, even though an older version of a word processing program is operating correctly, it might not be able to read .doc files from newer versions. The lack of interoperability forces many users to purchase new programs prematurely. The greater the network externalities in the market, the more effective is this strategy.
Another way of introducing systemic obsolescence is to eliminate service and maintenance for a product. If a product fails, the user is forced to purchase a new one. This strategy seldom works because there are typically third parties that are prepared to perform the service if parts are still available.
Style obsolescence
Planned style obsolescence occurs when marketers change the styling of products so customers will purchase products more frequently. The style changes are designed to make owners of the old model feel 'out of date'. It is also designed to differentiate the product from the competition, thereby reducing price competition. Marketers also claim that style changes relieve peoples' boredom and allows for both self-expression and conformity at the same time. One example of style obsolescence is the automobile industry in which manufacturers typically make style changes every year or two. As the former CEO of General Motors, Alfred P. Sloan, stated, "Today the appearance of a motor-car is a most important factor in the selling end of the business—perhaps the most important factor— because everyone knows the car will run."
Some marketers go one step further: they attempt to initiate fashions or fads. A fashion is any style that is popularly accepted by groups of people over a period of time. A fad is a short term fashion. Examples of successfully created fashions or fads include Beanie Babies, Ninja Turtles, Cabbage Patch Kids, Rubik's Cubes, pet rocks, acid wash jeans, Pokémon, and tank tops. Obsolescence is built into these products in the sense that marketers are aware of the shortness of their product life cycles so they work within that constraint. For example, when Beanie Babies sales revenue started to decline, company president Ty Warner astutely decided to go for one last Christmas marketing push and then drop the product.
Another strategy is to take advantage of fashion changes, often called the fashion cycle. The fashion cycle is the repeated introduction, rise, popular culmination, and decline of a style as it progresses through various social strata. Marketers can ride the fashion cycle by changing the mix of products that they direct at various market segments. This is very common in the clothing industry. A certain style of dress, for example, will initially be aimed at a very high income segment, then gradually be re-targeted to lower income segments. The fashion cycle can repeat itself, in which case a stylistically obsolete product may regain popularity and cease to be obsolete.
Notification obsolescence
Some companies have developed a very sophisticated version of obsolescence in which the product informs the user when it is time to buy a replacement. Examples of this include water filters that display a replacement notice after a predefined time and disposable razors that have a strip that changes colour. If the user is notified before the product has actually deteriorated, planned obsolescence is the result. In this way obsolescence can be introduced without going to the expense of developing a new replacement product.
Obsolescence and durability
If marketers expect a product to become obsolete they can design it to last for a specific lifetime. For example, if a product will be technically or stylisticly obsolete in five years, many marketers will design the product so it will only last for that time. This is done through a technical process called value engineering An example is home entertainment electronics which tend to be designed and built with moving components like motors and gears that last until technical or stylistic innovations make them obsolete.
These products could be built with military spec components, but they are not because it is felt that this imposes an unnecessary cost on the purchaser. Value engineering will reduce the cost of making the product, and lower the price to consumers (unless there is a lack of competition in the industry, in which case the cost reduction will probably not be passed on to the consumer in the form of lower price). A company will typically use the least expensive components that satisfy product’s lifetime projections.
The use of value engineering techniques have lead to planned obsolescence being associated with product deterioration and inferior quality. Packard claimed that this could give engineering a bad name, because it directed creative engineering energies toward short-term market ends rather than more lofty and ambitious engineering goals. As with all these planned obsolescence issues, the marketer and product engineer must determine for themselves if any of these criticisms are warranted.