What is it about?
Planned obsolescence is nothing new: from early nylon stockings in the first half of the twentieth century to cheap photocopier components in the second half, manufacturers have designed products to wear out quickly and induce replacement purchases. What is far less understood is how companies should determine their choice of product durability for "conspicuous consumption" products, where consumers derive more utility from their purchase the fewer other consumers own the same product. In this paper, we show that the profit-maximizing strategy for conspicuous consumption products is to offer high durability coupled with a high price. Our theory helps explain why luxury carmaker BMW can charge very high prices while boasting the car “holds its value like it holds a corner.”
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Why is it important?
While designing for planned obsolescence worked for products like printers or copiers sought by consumers for functionality and not exclusivity, this high-volume, low-price strategy backfires for conspicuous products by imposing an indirect cost: consumer desire for exclusivity results in a utility loss due to the high volume. In a broad range of settings, designing more durable products allows firms to adopt a high-price, low-volume introduction strategy, maintaining exclusivity while also benefiting the company, and at the same time promoting more sustainable consumption.
Perspectives
I was really intrigued by the fact that planned obsolescence is pretty much the dominant strategy discussed in classical durable goods papers and yet some products are clearly built to last. BMW boasts "it holds its value like it holds a corner". Porsche says over 60% of its cars ever built are still on the road. Patek Philippe advertises "You never actually own a Patek Philippe, you merely look after it for the next generation." This paper provides the theory that backs up the high durability, high-price strategies chosen by these luxury product manufacturers.
Dr L. Beril Toktay
Scheller College of Business, Georgia Institute of Technology
Read the Original
This page is a summary of: The Limits of Planned Obsolescence for Conspicuous Durable Goods, Manufacturing & Service Operations Management, May 2016, INFORMS,
DOI: 10.1287/msom.2015.0554.
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Resources
Things to make you go hmm: 60% of all Porsches still on the road
There's a meme going around that more than half of all the Porsches built are still going. True? Provable? And if it is true, would that be good news for the environment?
The Economist: Planned Obsolescence
An Economist article on planned obsolescence
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