Abstract

http://ssrn.com/abstract=1868323
 
 

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The Limits of Planned Obsolescence for Conspicuous Durable Goods


Vishal Agrawal


Georgetown University - Robert Emmett McDonough School of Business

Stelios Kavadias


University of Cambridge - Judge Business School

Beril Toktay


Georgia Institute of Technology - College of Management; INSEAD - Technology and Operations Management

September 6, 2013


Abstract:     
An extensive body of literature argues for the benefits of planned obsolescence, the strategy of designing products with low durability to induce repeat purchases from the consumers. Yet, some firms avoid planned obsolescence and instead offer products with high durability. In this paper, we offer a demand-side rationale for a high-durability product design strategy: exclusivity-seeking consumer behavior. In the presence of consumers who value exclusivity, we find that firms benefit from designing products with higher durability in conjunction with a high-price, low-volume introduction strategy. A high price jointly exploits the value inherent in a more durable product and lowers the sales volume to achieve the product exclusivity valued by the consumers. This contrasts with the planned obsolescence strategy that capitalizes on the high sales volume achieved by setting a low new product price. Our analysis also unearths insights regarding the effect of exclusivity-seeking behavior on a firm's demand and pricing. We show that firms' durability choice may explain the joint increase in price and demand for conspicuous goods. We also find that a positive correlation between consumer valuations and sensitivity to exclusivity may be observed as an endogenous outcome of consumer segmentation due to the firm's pricing decisions, instead of being an inherent consumer characteristic.

Number of Pages in PDF File: 26

Keywords: durable products, product obsolescence, exclusivity-seeking consumers, demand externalities

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Date posted: June 20, 2011 ; Last revised: September 14, 2013

Suggested Citation

Agrawal, Vishal and Kavadias, Stelios and Toktay, Beril, The Limits of Planned Obsolescence for Conspicuous Durable Goods (September 6, 2013). Available at SSRN: http://ssrn.com/abstract=1868323 or http://dx.doi.org/10.2139/ssrn.1868323

Contact Information

Vishal Agrawal (Contact Author)
Georgetown University - Robert Emmett McDonough School of Business ( email )
3700 O Street, NW
Washington, DC 20057
United States

Stylianos Kavadias
University of Cambridge - Judge Business School ( email )
Trumpington Street
Cambridge, Cambridgeshire CB2 1AG
United Kingdom
HOME PAGE: http://www.jbs.cam.ac.uk/research/kavadiass.html
Beril Toktay
Georgia Institute of Technology - College of Management ( email )
800 West Peachtree St., NW
Atlanta, GA 30308
United States
INSEAD - Technology and Operations Management ( email )
Boulevard de Constance
77 305 Fontainebleau Cedex
France
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