The Limits of Planned Obsolescence for Conspicuous Durable Goods
Georgetown University - Robert Emmett McDonough School of Business
University of Cambridge - Judge Business School
Georgia Institute of Technology - College of Management; INSEAD - Technology and Operations Management
September 6, 2013
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 externalitiesworking papers series
Date posted: June 20, 2011 ; Last revised: September 14, 2013
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