The Limits of Planned Obsolescence for Conspicuous Durable Goods
Georgetown University - McDonough School of Business
University of Cambridge - Judge Business School
Georgia Institute of Technology - College of Management; INSEAD - Technology and Operations Management
May 27, 2015
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, and allow the firm to sell a larger volume. Yet, several 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: the exclusivity-seeking consumer behavior associated with conspicuous consumption. 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 higher durability in such a context leads to greater resale value, allowing the firm to charge a higher price and lower 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. We also show that offering higher durability and charging a higher price are complementary levers to respond to consumers who value exclusivity. Our analysis 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.
Number of Pages in PDF File: 27
Keywords: durable products, product obsolescence, exclusivity-seeking consumers, demand externalities
Date posted: June 20, 2011 ; Last revised: July 2, 2015
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