Business Strategy

How Planned Obsolescence Relates to Business Models



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Planned obsolescence refers to the practice of purposely creating products that possess a limited life. The products will cease working or otherwise require replacement based on strategy instead of optimization of potential life. A light bulb can be considered such a product. A new software program that is not compatible with an older version is another example of this. Some companies will also stop servicing older products or providing replacement parts in order to force customers to purchase new items. This strategy can effectively render the product lame.

Oftentimes companies can make products last longer but specifically choose not to do so. The goal could even be style obsolescence, in which consumers want to purchase new products to keep with new styles and not appear out of date. This is clearly marked in car redesigns. Planned obsolescence compels customers to purchase new items from the company, therefore increasing sales and profits.

The business model of a company is a component of business strategy. It is how a company runs, including its purpose, products, organizational structures and more. It is how it gives its customer value, gets them to purchase and makes money. Business models may be simplistic or complex. Planned obsolescence is an important aspect of many business models.

A company that has a business model of planned obsolescence is looking to increase sales. They want to drive volume for repeat customers because the customers will have no choice but to return to them for consistent use of the product.

Planned obsolescence will play a large part in the creation process behind the product. Because the item has a limited life, they may be able to save money in its creation. For instance, the company can use less expensive components because they will not be expected to stand the test of time. Using these inferior products may even be the driving force behind the planned obsolescence.

With planned obsolescence, a company can manipulate the cost more because of the lucrative benefits of a high volume of sales. For instance, they may choose to use a bait and hook business model or razor and blades business model. With this model, the company offers an item that seems like it should be expensive, but is relatively low cost. They will then offer items that will only last a short amount of time for relatively expensive amounts. An example is the blades to a razor. These only last a short amount of time and must constantly be replenished from the company.

It is important for the company to counter negative images within a business model that contains planned obsolescence. Consumers are intelligent, and they will notice how long your products last. They may avoid products, which do not provide the value to which they feel entitled. It is important to keep abreast of competitors offering similar products in the same industry. If their products last longer, they may draw consumers from you, even at a higher price point.

Sometimes consumers will resist an entire industry. For instance, planned obsolescence occurs in many of the business models of computer companies. With new components and features seemingly arriving every day, many customers chose to keep their old products for longer because they did not believe the added value substantiated a new purchase.

Planned obsolescence is a powerful strategy. Companies may even plan their business models around it. It is important for businesses to constantly evaluate how customers respond to their strategies to maximize their reputation, sales and profits.


Resources:

http://www.economist.com/node/13354332

http://www.simondelliott.com/blog/2010/02/the-hidden-cost-of-planned-obsolescence/

 

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