Have you ever wished you could make your favorite watch or pair of shoes like new again?  Sometimes watches and other personal accessories have sentimental value as they pass down from generation to generation.  My husband, for example, has often said that he would like to make his grandfather’s watch like new again so he could enjoy wearing it.  And one of my colleagues recently mentioned that he has a favorite pair of leather shoes that he would love to restore to their original appearance. Although such refurbishing services are available from certain companies, more often than not products we buy (and like) are disposed or recycled rather than refurbished, either because there is no other alternative, or because of a strategy known as planned obsolescence.

On May 22, 2016, Digital Trends published  “Planned obsolescence has led to ridiculous product cycles, and it’s time to say enough is enough.”  Similarly, on March 23, 2015, The Guardian published  “We are all losers to an industry built on planned obsolescence.”  These articles reflect a growing frustration among many consumers towards companies that purposefully design products with short lifespans to increase profits from repeated consumer purchases.  While this approach can be profitable for companies, it can also harm the environment.  When old electronics are not disposed of safely, for example, they end up in landfills where toxic chemicals such as lead, mercury, and cadmium can leach into the soil and water.  

The Take Back

One way to counteract the environmental impact of planned obsolescence is to require manufacturers to take back all, or a fraction, of their products at the end of their useful life cycles for proper disposal.  Currently, legislation is being instituted by several countries and by many states in the U.S. to require such actions by manufacturers, and several companies have proactively initiated take back programs.  Can such legislative efforts encourage the design of products with higher durability?  In a paper published in the European Journal of Operational Research in 2014, my co-author Mike Pangburn and I examined this issue.  Surprisingly we found that legislation requiring a fixed fraction of products to be taken back for disposal is not always effective and can, in some cases, have the undesirable effect of actually decreasing product durability.  However, in those cases we also showed that an alternative legislative scheme that varies the required take back fraction depending on a product’s durability can create higher product durability.

Thinking more broadly, we wondered if planned obsolescence is perhaps overused, even when considered from a pure profit-maximizing perspective.  We explored this further by examining existing businesses that design long lasting products, and even offer customers the option to refresh (refurbish) these products, for a fee, to almost “like new” condition.  Consider for instance the case of high-end watch competitors, Rolex and Breitling, which both offer similar refresh services, priced at approximately $400 to their customers.  Similarly, both Johnston & Murphy and  Mephisto offer a refresh service to restore their leather shoes to “close to their original appearance,” priced at $115 and $140, respectively. And at similar price points (around $400), Moots Cycles and Seven Cycles offer equivalent services for restoring their bikes to “almost like new” condition.   Other examples include Chanel, which supports the longevity of its premium-priced handbags via its “total refurbishment service" priced at $265, and golf club maker Titleist.  

Such services can be attractive to consumers who may not wish to dispose of their used products. These options are likely to be more environmentally friendly, relative to product disposal, but under what conditions do they make sense from the manufacturer’s perspective?  Clearly, for inexpensive products the cost of performing a refresh (which may include the costs of getting the product from and back to the customer) will likely be prohibitive.  But even when refreshes are financially viable, don’t they simply reduce the sales of new products in future periods?

In a recent paper presented at the annual international conference of the Production and Operations Management Society (May 2016), my co-author and I explore these questions.  We found that refreshes can be profitable, even though they can cannibalize new sales, because they offer two distinct benefits: (1) an additional revenue stream generated from product refreshes, and, more subtly, (2) a mechanism that allows a manufacturer to gain credibility (and thus support higher prices).  Credibility gains in particular stem from a firm’s ability to commit to a refresh price.  Unlike typical extended supply chains (wholesalers, distributors, retailers, e-tailers and so on) where a manufacturer does not have direct control of the final price consumers pay, with a refresh service the manufacturer has more direct control and can therefore more easily commit to a refresh price (e.g., by stating the refresh price publicly on its website).  Such up front refresh price commitments increase the anticipated future value of a new product in the minds of consumers, thereby increasing their willingness to pay a higher price for it in the current period. 

The Refresh Benefit

Overall, our research provides insight into the strategy of firms using product refreshes as a viable alternative to planned obsolescence.  Many managers may ignore the refresh service possibility because they consider only the cost per refresh (versus the price charged per refresh), which in itself is not a compelling economic tradeoff.   However, by committing to a refresh price, managers can also indirectly gain commitment benefits and thus engender higher market prices for new-product sales.  This dynamic can tip the scale in favor of offering a refresh service.  Without a complete understanding of the dual benefit of refreshes, firms may indeed be more prone to opt for planned obsolescence instead of refreshes.  More awareness of the dual benefits of product refreshes is therefore likely to create triple-bottom line benefits, as people, profits and the planet stand to benefit from more refresh services in the future.

Effie Stavrulaki, Associate Professor of Management

Dr. Stavrulaki’s research aims to understand the strategic and operational implications of optimizing the supply chain as well as integrating it with other important functional areas such as marketing and new product development. She also investigates how sustainable and socially responsible supply chains can operate profitably. Her work spans both manufacturing and service organizations. She holds a certificate in positive psychology and positive psychology coaching from Whole Being Institute and is interested in how positive psychology can be used to improve the well being of individuals, employees, organizations, and supply chain processes. She has published articles in peer-reviewed journals such as Management Science and the European Journal of Operational Research. She has served as an area editor of IIE Transactions and has presented her work at many national and international conferences. Prior to joining the faculty at Bentley, she held a tenure track faculty position at the Smeal College of Business, Penn State University, University Park, PA.