Obsolescence: the product dies but the need survives
Definition
Obsolescence: when a product or service is no longer wanted because something better, cheaper or more convenient has replaced it.
- A product becomes obsolete when customers stop buying it, even though the need it once met is still there.
- Four forces push a product towards obsolescence.
- Better technology: streaming delivers a film instantly, so the rented DVD lost the one thing it was good at.
- Changing consumer wants: as shoppers moved towards plant-based food and away from sugary drinks, products built for the old taste stopped selling.
- Changes in the law: UK shops were banned from selling most halogen light bulbs from September 2021, which made the LED bulb the only option.
- A cheaper substitute: once a rival meets the same need for less money, customers switch and the older product cannot cover its costs.
- The need outlives the product, because people still want to watch a film at home, they simply do it through Netflix instead of a rented disc.
- Obsolescence is usually gradual rather than sudden, so a business gets warning if it is watching.
- Sales fall first, then prices are cut to hold volume, then margins shrink, and only after that is the product withdrawn.
Example
- Blockbuster rented DVDs from hundreds of UK high-street shops and charged late fees when you kept one too long.
- Faster home broadband let Netflix deliver the same film with no journey, no queue and no late fee.
- Blockbuster still paid rent on every shop, so its costs stayed high while its revenue fell.
- The UK business went into administration in 2013 and its remaining shops closed that year.
- Demand for watching films at home never fell, only the way people paid for it changed.
Obsolescence opens as many doors as it closes
- Every product that dies leaves behind customers who still have the need and still have the money, so obsolescence hands an entrepreneur a market that is already proven.
- There are three ways to build a business on someone else's obsolescence.
- Sell the replacement: offer the newer product that meets the old need better, as streaming services did to rental shops.
- Serve the switch itself: as drivers move to electric cars, firms that fit home charging points sell to people in the middle of changing over.
- Serve what is left behind: vinyl records, film cameras and retro consoles support smaller businesses selling to a loyal group with almost no large rivals left.
- The replacement business often has lower costs than the one it displaces, because it does not carry the shops, the stock or the staff the old model needed.
- Lower costs let the new entrant charge less, which speeds up the switch and pushes the older firm out faster.
Common Mistake
- Do not write that obsolescence means a product has worn out or broken.
- A DVD player still works, and people stopped buying them anyway.
- Obsolescence is about being no longer wanted, not about being broken.
- Do not say the need disappeared either, because saying the need survived is the point most answers miss.
Spotting obsolescence early: the signals a business can read
- Five signals tell a business its product is being overtaken.
- Repeat customers buy less often, which shows they have found another way to meet the need.
- Sales only hold up when the price is cut, so revenue per unit falls while volume stands still.
- A new technology moves from expensive to affordable, which is the point at which ordinary customers switch.
- A law is passed with a deadline attached, which gives the business a date by which the product will be unsellable.
- Younger customers never buy it at all, which shows the decline will continue as older customers stop.
- Reading the signals early is what separates a business that launches the replacement from one that is replaced by it.
Exam technique
- Answers on obsolescence score when they name what replaced the product and say why customers preferred it.
- "People stopped buying DVDs" is a description, while "streaming removed the journey to the shop and the late fee, so customers switched" is the reason.
- The mark most often dropped is the opportunity side, since the question usually asks how obsolescence creates a business idea, not only how it destroys one.
- If the source booklet business sells something being replaced, use its own product rather than a memorised example.
Self review
- Define obsolescence.
- Name the four forces that push a product into obsolescence.
- Why did Blockbuster's costs stay high while its revenue fell?
- Give three ways an entrepreneur can build a business on another firm's obsolescence.
- Give two signals that tell a business its product is being overtaken.
