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- the tendency for products to become outmoded and to reach the end of their effective PRODUCT LIFE CYCLE. Obsolescence may be due to changes in style, fashion, materials used and the functions performed. With rapidly advancing technology and more fickle public tastes, product life cycles are tending to shorten as new, more sophisticated products supersede established products. Firms may respond by frequently updating their existing products in order to lengthen their life cycle. Alternatively, firms may deliberately follow a strategy of ‘planned obsolescence’ by bringing out a continuous stream of new products both to establish COMPETITIVE ADVANTAGE over rival suppliers, and to increase their total sales by inducing customers to replace products more frequently.
- the reduction in the value of a FIXED ASSET because of a significant change in demand or technology which renders the asset out of date, or comparatively inefficient.
Renting or LEASING plant, machinery and equipment avoids the risk of obsolescence, since at the end of the rental or lease period a firm may rent or lease a more modern fixed asset.
A loss in value of an improvement because something makes it undesirable or no longer useful,even though it might be structurally sound.
• Functional obsolescence occurs because of factors within a property, such as a poor floor plan or lack of modern amenities. A three-bedroom, one-bathroom house with a one-car garage would generally be considered as suffering from functional obsolescence.
• Economic obsolescence, also called environmental obsolescence and external obsolescence, occurs because of factors outside a property. Examples include construction of an airport near a residential area or a change in highway access leaving a retail area stranded.