Enterprises, depending on their business profiles, bear additional costs related to prolonged warehousing of products, which include the costs of their physical and moral ageing.
Physical ageing of a product occurs when it looses a part or all of its physical or functional properties. Such costs arise most frequently in the FMCG sector, in particular, in the case of food products distributors. After the expiration date, a product cannot be offered for sale and has to be utilised, which is usually a very expensive process.
Moral ageing of a product generally relates to enterprises offering their clients high technology products that are subject to frequent changes resulting from innovation (electronic equipment, multimedia devices, software, etc.). With physical and functional properties unchanged, the value of such products gradually declines as their new, upgraded versions enter the market. Reasonable consumers with sufficient information about the market are able to compare products to select the best one.
In the case of products with an expiration date, it is not difficult to define the moment when they loose value; however, the situation is more complicated in the case of electronic and multimedia devices. Over time, clients are willing to pay less to purchase them. Therefore, a well-timed decision of an enterprise to put the product on sale, cut the price, attach giveaway allows it not only to reduce the costs of products ageing but also the warehousing and utilisation expenses.
The question is how to predict the beginning of the decline stage of a product? There are two possibilities. The first one is to closely monitor the market, both from manufacturers’ (in terms of innovation) and from consumers’ (change in tastes) perspective. Such changes are not rapid, but it is reasonable to analyse the dynamics and direction of sales using derivatives. This approach allows for a timely recognition of a product life cycle stage and taking relevant decisions to reduce the costs of physical and moral ageing of a product.