Upgrades and New Purchases

Abstract

In many industries, firms introduce successive generations of new and enhanced product models to remain competitive. Product enhancements target first-time purchasers and consumers who already own an existing product and are considering upgrading to a new and enhanced product. Upgrade decisions differ from new purchase decisions because they are hindered by the psychological costs associated with the purchase price spent on the existing product. This research examines how the enhanced product can be positioned relative to the existing product to mitigate the psychological costs and facilitate upgrade purchases. A series of studies demonstrate that consumers with existing products are more likely to upgrade when the enhanced product is generally dissimilar to the existing product. Upgraders have stronger preferences than first-time purchasers for enhanced products with new features rather than for improvements on existing features, and they prefer enhancements that focus on a few key features rather than a general enhancement of all features.