Do You Like What You (Can't) See? The Differential Effects of Hardware and Software Upgrades on High-Tech Product Evaluations

Abstract

“Over-the-air” software upgrades are a recent trend in the automotive industry to distribute firmware directly to customers via the Internet. These upgrades can endow the vehicle with completely new functions that enhance safety, convenience, and performance. The US manufacturer Tesla was the first to integrate such upgrades on a regular basis to let customers participate in continuous innovation, giving Tesla a competitive edge over rival brands. Since then, several premium manufacturers have followed suit. This research examines how consumers perceive and respond to software upgradeability in durable high-tech products vis-à-vis integral product alternatives and hardware upgradeability. Results of four studies with more than 3,000 participants suggest that consumers evaluate software upgrades less positive than hardware upgrades because they perceive software as less capable to enhance product quality. However, bundling software upgrades to larger packages and stressing the low effort required to integrate new functions are viable ways to remedy this perception. Importantly, the findings suggest that offering products fully equipped with all premium functions to be unlocked via software upgrades—as done by several premium brands—is a risky strategy. Consumers react negatively to the artificial restriction of functionalities, irrespective of whether these are offered as temporary leases or permanent purchases. The findings provide initial evidence for the game-changing potential of software upgradeability and offer managers concrete guidance for designing and marketing upgradeable hardware-software platforms.