How do consumers make the decision to trade in their outdated model for the newest release?
Product life cycles are steadily decreasing in length. Consider, for example, the rate at which new phones and computers arrive on the market each year. Consequently, your fresh new laptop may become a relic in the next year, if not the next few months. This can be beneficial for consumers, as they always have access to the latest available features and technologies. Conversely, it can be frustrating, as consumers often have to weigh the decision to hold onto an outdated model against the pain of paying for a new release.
So how then do consumers go about justifying product upgrades when they possess an existing model? Moreover, are all upgrade justifications the same? With increasing preference for access versus ownership (e.g. Spotify vs. owning an album), can consumers use similar justifications for digital products as they do for material products?
This article was inspired by a recent paper featured in the Journal of Marketing Research, titled “”Be Careless with That!” Availability of Product Upgrades Increases Cavalier Behavior toward Possessions” (Bellezza, Ackerman, Gino, 2015). Put briefly, the paper explored how owning an outdated product increased owner carelessness. This carelessness acts as a justification to upgrade to the newer model, and the authors call this phenomenon the ‘upgrade effect’.
It’s not an upgrade, it’s a replacement
To begin, the authors used data from an online database where users can log their lost iPhone based on its product ID (in the hopes that someone will have found it and reported it). Interestingly enough, a careful analysis of the dataset revealed that owners were less likely to report a lost phone as the release date for the newer model approached. For example, fewer and fewer people reported a lost iPhone 5 as the iPhone 6 release date neared. One (unlikely) possibility is that people simply lose their phones less often before a product release. However, a far more intuitive explanation is that upgrade availability does indeed breed indifference to current possessions.
The authors supplemented this field data with tightly controlled lab experiments across a range of product categories. In one clever study, the researchers gave all participants a mug, and showed half a superior mug that they could purchase at a discount afterward. The participants then played a game of Jenga (a game where players take turns removing bricks from a tower while trying to avoid toppling it). The catch was that the participants played the game with their mug balanced atop the tower. Consistent with the authors’ predictions, people were more likely to ‘lose’ and drop their mug when they knew about the nicer alternative.
This effect also extended to nondurable goods. For example, participants indicated that they would use a product like toothpaste at a faster rate when they had to pretend they wanted to upgrade to a superior product.
Shifting consumption patterns
This ‘upgrade effect’ is cited as evidence of a growing trend from “solid” consumption to “liquid” consumption (Bardhi & Eckhardt, 2017). Solid consumption is defined as consumption based upon factors such as material possession and permanent ownership. Liquid consumption, on the other hand, is typically about temporary experience and access-based ownership. Pop-up shops, short product life cycles, and limited-time exclusives are all great examples of liquid consumption in action. Consider, for example, fast fashion such as Zara and H&M, which is increasing in popularity. Although the authors did not extend the upgrade effect to clothing, it is reasonable to assume that people behave in a similar manner with passé garments.
However, another feature characterizes liquid consumption: dematerialization. More specifically, people are opting for digitized forms of products, rather than owning physical possessions. Perhaps the best example of this is Netflix, where people are progressively opting for access to movies rather than owning Blu-Rays, DVDs, or even digital copies.
This notion of dematerialization brings up an interesting point with respect to the upgrade effect paper. The upgrade effect depends upon a customer’s ability to mistreat (e.g break or lose) their unwanted product. How do they justify upgrades in today’s world of non-material goods and services?
Non-material product upgrades
In the context of digital goods and subscription services, one might be inclined to think that the upgrades are easy to make, as there is less of a sunk cost (you don’t have last month’s Spotify subscription lying around unused should you upgrade to Premium). However, research into ‘mental accounting’ has shown that this may not be the case (Okada, 2001). Looking at how product owners justify new purchases, Erica Okada examined how people track the usage of possessions over time. When a product has seen sufficient use, owners find it easier to purchase a newer product model.
For example, a pilot study conducted with undergraduates found that students were more willing to trade in a currently-owned camera for 80 dollars credit for a new camera priced at 200 dollars (effective price of 120 dollars) than they were to purchase a 200 dollar camera marked down to 120. Thus, even though the sale option would allow them to keep the old camera, the majority of the students still opted for the trade-in option. Thus, the trade-in option allows the students to recover some of the unused mental book value of their old camera.
How does this relate to non-material goods such as subscriptions? Well, Okada also ran a study on timeshares and gym memberships and found that trade-ins were especially effective when people had a negative or infrequent use of the membership. Thus, there’s good evidence that mental accounting might be at work when people to decide to upgrade something like a Netflix subscription. Giving customers a chance to earn back the mental book value of a possession (material or otherwise) seems to be able to attenuate the pain of upgrading.
Consumers frequently encounter upgrades and new models in all aspects of their life. Even the gaming world is shifting towards this type of business model with the rise of the free-to-play model. However, with decreasing product life cycles, people often don’t have time to work off the mental book values of their possessions. Moreover, as products become dematerialized, it becomes difficult to lose or break them (try ‘breaking your Netflix account or losing your digital copy of Microsoft Office), adding additional difficulties to justifying product upgrades. As a consequence, insights such as those described in this article are more important than ever, and can assist consumers with these difficult decisions.
Bellezza, S., Ackerman, J. M., & Gino, F. (2015). “Be Careless with That!” Availability of Product Upgrades Increases Cavalier Behavior toward Possessions. Journal of Marketing Research.
Bardhi, F., & Eckhardt, G. M. (2017). Liquid Consumption. Journal of Consumer Research, ucx050.
Okada, E. M. (2001). Trade-ins, mental accounting, and product replacement decisions. Journal of Consumer Research, 27(4), 433-446.
Okada, E. M. (2006). Upgrades and new purchases. Journal of Marketing, 70(4), 92-102.