Intense hardware competition in physical-product industries prompted manufacturers to focus on software add-on features. However, consumers struggle to assess the value of add-ons owing to complex technologies. Some manufacturers started selling products with built-in add-on features unlockable only through online payments. Pre-embedded features incur additional costs for basic products, but provide consumers with the option for post-purchase upgrades. We develop an analytical model to explore this novel “upgradeable add-on strategy” (strategy U) and compare it with traditional strategies, namely, the standard add-on strategy (strategy S) and the optional add-on strategy (strategy O). The results reveal that (i) pre-embedding add-on features will not consistently increase the price of the basic products, but will increase the add-on price; (ii) under strategy U, the large add-on cost or high-expectation segment will instead decrease the add-on price; (iii) for the manufacturer, strategy U is not ideal for large low-expectation segment and is only optimal when the add-on cost and low-expectation segment are small; and (iv) strategy U cannot be a win-win choice because it harms high-expectation consumers, but strategy S can achieve a win-win situation for manufacturers and consumers. Our study provides valuable managerial insights for businesses in product design and add-on pricing strategies.