Apple’s iPhone X decoy pricing

“The Harvard Business Review hypothesized that the four digit pricing of the iPhone X was a consequence of Apple’s wish list to bring more exclusivity within its product portfolio. There’s probably an element of that, yes,” Siddharth writes for Seeking Alpha. “But more so, I think this is a case of decoy pricing (or asymmetric dominance effect as it is called in Decision theory) than exclusivity.”

“Consider a company trying to sell two air conditioners. They are equal in every facet except the tonnage. ‘Cool’ is a 1.2 ton air-conditioner at $500 whereas ‘Frigid,’ at $800 has a tonnage capacity of 2 tons,” Siddharth writes. “A consumer looking for a cheaper AC would buy Cool and those looking for better tonnage would buy Frigid.”

“The asymmetric dominance effect says that by introducing a third decoy, the company can influence consumer buying pattern towards either one of its products without changing the product in any manner. Let us assume that the company wants to increase the sales of Frigid, on which it earns higher margins. And here, to use the cliche, there is a method to the madness. For this to work the new option must be worse in all aspects to exactly one of the two products (Frigid in this case), and partially worse than the other (by extension, Cool),” Siddharth writes. “A third product – ‘Snow,’ a 1.8 ton AC priced at $900 is introduced. Snow is worse compared to the Frigid when we look at the price and tonnage. Compared to Cool, Snow has a better tonnage but a higher price.

Apple's iPhone 8 and iPhone 8 Plus, powered by Apple's amazing A11 Bionic chip
Apple’s iPhone 8 and iPhone 8 Plus

 
“The company does not want consumers to know it is exploiting their cognitive weaknesses to fill company coffers,” Siddharth writes. “So it adds a feature which is known to be relatively irrelevant in purchasing decisions. Assume that the new product is available in a stylish red and black design, which Cool and Frigid are not. According to the theory, looking at the pricing on Snow, consumers perceive Frigid as a deal and the Frigid would sell more compared to the time when only two products were present.”

“In its launch event, Apple introduced the iPhone 8, iPhone 8 Plus and the iPhone X. Which one among them is the decoy? I think there are two decoys here – the iPhone 8 and the iPhone 8 Plus,” Siddharth writes. “The two products that the company is really trying to sell is the iPhone 7 and the iPhone X… since the 8 series is only marginally better, the iPhone 7 series suddenly seems like a steal to price sensitive customers on lower versions of Apple or Android platforms.”

Read more in the full article here.

MacDailyNews Take: And everyone else goes for the iPhone X.

A recent MacDailyNews Poll, conducted after Apple’s iPhone 8/Plus/X reveal, showed nearly 70% of respondents want to buy an iPhone X and just 20% want an iPhone 8 or 8 Plus for their next iPhone.

SEE ALSO:
More people want Apple’s most expensive iPhone X than iPhone 8 or 8 Plus – October 3, 2017
Ars Technica reviews Apple’s iPhone 8 and 8 Plus: Great phones, but who are they for? – September 28, 2017
Apple’s iPhone X kills iPhone 8 and exposes Cook & Co.’s risky gamble – September 26, 2017
Positive reviews for Apple’s iPhone 8/Plus and iOS 11 bode well for the iPhone X – September 19, 2017
Wired reviews Apple’s iPhone 8 and 8 Plus: Virtually perfect phones – and yet already obsolete – September 19, 2017
Associated Press reviews iPhone 8/Plus: Like flying in coach versus first class iPhone X – September 19, 2017
USA Today’s Baig reviews iPhone 8/Plus: Excellent iPhones overshadowed by iPhone X – September 19, 2017
Apple’s A11 Bionic chip is by far the highest-performing system on the market; totally destroys Android phones – September 19, 2017
Apple’s A11 Bionic chip in iPhone 8, 8 Plus, and iPhone X leaves Android phones choking in the dust – September 18, 2017
The inside story of Apple’s amazing A11 Bionic chip – September 18, 2017
Apple’s A11 Bionic obliterates top chips from Qualcomm, Samsung and Huawei – September 18, 2017
Apple accelerates mobile processor dominance with A11 Bionic; benchmarks faster than 13-inch MacBook Pro – September 15, 2017
Apple’s A11 Bionic chip in iPhone X and iPhone 8/Plus on par with 2017 MacBook Pro – September 14, 2017

14 Comments

  1. If that’s the effort, Apple went to an awful lot of trouble to promote the 8 as much more than marginally better than the 7. Just because it looks kinda like the 7 doesn’t mean it’s cheaper than the X but no better than the 7.

  2. There are a couple of flaws in his logic.

    First, the iPhone 7 has been an existing product. It’s a year old, and a significant number of people already own it.

    Secondly, the iPhone 8 is still an upgrade. It’s essentially equivalent to what we’ve seen in the past as an S upgrade.

    This doesn’t compare at all to his case study where the Print Subscription is a pure decoy. There was absolutely no reason to buy it when the Print and Web subscription was the exact same price.

    For anyone who didn’t have an iPhone 7 (prior to iPhone 2017 day), they had a choice of the iPhone 7, 8 or X (and different versions/configurations). Each level cost more and each level has an increase in features (albeit with what some may perceive as a trade-off Touch ID v. Face ID).

    While I don’t think the iPhone 8 will sell anything close to what the iPhone X will, I do think it will outsell the iPhone 7 this year, making it not a decoy. Even if it’s in the ballpark of iPhone 7 sells this year, it really wouldn’t meet the definition of a decoy.

    What likely happened here is that Apple couldn’t provide enough iPhone X units, nor at the price established for a normal flagship upgrade, so they introduced the iPhone 8 as a nominal upgrade to relieve both pressures.

  3. It’s called options. Depending on your budget and frankly how much you are willing to pay for a new phone, you can choose between an X to SE model. Overall, the average person will like end up buying a model higher than they intended to and the iPhone ASP will increase significantly as a result.

  4. It’s not a coincidence that Apple also has iPads priced at

    329
    399
    429
    459
    529
    559
    649
    779
    799
    929
    999
    1079
    1129
    1149
    1279

    The first question Apple should ask customers is how thick is your wallet, instead of what color do you want.

  5. In Principles of Persuasion, Cialdini talks about this a fair amount. People are reluctant to buy the most expensive item. Restaurants put expensive items on the menu to help sell other items. He gave an example of TV sales. (Sharp?) had slow sales of ~80 inch TV. They introduced a larger one ~90inch and the sales of the 80inch set took off. (I may be off a bit on screen sizes).

    We used to do this in our product line. We had five product levels. We really wanted to sell the middle one, level three. That was configured with the best set of options for the dollar. Level five was outrageously priced. Level one had an attractive price but not many features. It made level three an easy sell.

    I had the same experience buying my MacBook Pro. I was going for the lowest price then I added a better processor and maybe some memory. I saw that the next level package had those features and a few more for not much more memory. The high end package was outrageous.

    I don’t know if Apple is doing this with but it certainly is a known effect.

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