Does Apple’s tiered product pricing structure give you the willies, the shivers, or the heebie jeebies? Are you intimidated by a $50 price difference here? Or, disappointed in a $100 price difference over there?
Of course, not. So why is Apple being accused of giving customers pricing decoys? Beats me. But I know a sham argument when I read one. It must have been a slow news day at Bloomberg.
Apple’s Pricing Decoys
What you didn’t know is that Apple prices some products higher so you’ll feel better about buying a lower priced product. At least, that’s the prevailing wisdom from Ben Kunz at Bloomberg.
Take a look at Apple’s Mac lineup. The Mac mini starts at $699 but tops out at $999.
$999? That’s where the MacBook begins. The MacBook Pro starts at $1,199 but tops out at nearly double that price. Similar spreads, just a few hundred dollars apart, make up the iMac line. That’s not a decoy setup. It’s pricing migration, from lower to higher, making it easier for customers to spend a little more to get a little more.
Kunz accused Apple of creating pricing decoys.
Decoys, in marketing, are products, services, or price points that a business doesn’t really want you to take, but rather use as a reference to make another product look better.
Can you figure out which Apple product is the decoy? According to Kunz, it’s the $399 iPod touch, which is priced so high that you’ll gladly spend $229 for the low end iPod touch thinking you got a good deal. Kunz says you didn’t.
You may gladly spend $229 to get a hot media player, thinking it’s a deal vs. the highest-priced version … and not blink that you could instead buy an iPhone 4 at the lower price of $199 with more features. The $399 “decoy” has clouded your judgment.
Uh oh. It’s this kind of thinking that probably led to the US financial collapse. Kunz wrote his drivel in Bloomberg Businessweek. For some reason math and logic were not classes enjoyed by the Kunz family in school.
An iPhone 4 for $199? In what parallel universe? Kunz should know, because most customers know, the iPhone 4 isn’t $199. It’s about $599. In the US, AT&T picks up the other $400 while you fork over $75 or $100 a month for 24-months for the privilege of buying the iPhone at the low entry point of $199.
Kunz has another theory regarding what is called a high reference point. If the high end MacBook Pro model is $2,299, then the MacBook Pro at $1,199 is an absolute bargain. See how that works? According to Kunz, Apple doesn’t care if it doesn’t sell the high end models. Those are priced just to make you feel better.
Today, a $199 iPhone seems a steal; Apple in essence is using its first-iteration pricing as a reference to make its current products feel affordable. You may be on the fence for a $499 iPad, but if it drops to $399 by Christmas, won’t you feel better?
That theory seems plausible if it were true. How often does Apple throw out a high priced product only to lower the price later? Let’s see, there was that first iPhone back in 2007. It wasn’t selling all that well and Apple lowered the price to stimulate demand. Since then, how many of Apple’s products have dropped in price?
It’s a short list. Apple’s typical pricing methodology is to keep the price the same on newer products, while adding more value through more features and functions. More stuff. Same price.
Still, Kunz is a bulldog obviously being paid by the word and the page, and accuses Apple of the time honored practice of bundling price components.
The pricing strategy is brilliant. By staging a series of perceived technology innovations and then adding price decoys, reference prices, obscurity, and bundling, Apple makes us willing to pay more to do the same stuff we did 30 years ago: Read magazines, type messages, watch shows, make phone calls.
A cup of coffee used to cost a nickel. Then a dime. Then a quarter. Then 50-cents. Someone at Starbucks managed to get customers to feel so good about styled coffee that they’re willing to pay $6 for a cup.
Call it what you will—bundling, or pricing decoys, or obscuring reference price, or establishing a high reference price—but such practices are common, not illegal, not unethical, not immoral, and I’m fine with that? Why?
My MacBook Pro is a delight to use compared to plasticky Windows PCs.
My iPhone is a delight to use compared to a BlackBerry.
My iPad gives me the world in my hand. The apps for each are far better than anything else on the planet. All are affordable and usable and help make my life a little better.
Is Apple spreading prices and products over a migration line just to get me to spend more money, or, is Apple giving me more for the money I have to spend? Does Apple’s pricing structure bother you? It doesn’t bother me.