My last post was about decoy pricing and whilst I wouldn’t normally write about the same topic in succession I’ve decided to break from the norm.
The reason for this is to give another good example of decoy pricing in action.
This week Apple announced the iPhone 6 and iPhone 6 Plus. Previous generations of the device have come with three storage options: 16GB, 32GB, and 64GB. However, this year Apple has made a change. The storage options now are: 16GB, 64GB and 128GB. Out goes the 32GB option and in comes 128GB.
Now let’s take a look at how this looks with pricing:
- 16GB $649
- 64GB $749
- 128GB $849
Now, storage is an important consideration when you’re spending over $600 on a phone. Get it wrong and it’s an expensive mistake. So what’s Apple trying to do? Take a look below at the cost per GB (brackets) for each device:
- 16GB $649 ($40.50)
- 64GB $749 ($11.70)
- 128GB $849 ($6.63)
All of a sudden the 64GB model becomes very attractive compared to the 16GB model. And the 128GB model even more so. For many people 16GB might just be enough storage. However, if you had any doubt in your mind, for an extra $100 you can pick up four-times the storage.
Essentially, Apple has deliberately made the entry-level model substantially less attractive to buy than the alternatives. The likelihood is that a large number of iPhone 6 buyers will trade up to the 64GB model, if not the 128GB version. For Apple this means an extra $100 revenue per customer.
The alternative would have been for Apple to have gone with a more mathematically natural line-up of: 32GB, 64GB and 128GB. However, that would have made the economics of purchasing a more expensive model less obvious to potential customers. For many people 32GB is most certainly enough storage.
So there you have it: another good example of (high-profile) decoy pricing in action.