How Apple Is Getting You to Pay More for an iPod Touch

Apple’s lowest-priced iPod Touch for 2010 is now $229, but they’re using a tactic that will get you to pay $299 instead. Here’s how.

Prior to 2010, Apple’s lowest-priced iPod Touch was $199, and the next most expensive one was $299. The $199 model was reasonable, and a good amount of people bought that one. But Apple wants people to go for the $299 model, so for 2010 they’re attempting to sway people by implementing the decoy effect.

The decoy effect is basically placing less-desirable option A next to a more reasonable option B, to make B much more attractive as a result. You’re not meant to buy option A, but instead see it and be much more likely to go for the better (and pricier) option B.

In Apple’s case, they’re placing a slightly cheaper but significantly weaker option A ($229 8GB iPod Touch) next to option B (the $299 32GB one). By seeing that you can get 4 times the storage for a measly $70 extra, a lot more people will now get the more desirable $299 iPod Touch. The fact that the 64GB one (only twice the storage) is $100 more at $399 just makes the $299 32GB model all the more attractive and the likely purchase of a shopper.

Now don’t get me wrong: Apple is in no way doing anything wrong or shady. The $299 iPod Touch is indeed the best deal, and Apple is simply using an effective tactic to make that more evident. The decoy effect is a very effective pricing strategy that you can use for your own business, freelance offerings, products, and services to get more people to pay for the higher-priced items.

For proof that the decoy effect works, we can look at The Economist‘s subscription offer that Dan Ariely laid out in his book Predictably Irrational. Offer A was an internet-only subscription for $59, Offer B was a print-only subscription for $125, and Offer C was both print and internet subscription for $125. You read that right: Offer B and C are the same price.

Offer B is the decoy subscription offer meant to make Offer C (the one The Economist wants to people to sign up for) incredibly attractive. And sure enough, a big percentage of people signed up for the best deal that was Offer C for $125. Had Offer B not been there, a lot more people would’ve simply been okay with an internet-only subscription for $59.