Apple unveiled it’s new renditions of both the iPod Touch and the iPod Nano on Tuesday, along with several other software upgrades. And at first I was surprised by some of the price-point decisions:

1) I had thought the Nano might go to $99 from $149 in line with Apple’s new, more populist "recession pricing" ideas they applied to the iPhone. Then again, as the undisputed market leader (73%), you by rule have premium pricing power, although it seems like it could have put a permanent nail in the coffin of all competitors (Microsoft’s Zune apparently currently only has 2.4% marketshare).

2) Thought that the Touch (entry-level now priced at $229) might be put at $199 for the same reason, the psychological impact of going below the ‘2’ should not be underestimated, as recently proven by the strong iPhone 3G sales.

Then it hit me, the Touch in particular may be just the $229 comparison item, that could push people to look at buying the (long-term more lucrative and more important to Apple) iPhone for $199 as a no-brainer.

Dan Ariely’s excellent "Predictably Irrational" talks about such contextual "decoy offers" that can boost sales for the item the seller really wants people to buy. As an example he uses a past offer by british business magazine The Economist:

It had listed $59 for on-line access only, $125 for print-only, and $125 for print & Web combo subscriptions, and had thereby significantly boosted the number of the expensive combo subscriptions sold (vs. test offers that omitted the seemingly non-sensical $125 print-only option)!

Other similar set-ups in formal experiments conducted by the MIT behavioral economics professor had shown similar results. People make less-than-fully-rational decisions based on the context and comparisons provided.

So in essence, it is like saying: "Let a few technophiles buy iPod Touches, but really we want to indirectly boost iPhone sales." And even the $149 Nano pricing makes more sense that way, if you view it as yet another decoy offer to point to the iPhone as a no-brainer.

I wouldn’t put it past Apple, they can read New York Times Bestseller books on business psychology with the best of them…

In other Apple news from the launch event…

They clearly took a swipe at Microsoft by highlighting the Zune’s 2.4% market share, behind 8.6% for SANDISK, and behind "Others"!

I sent out a Twitter post Tuesday on how quickly Apple came out with the 2.1 Touch/iPhone firmware fixes for the most common complaints after the iPhone 3G launch (dropped calls, battery life), two months is a fast turn-around by any measure.

When was the last time Microsoft came out with a (non-security-related) significant update within two months from complaint? Usually it takes them longer than that to even acknowledge issues.

Apple is clearly showing off its capability to be hitting on all cylinders. And it also needed to show the markets that Steve Jobs was healthy, after recent rumors stemming from his gaunt appearance at the June iPhone 3G unveiling. There was even an accidentally published obituary in the mix…

Lastly, don’t underestimate the iPhone App(lication) Store. While many of those 100 Million downloads so far were of the free variety, real money is exchanging hands as well. Something that Facebook/MySpace/iGoogle/etc. app developers are still waiting for to this day.

In 2 months Apple has created a vibrant new market, using consumers’ familiarity with the iTunes Store as a base (such familiarity is a major advantage). A functioning market tends to grease the wheels more than anything else. I would predict a furious amount of development activity/innovation to come out of this corner.

One thought on “New iPod Touch Pricing: Just A Decoy Offer To Drive iPhone Sales?

  1. I hadn’t considered it, but it actually makes alot of sense. Why would I buy the simply ipod version when I can get the full phone. IMO, the $199 price tag is uber cheap when you consider the features. Compare it to some of the other smart phones that go for $500-$600… it’s just no contest

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