We start with a Taiwanese newspaper report that Apple is building a new, smaller 7-inch iPad due in stores this Christmas. If you wonder why Apple would place yet another product between its iPods, iPod Touches, iPhones, iPads and actual computers, consider it the basic business strategy of a decoy.
A decoy is a product, service or simple price point that is offered not because a marketer wants you to take it, but because it creates a reference point to make another product look better. A BMW salesperson might show you the 7-Series that costs $90,000, knowing it’s too rich for your blood, but by comparison a fully loaded 5-Series sedan for $59,000 suddenly looks like a bargain. Or conversely, a Realtor might guide you through a colonial that needs a lot of work for $390,000 — knowing by comparison the pristine colonial she shows you next for $410,000 seems like a better value for less headache. Dan Ariely in his book Predictably Irrational suggests that for any product “A,” if you introduce a slightly worse or more expensive version “-A,” you are more likely to get consumers to leap ahead:
“In essence, introducing (-A), the decoy, creates a simple relative comparison with (A), and hence makes (A) look better, not just relative to (-A), but overall as well. As a consequence, the inclusion of (-A) in the set, even if no one ever selects it, makes people more likely to make (A) their final choice.”
Do you really want the small one?
Which brings us back to Apple. By introducing a slightly smaller, worse version of the iPad tablet, Apple kills two birds with one stone. It can sell the tiny gee-whiz gizmo to consumers who don’t have cash for a $500 toy; and thanks to a lower-end decoy, it makes the upscale tablet look better — and defends the high price. It is no secret that other manufacturers are rushing to produce tablets at lower costs, or that Apple in the past has been forced to rapidly reduce its prices to extend its toys into the mass markets. But if the decoy can help Apple defend the iPad’s high price point (we bet $400 by Christmas, with the small 7-inch logging in at $300, take that tablet market share!) for even six additional months, Apple will make millions more.
So go ahead. Enjoy the new, tiny 7-inch tablet when it emerges. But if you walk into an Apple store to look at it, and then find yourself lured by the bigger, more expensive iPad, congratulations: Apple’s decoy has worked.