Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / The Decoy Effect Apple Used in the Vision Pro Launch
Transcript
- Lucas: So Apple announces the Vision Pro in 2023 at thirty-four ninety-nine. And everyone loses their minds — that's more than three times the price of the most expensive iPhone at the time, the iPhone 15 Pro Max at eleven ninety-nine. Luna: Right, the sticker shock was real. I remember people saying it would never sell. Lucas: Exactly. But here's what I think Apple understood that most of us missed. They weren't just launching a product — they were building a decoy. The Vision Pro's price made every other Apple product look reasonable by comparison. Luna: You're saying the Vision Pro was intentionally priced to make the iPhone seem cheap? That's a heavy claim. Lucas: I'm saying it functions exactly like a decoy. And the textbook example, if you remember, is Dan Ariely's experiment with the Economist subscriptions. Ariely offered three options: web-only for fifty-nine dollars, print-only for one twenty-five, and print plus web for one twenty-five. Luna: Oh, that's the classic one. The print-only option doesn't make sense — you'd always pick the bundle. But it serves as a decoy, making the bundle look better. Lucas: Exactly. When Ariely removed the print-only decoy, most people chose web-only at fifty-nine. The decoy shifted preference toward the more expensive bundle. Apple does the same thing — they place a very expensive product at the top of the line to anchor your perception of value downward. Luna: So the Vision Pro is the print-only decoy in this analogy? That's a bold take. But didn't Apple actually want to sell Vision Pros? Lucas: Of course they do. But the primary effect is psychological. When you walk into an Apple Store, you see the Vision Pro at thirty-five hundred, then the iPhone at twelve hundred. Suddenly twelve hundred feels like a steal. It's the same principle Starbucks uses with their Trenta size — nobody buys it, but it makes the Venti look normal. Luna: I've never seen anyone order a Trenta. But I've definitely ordered a Venti thinking it was reasonable. Lucas: Right. And that's the decoy effect working on you. Now, let's talk about how this applies beyond Apple. If you're a SaaS company with three tiers — Basic at ten dollars, Pro at twenty-five, Enterprise at fifty — the Enterprise tier might be your decoy. You don't need to sell many Enterprise seats. Its job is to make Pro look like the smart middle choice. Luna: That assumes the Enterprise tier is priced so far above Pro that the value gap is obvious. But what if your Enterprise tier is only ten dollars more? Then it might cannibalize Pro sales. Lucas: Great point. The decoy has to be asymmetrically dominated. That means the decoy is worse on one dimension — usually price — but not on others. In the Apple case, the Vision Pro dominates on price: it's so expensive that the phone looks cheap. But it also dominates on innovation: it's a new category. So the iPhone, which is a proven product, feels like a safer, cheaper choice. Luna: So the decoy doesn't have to be a direct competitor. It can be a completely different product category. That's powerful. Lucas: Exactly. Car manufacturers do this, too. A dealership might show you a fully loaded luxury SUV at seventy thousand dollars. Then the mid-tier sedan at forty thousand seems like a bargain. The SUV was never the intended sale — it was there to make the sedan look reasonable. Luna: I once went to a car dealership and the salesperson showed me the most expensive model first. I thought they were trying to upsell me, but maybe they were decoying me. Lucas: Probably both. But the decoy effect is so ingrained that you don't even notice it. Now, the key question for us as marketers: how do we design a decoy that works without cheapening your brand? Because if your decoy is too obvious, customers feel manipulated. Luna: Right. There's a fine line between a nudge and a trick. So what's the ethical approach? Lucas: I think transparency is a start. You're not hiding the decoy — you're offering a legitimate option that some customers might actually want. The Vision Pro is a real product for early adopters. The Enterprise tier is a real product for large teams. But you design the pricing so that most customers gravitate to the option you want to sell. Luna: So it's about structuring choice, not deceiving. That feels okay. But I want to push back on one thing: you said the decoy must be asymmetrically dominated. In practice, how do you know if your decoy is working? Lucas: You test it. Run an A/B test where you remove the highest tier. If your middle-tier sales drop significantly, your decoy was working. If they stay the same, your decoy wasn't effective. It's that simple. Luna: And if sales drop? You bring the decoy back. But what about the opposite — what if you remove the lowest tier? Lucas: That's a different effect. Removing the lowest tier can push people to the middle, but it can also push them away entirely if the price is too high. The decoy effect is specifically about adding a higher-priced option to make the middle look better. It's not the only way to anchor, but it's one of the most reliable. Luna: Speaking of reliable — I've noticed this in subscription boxes, too. A monthly box at twenty dollars, a quarterly at fifty, and a yearly at one eighty. The yearly is the decoy because it's a terrible deal per box. But it makes the quarterly look like the smart choice. Lucas: That's a great example. And it works because people don't do the math per box. They see the yearly price and think 'that's too much,' then the quarterly feels reasonable. But if you do the math, the yearly is actually cheaper per box if you commit. The decoy here is the quarterly, not the yearly. Luna: Wait, I thought the decoy was the highest price? In this case the yearly is highest, but it's actually the best value. Lucas: Right, so the decoy isn't always the highest price. The decoy is the option that no rational person would choose. In the subscription box example, the quarterly at fifty dollars for four boxes is twelve fifty per box. The yearly at one eighty for twelve boxes is fifteen per box. So the yearly is worse per box. The rational choice is the monthly at twenty for one box — twenty per box. But people see the yearly as a big number and avoid it. The decoy makes the quarterly look like the sweet spot. Luna: Now I see. The decoy is the option that's dominated on value. So in the Apple case, the Vision Pro is dominated on price, not value. But it still works because it anchors the price ceiling. Lucas: Exactly. There's more than one way to create a decoy. The key is to know which dimension your customer cares about most. If it's price, you anchor high. If it's features, you anchor with a stripped-down version. If it's convenience, you anchor with a time-consuming option. Luna: So the decoy effect is really about understanding your customer's mental model and then designing a choice set that guides them toward your desired outcome. Lucas: Yes. And that's what makes it so powerful. It's not about tricking anyone. It's about structuring information so that the best choice for the customer is also the best choice for your business. When done right, everyone wins. Luna: I think one of the best real-world examples is movie theaters. A small popcorn at five dollars, a medium at seven, and a large at eight. The small is overpriced per ounce, the large is the best value, but most people buy the medium because it's the middle option. The small is the decoy. Lucas: Perfect example. And theaters aren't trying to sell the small — they're using it to make the medium look like a deal. Now, let's bring this back to Apple. When the iPhone 16 Pro Max launched at eleven ninety-nine, how many people compared it to the Vision Pro? Very few directly. But the presence of that thirty-five-hundred-dollar product in the ecosystem changed the perception of what 'expensive' means for Apple products. Luna: So it's a halo decoy effect. The Vision Pro isn't in the same aisle, but it's in the same brand universe. And that affects how you feel about the price of a phone. Lucas: Exactly. And that's the lesson for marketers with multiple product lines. Your luxury product might not just be for profit — it might be a decoy that elevates the perceived value of your entire mid-range. And if you don't have a luxury product, you might consider creating a 'prestige' version just to anchor the rest. Luna: But you have to be careful. If the decoy is too far out of reach, it might not work. A hundred thousand dollar watch makes a five-thousand-dollar watch look affordable. But if your customer can't even imagine spending a hundred thousand, the anchor doesn't stick. Lucas: Right. The decoy has to be within the realm of possibility for your customer. If it's completely unrealistic, the brain dismisses it. That's why the Vision Pro works — it's expensive, but it's not a private jet. It's still a consumer product that someone could plausibly buy. Luna: So the decoy has to be aspirational but not fantastical. Good rule of thumb. Lucas: I'd say within one order of magnitude of the target price. If your target is a hundred dollars, a decoy at a thousand might work. But at ten thousand, it's too far. The brain categorizes it differently. Luna: That's very practical. I'm going to think about that next time I'm pricing a new product. Lucas: If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. It's a small way to keep these conversations going without commercial interruptions. Luna: Yeah, it's a simple thing that makes a big difference. We appreciate every coffee. Lucas: So back to the decoy. One more thing I want to mention — timing. The decoy effect isn't just about which options you present, but when you present them. If you show the decoy first, it sets the anchor. If you show it last, it might not have as much impact. Luna: Order matters. So you want the most expensive option to be the first one the customer sees? Lucas: Generally, yes. Because the first price creates an anchor that all subsequent prices are compared against. That's why Apple announces the highest-tier product first at their events. The Vision Pro was the final 'one more thing,' but the price leaked before. By the time you see the iPhone, your brain has already processed the thirty-five-hundred-dollar number. Luna: And that's why you felt the iPhone was a deal. Not because it's cheap, but because your reference point was so high. Lucas: Right. So if you're launching a new product, consider leading with your premium option first, even if you expect most sales to come from the mid-tier. The decoy effect can amplify your conversion rates significantly. Luna: Okay, but what if you don't have a premium product? Can you still use a decoy? Lucas: Yes, but you have to get creative. You can offer a 'bundled' version that includes add-ons most people don't need, priced high. That serves as a decoy for the standard version. Or you can offer a limited-time high price before releasing your actual product. Some companies announce a high initial price and then 'discount' it to the real price. That's a temporal decoy. Luna: That feels a bit more manipulative, but I see how it works. The key is to always deliver real value at the price you eventually charge. Lucas: Absolutely. The decoy effect is a tool, not a substitute for a good product. If your core product isn't valuable, no amount of pricing psychology will save you. But if you have a great product at a fair price, the decoy effect can help customers see that value more clearly. Luna: Well said. So to wrap up: the decoy effect is about structuring choices to highlight the option you want to sell. Use it wisely, test it, and always keep it ethical. Lucas: And remember, the next time you see a product that seems outrageously expensive, ask yourself — is that the decoy? Because understanding the game changes how you play it. Luna: Thanks, Lucas. And thanks to everyone listening. We'll be back next week with another deep dive.