Any manager of a company that deals with certain products or services successfully is a master of using pricing decoys and reference prices .
So let'scount the ways managers defend themselves with pricing:
Price decoys
Decoys,in marketing,are products,services,or price points that a bussiness doesn't really want you to take,but rather it is used as a reference to mark another product look better.
Economist Dan Ariely gives the classic example of a realtor who shows you a home that needs a new roof ,right before taking you to a higher-priced house she really wants to sell.It's hard to tell if a $400000 colonial house is a good deal -but compared with a $380000 home that needs work , it looks quite good . now consider, $499 for a palm comouter? well, compared with a smaller one with fewer features, it suddenly looks great .
Decoys explain why a company that sells electronic products often sells each gadget in a pricing series ,such as a new palm computer's $229,$229,and $399 pricepoints for differents storage capacities . you may gladly spend $299 to get a hot medioa player , thinking it's a deal compared with the hightest- priced version and not blink that you could indtead buy a palm computer at the lower price of $199 with more features.
The $399 "decoy" has clouded your judgment. Apple wins the best of both worlds - stoking demand for products that look like bargains and for all the decoys it sells at much higher prices. Yes, some people will spend $399 for a music player with slightly better technology - and Apple makes even fatter margins.
The pricing strategy is brilliant. By staging a series of perceived technology innovations and then adding price decoys, reference prices, obscurity and bundling, Apple makes us willing to pay more to do the same stuff we did 30 years ago: read magazines, type messages, watch shows or make phone calls. The communication breakthroughs are mostly an illusion, but with shiny aluminum in our hands, who cares what it costs?