How the iPhone 5C could have been a decoy for Singapore buyers

Singaporean consumers are bombarded with innovative products and as such they have become more discerning. This is particularly true in the fast-moving market of mobile technology, where a new flagship product comes to market every few months.

Suppliers need to offer something more than just new tech, design, and functionality. Even the leader in mobile innovation, Apple, must employ creative strategies to aid sales. However, in the case of the most recent iPhone launch – the 5th generation – did Apple outsmart itself by releasing – for the first time – two phone models at the same time?

For a helpful analogy, let’s go back to the ‘90s. Williams-Sonoma, a very successful US-based company, introduced an innovative (for that time) product: a home bread-making machine.

The product was by all means the best horse to bet on: no competition, good technology, functionality, under the wings of a trusted brand, and all at a reasonable price of $275; moreover, the marketing department took all the necessary (and less necessary) steps to properly bring the product to the market.

Yet, the excitement was quickly replaced by frustration. Weak consumer response forced Williams-Sonoma to provide an alternative strategy. They seemingly decided to double-down on a bad bet by adding another model that was bigger, loaded with additional technology, but double the price.

The result: sales quickly grew for the original model as consumers were disparaged by the bigger model's price point.

The story above demonstrates the so-called decoy effect. It occurs because the human brain prefers to make relative judgments rather than evaluate goods in a vacuum, even if it means relating a product to a decoy.

We suspect that this is what happened, whether intentionally or not, with the simultaneous introduction of the two iPhone models – the 5S model which follows the pricing and innovation structure of prior iPhone releases, and the 5C, a new low-cost alternative.

In an inversion of the bread-machine example, while the price point of the 5C is more attractive, the perceived quality and technology is not on par with the newest iPhone. In market where technological innovation is an important measuring stick, the 5S dominates the 5C.

This relative dominance elevates the 5S to the position of category leader amongst iPhones. It is easier to see that this product is the best iPhone than it is to evaluate the product on its own. On the other hand, the 5C is a second-best option, lumped in as merely another smartphone, in a market where its price is not competitive with other brands.

Studies in behavioural neuro-economics have demonstrated the power of this effect. It works like visual illusions where a line’s “size” depends on the arrows bracketing it at either end.

Researchers have shown that adding a dominated option to a set of choices can divert attention (and eventually decisions) to the target option. It even works when the targeted option is reversed and the dominated option resembles the alternative choice.

Recently, neuroimaging research at the University of Minnesota has shown that decoys reduce activity in areas in the brain commonly associated with the fear of loss and energy-intensive higher-order comparison (Hedgcock and Rao 2009).

For evidence, one need only to look at the early sales figures. In the U.S., the 5S accounts for 64% of Apple’s total sales compared to 27% for the 5C. The Guardian reports 5S sales near 71% of iPhones in the UK and 87% in Germany. Most astoundingly, 83% of new iPhone sales in China are 5S phones where many speculated that the 5C would flourish.

It seems that Apple's manufacturing was duped by their own decoy as well, as limited supplies of the 5S stall their product roll-out (this is par for the course of a new iPhone).

However, it would seem this is partly due to misunderstanding product demand, as there is a surplus of 5C units and a rising number of back orders on 5S models across all three major Singaporean mobile carriers.

As plans to cut back 5C manufacturing are now public knowledge, it begs the question of why manufacturers weren't prepared for this consumer response. Surely, a firm of Apple's size and marketing sophistication would account for the decoy effect; did the manufacturers miss the mark or was the message lost in translation?

While the 5C may have been designed to diversify Apple's market share by increasing availability, it appears to have only reinforced demand for classic Apple motifs.

It goes to show, many times, it’s not what’s at the buffet that matters; it’s how you set the table.