It has always been cheaper than an iPhone with equivalent storage. It's niche is use cases where you want a pocket computer, but don't need telephony functionality.

I carry an iPod Touch with my main phone (Nexus 5X). I use the iPod as a dedicated MP3 player. There are a few advantages:

* Much better battery life than a phone (> 80% left after 8 hours of playback on a 6 year old device).

* I can dedicate the full capacity to music storage and free up the same space on my phone.

* No need to change apps to toggle music.

* No music interruptions due to notifications.

Kids are one reason for cost and not wanting them to have a cell phone for other reasons.

I also know people who use an iPod Touch when deployed to locations where they'd like to have that form factor of iOS device but are not allowed to have a device with the possibility of having a SIM card in it. This is obviously an unaccountably small segment of the market.

It's my alarm clock that also happens to play podcasts and can browse and check email when needed. I guess it fits in a lot of niches.

Developers might find an iPod Touch useful for iOS app development and testing.

I leave my touch in my car