C64 was successful not just because it was cheap, but because it provided a lot of value. It was a powerful computer for the price. The Plus/4 couldn't provide C64 compatibility without including the C64 chipset, and those were the features that made C64 expensive (comparatively) to build. The Commodore 16 was an even bigger joke; at that point, nobody was shipping such an underpowered machine.
Similarly, they put a lot of resources into things like the CDTV, which was a five-year-old computer in a home stereo style chassis. At that point, cheap VGA and high-quality sound cards were already available. It was anemic, but because it was old tech, it was cheap to make. Just more cashing in on their previous successes by making lower value versions of good products.
The C64 wasn't seen as the "cheap" product, IMHO, it was seen as a good value. Where Commodore screwed up later was failing to deliver good value, while keeping the cheap price. The 64 was a revolution. And, the Amiga was, too, but on a different set of metrics (cheap and good value were not really Amiga characteristics, in a world with cheap PC compatibles with VGA and 16-bit sound flooding the market...the Amiga 500 was probably the last great value product Commodore ever shipped, and that's reflected in the relative success of the product).