Friday, December 14, 2007

iPhone: One Bad Apple Can Spoil the Bunch

iPhone: One Bad Apple Can Spoil the Bunch


It is difficult to ascertain the amount of input Steve Jobs had in presenting Apple’s iPhone to the public. However, based upon the information I was able to find, it appears that – at least in the early stages of the product’s promotion – Apple placed a much greater emphasis on profit rather than customer relations and a campaign that was more utilitarian rather than communitarian. When the campaign began to take a sharp turn south due to a price reduction controversy, Job’s less than stellar apology created as much bruising to the corporation’s image as it had intended to bolster.

The Apple iPhone case timeline is as follows:
In what was a widely covered event by every major national media outlet, the iPhone was released to customers in America through Apple stores on June 29, 2007, at a price of $599.
Apple announced on Sept. 5, 2007, that it was, effective immediately, cutting the price of the iPhone for customers to $399.
Immediately after the announcement of price reduction, numerous irate customers began sending message to Apple and other organizations, forums and chat rooms, in which they expressed their anger over having spent the additional $200 premium price for the iPhone during its initial release just weeks earlier, all of which was also widely reported by major media outlets.
One day later, on Sept. 6, 2007, Apple CEO Steve Jobs issued an apology and a $100 store credit to early adopters of iPhone, which was posted on the corporation’s Web site.

The values of freedom, stewardship, humaneness, truth and justice in the iPhone case:

Freedom: Apple has the freedom (a value that has a utilitarian dimension), as a competitive for-profit organization, to set prices based on what the market will bear, and it has a history of setting product prices quite high. It is free to pursue the most effective marketing strategies, and according to Andy Abramson, CEO of Comunicano, a marketing communications agency, Apple’s price reducing action was a smart strategy to drive more consumer adoption and allow for a better model to be introduced next “while keeping that at the sub-$600 price point again.”

Apple’s competitive focus is reflected in the corporation’s mission statement: “Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer revolution in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market this year with its revolutionary iPhone.”

While employees and some of the more extremely devoted Apple customers might find this part history tour part self-congratulations interesting, a corporation’s missions statement that puts so much emphasis on profit and not enough on customer satisfaction can be off-putting to consumers, and any mention of “valued customers,” which Jobs later – much later – refers to in his apology, is glaringly absent from the mission statement, which reads more like a promotional ad than a mission.

Apple also generally ignores the principle of freedom for the first adopters in the inflexibility of its credit terms, which is a $100 credit, not a $200 credit, and it is an Apple store credit, not cash, which is geared to make already disgruntled customers to buy more stuff from Apple.

Stewardship: Effective stewardship is measured by long-term results and profits, which were jeopardized by the price-cutting move for short-term profits. It also risked customer loyalty and tarnished the brand, which are not in the long-term interests of the company, customers and other stakeholders. The steep price cut also raised speculation that product demand was not going to be as great as had been expected, and Apple stock began falling as soon as Jobs announced the price-cut and it continued falling for several days, according to Anthony Gonsalves of Information Week.

From Jobs’ perspective, the iPhone price-cut was good stewardship because it was a strategy to get new customers, which he stated in his apology. However, that strategy does not seem to take into account that first adopters are also a corporation’s first line of advertisers by word-of-mouth. This is extremely important. If for this reason only, businesses should takes every reasonable step to ensure that their first adopters and other audiences do not perceive that they have been taken.

Humaneness: Humaneness suggests two-way communication and contains the element of fairness, which is a communitarian value and suggests fairness to all customers – not just to the latecomers who received price cuts, but also to the loyal early purchasers. On the day he announced the price cut, Jobs was dismissive of customer concerns. In a question and answer interview, he was asked, “What do you say to customers who just bought a new iPhone for $599? Sorry?” – to which Jobs replied, “That’s technology. If they bought it this morning, they should go back to where they bought it and talk to them. If they bought it a month ago, well, that’s what happens in technology.” This reply, which is typical of Jobs’ arrogance, is only slightly better than saying, “Tough.”

As customers’ furor reached a crescendo the next day, Jobs still initially refused to give refunds to customers who had purchased iPhones 15 or more days before the price cut. He finally showed some remorse – probably not so much for treating the customers badly as much as for jeopardizing future sales – by announcing his apology and the $100 store credit. However, the announcement, in which he referred to the technology road as “bumpy,” had a condescending and patronizing tone. It was a backhanded apology, in which he all but said that disgruntled customers were simply stupid and / or naïve about the technology industry. Note to Steve: It is not the customers’ job to understand the intricacies and whimsies of technological research, development and marketing. It is your job, Jobs, to constantly monitor and attend to customer satisfaction in a prompt manner.

Truth: In the video, “Great Artists Steal,” Jobs said, “I don’t really care about being right, I just, you know, car about success.” His apology statement to customers about doing “the right thing” stands in sharp contrast to his “don’t really care about being right,” which puts him shaky ground. As CEO, he plays a key goal in the public perception of Apple – as a kind of ambassador – and as such, he must be scrupulously ethical and honest.

Jobs has a history of not being very transparent. In October 2006, less than a year before he apologized to customers and supporters about the iPhone controversy, Jobs apologized to shareholders after admitting “he knew some stock-option grants to employees were backdated to inflate their value, according to Crayton Harrison and Connie Guglielmo of Bloomberg News. Though SEC officials do not think he played a major enough role in this matter to warrant an indictment, they have recently subpoenaed him for questioning, which can feed the perception that where there is smoke there is fire – or where there is possibly one bad apple, there is very often another one close by.

The iPhone controversy also raises questions about transparency, honesty and ethics, and in particular, the practice of inflating value. The fact that Jobs announced such a quick and steep price cut after all the hype leading up to the unveiling of iPhone suggests deliberate overpricing and artificial inflating of the value of the product at the time of its release. The hype prior to the release of the iPhone and the long lines of customers waiting to purchase it also indicate that scarcity of the product was also being created. In fact, Apple had more than enough iPhones on hand for customers to buy at the June debut. According to a New York Times story, the corporation sold its millionth iPhone on Sept. 10, 2007, less than three months after the device debuted and 20 days ahead of its end of September goal. All of these elements suggest that Apple and Jobs were not practicing truth in advertising.

Justice: The principle of justice is, in this case, tied to the principle of truth. Some customers experienced some justice in getting a rebate, which Apple was not required to give, but apparently did so as a gesture of goodwill or as a kind of damage control for those customers who felt duped. Many first adopter customers had expectations of exclusive value when they paid top price for the iPhone. Some of them felt cheated and manipulated, but apparently, from Apple’s perspective, it appears that the corporation’s ends in achieving their profit margins justify the means.

Apparently, some iPhone customers feel that their sense of justice has been so violated that they have filed lawsuits against Apple, AT&T and Steve Jobs. In mid August, a fraud suit was filed against Apple and AT&T because the accuser claims that both organizations neglected to inform iPhone purchasers of the costs associated to keeping a battery working in the device over its lifespan. (MacNN).

A class-action suite was also filed in mid August against Apple is gaining attention. It alleges that the company did not adequately inform iPhone buyers that they would be indefinitely tied to AT&T, which – according to an attorney in a large firm that specializes in new media, entertainment and copyright law – could have legal legs because it might involve a type of anti-trust claim. La Claire, Jennifer, Sci-Tech Today).

According to Findlaw Legal News and Commentary, another lawsuit, which was filed in September against Apple, AT&T and Steve Jobs, claims that Apple and AT&T have committed price discrimination and numerous other deceptive and wrongful acts in marketing the iPhone.

What Apple should have done:
Although brilliantly executed from a profit strategy point of view, Apple should have equaled balanced their focus on profit with customer satisfaction in their research. Early focus groups could have been used to ask probing questions as to what customers would and would not tolerate in the type and scheduling of price reduction, which could have allowed for Apple to develop an alternative plan and avoid some of the negative customer response.

It appears that the biggest blunder Apple made was to introduce the price cuts so soon after the iPhone’s debut. Jobs’ explanation that the early September price cuts were intended to provide an opportunity for holiday shoppers strains credibility. Though Apple and Jobs responded swiftly to the crisis with rebates, their terms and conditions were perceived by many as self-serving and inflexible. Cost-benefits of cash rebates should have been strongly considered, as they probably would have better served the long-term interests of Apple in that they would have probably would have been more satisfying to the customer and resulted in better customer retention.

The other big blunder was Jobs’ stereotypical arrogant apology and announcement of the rebates. Though his timing fairly good, his tone was terrible and he was perceived by many customers as being insensitive and indifferent. This will be very difficult to un-do.
Jobs needs to practice and implement more two-way symmetrical communication. He is often – and I believe rightly so – as talking at people rather than listening. He needed to give customers a much stronger and sincere mea culpa and own his mistake rather than passing it off with what seems to be an attitude of “that’s technology and you people just don’t understand.” More humility and less hubris was needed. Jobs needed to say something along these lines: “We made a mistake. We promise to listen more carefully to you, our valued customers, and we will do whatever it takes to make this right with you.”

It remains to be seen whether or not the short-term profits and new customers Apple gained from the debut of the iPhone will be worth the loss of an indeterminable of positive free publicity from those loyal customers who walked away.

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