iPhoney? What Is An Apple If It Loses Its Core?

One thing jumped out at me during Apple's latest customer relations challenge. Charting the consumer and public reaction of consumers to Apple's iPhone price cut, the Los Angeles Times quoted Jonte Richardson, a 36-year old filmmaker, who said:

It feels like you're being punished for being brand-loyal. If they're going to change their price and policies, then they should at least take into consideration the people who made them who they are.

Apple has developed an admirably close relationship with its customers over the years. Early-on, it embraced the value of providing a great customer experience and have always seen its products as lifestyle extensions rather than just functional commodities. Apple never seemed to compete on price; its customers are willing to pay a premium to wear the white ear buds of an iPod or have a gleaming black MacBook instead of a battleship gray folding brick like the Wintel masses. Instead, all that it does and makes has been guided by seemingly "soft" qualities such as intuitive use, elegant design, and aesthetics. These business principles, guided by the company's deeper values, make Apple what it is.

Which is why the precedent-setting early price reduction on the iPhone was big news, and may have lasting impact on their business. Apple has long-honored its partnership with consumers by eschewing the kind of competitive price-cutting rampant in the rest of the PC industry. Apple owners have come to trust that their journey with the company is based on overall user value, not price/feature calculations. People bought iPhones upon their release because they were cool, yes, but they paid top dollar under the impression that it was the fair price Apple needed to bring its revolutionary technology to market.

By rapidly reducing that price in order to boost units sales, Apple may have weakened that trust. Suddenly, it seemed that Apple's price points were designed only for short-term corporate gain.

"Trust is like a ladder," Mike Fricklas, general Counsel of Viacom once said to me. You climb it one rung at a time, but when you slip, you fall all the way to the ground.

Apple CEO Steve Jobs quickly realized the error Apple had made and tried to repair the breech two days later. In a widely circulated open letter Jobs acknowledged Apple's violation of this core principle.

Our early customers trusted us, and we must live up to that trust with our actions in moments like these...We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple.

It is often hard to put a price tag on trust. We all know it is valuable, but business can seldom quantify trust in ways that make it a proactive part of their strategy and planning. Apple's breech, though, may prove instructive.

Jobs' statement, with its attendant store credit, may in time prove enough to placate the faithful. Apple has built a large storehouse of trust over the years and it may indeed take more than a single gaffe to destroy it. But what is the cost of simply diminishing it slightly?

The next time Apple rolls out something new, those Apple customers -- and potential customers -- with thinner bonds to the company may just wait before buying in. How would Apple's various stakeholders have felt about the company if, instead of the million-plus iPhones it sold in the first couple of months of the launch, they had sold half that many? Or just one-third?

If core early adopters choose instead to wait on the sidelines for the first price drop, the ramifications to shareholder confidence, market acceptance, and the bottom line will make that lost trust seem very valuable indeed.

Comments

[cgreen23]

As someone who writes books, articles, blogs and speeches about trust--I'm having a little trouble taking this example too seriously. Did the General Counsel of Viacom have new model consumer electronics pricing in mind when he talked about the ladder of trust? Do you really think Steve Jobs has a hard time putting a price tag on entry level pricing strategy oops I mean trust?

When I think of trust, I generally think of things like politics, or personal emotional risk, or buying major ticket items or health care or romantic love. In other words, things with something meaningful at stake.

When I think of people who can't wait to be first in line to drop $600 on the latest "must have" consumer item--well, frankly, trust isn't the first word that comes to mind.

Fashionista? Early adopter? Geek chic? Cool toys for big boys (and girls)? Sure. And I think it's great that Jobs figures out how to sell these folks. Just like Dolce and Gabana, or Harley Davidson, or Cristal. Great products matched with great marketing make for great consumer delight.

But trust? Please. Don't confuse a word that should be used with "semper fi," or "'til death do us part," by applying it to the pouts of the too-monied leisure class.

[GenericBlogger]

Trust is very much a part of consumerism and economics and often unmentioned because it's expected and assumed and often provided but not always.

Raise your points on trust with parents of children who played with lead painted toys. Consumers of Fen-Phen (those who are still alive), Guam gum, Vioxx. Enron employees. Owners of homes containing vermiculite insulation. Customers duped by unethical stock brokers. Unfortunately the list is far too long for one post.

I am not implying that Apple is part of such a disreputable group but every individual, firm, organization is subjected to trust issues.

Care to list some of the books and articles you wrote?

[cgreen23]

GenericBlogger, you make good points about lead paint and Fen-Phen. I agree, and should probably have suggested the need for distinguishing between those cases--where I agree trust is relevant--and far less critical consumer issues, where I think the word risks getting trivialized.

Ditto for the China issues you mention. Inter-continental corporate trust, trust between nations, trust in supply chain networks--not to mention being able to trust the food you buy--all those are critical trust issues. But again, next to those, I find "trusting" Apple to wait an appropriate time before cutting prices on a nice-to-have phone feels like a disconnect when it's up against trusting my local store not to sell me poisoned food.

Re my work, I co-wrote The Trusted Advisor (Free Press, 2000), and wrote Trust-based Selling (McGraw-Hill, 2006); I'm a contributing editor at RainToday.com, and have many other articles at www.trustedadvisor.com.
Charles H. Green

[GenericBlogger]

Further on the point of trust in consumer matters, the media reported during the last few months recalls of defective and dangerous products made in China. In most cases, China was responsible.

Reports also blamed only China for products manufactured for Mattel Toys and most of us believed it. During the last few days, Mattel admitted responsibility of design flaws and went as far as to apologize, something businesses rarely do. The media can't be blamed for this misinformation.

Do you see how crucial trust is in consumer matters?

[Sundialsvc4]

I have a friend who still has his Newton. Still uses it, too. (He may as well...)

What we should not overlook about Apple is that, while they mis-priced the iPhone, the bottom line is that THEY PRODUCED IT. It is, in fact, a hand-held portable Macintosh.

Apple has done this sort of thing throughout its company history, despite a slew of pricing mistakes and even product mistakes: THEY DID IT, and in so doing, usually did it FIRST.

It is also extremely significant that they did the iPhone using a very natural extension to the already-existing (and much of it open-source) Macintosh technology. They saw a target, defined it clearly, hit it squarely (and by doing so, defined it), and they did so in a manner that made very good hardware and software engineering sense.

FIRST.

[GenericBlogger]

FFFiiirrrsssttt of all, the point of some posters here is that being one of the FIRST owners is not beneficial and my personal experience confirms that.

I commend Apple for being innovative and an American company. I have owned Apple products since the mid 80s. But Apple made quite a blunder with the closed configuration of its FIRST Macintosh and by the time the configuration was opened, the PC manufacturers rolled over Apple like a steam roller.

Being first earns kudos for innovation and ingenuity. Being second earns the mega bucks.

I don't need internet access on an over priced wallet size contraption but Apple has my nomination for producing the product of the year. If I opt for an iPhone in the future, they won't get a cent from me until it's debugged, properly priced and can beat my Blackberry which works like a charm.

[davedave]

early adopters get screwed.

rinse, repeat.

predictably to get good value, stay off the bleeding edge.

i started w a mac plus w 256 k of ram. it cost 2600$ w a printer. it could scale fonts. it could do magic! the downside was a month later i could have bought more for less.

apple is ameliorating the "hit" by offering rebates. for their own stuff. for magic!

[cinemaven]

I find it odd that my 15 yr. old son had a better perspective on this than the adult Iphone buyers.

If you want the shiny object before everyone else gets it, you pay more.

When my son rents a video game, it costs more if it was released within the last 6 months than it does when it makes it into the "favorites" pile. Today, he's buying a video game ... it's the day of release so he will pay full price. If he waits 2 months, it will cost less. If he waits 6 months, he can pick it up used for 1/2 the price. He knows that and he often waits until the game is used but for some games, he just wants it first. If he buys a video game system, he also knows that just waiting a few months will bring a drastic reduction in price.. he always waits since new systems are usually buggy anyway.

I bought a new computer 2 months ago... if I were buying today, I'm sure I could get more memory for the same price. That's the way it works. I always know when buying a computer that it will be out of date in a week.

I have a friend who lined up for her IPhone... she had to have it the day it came out and wouldn't have cared how much it cost. She flashed it around for months, lording it over everyone. When the price came down, she whined like crazy. I have no sympathy for her. She's a business woman and understands that price goes down as volume goes up. You'd honestly think Jobs had done something unusual but it really is normal business practice..­. just ask my 15 yr. old.

[GenericBlogger]

P.T. Barnum: "A sucker is born every minute."

Steve Jobs to Apple Management: "Barnum is right, our loyal suckers eeerrrr customers will pay top dollar."

months later...

Steve Jobs to Frustrated Customers: "Our early customers trusted us, and we must live up to that trust with our actions in moments like these...We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple."

I owned Apple computers for about 10 years from the mid 80s to 90s. Apple charged higher prices back then but offered a unique product that no else one did until Microsoft used Apple's technology and developed the Windows operating system. Apple continued to charge higher prices and lost a significant share of the computer market.

Apple's higher pricing stems from its inception and they still haven't learned.

[LIR]

There is nothing in an Apple product that warrants shelling out more money for products that are really no better than others. It is just that people are lemmings, willing to succumb to peer pressure and buy something their friends like, whether it really is good or not. I have never been impressed, nor wanted to buy, any Apple product. Those who do tend to be followers, rather than leaders. Sheeple, really.

Break OUT of the Apple Ipod hegemony, folks. IT SUCKS!

[kindofblue]

Not really, Apple's still head and shoulders above the (much more accurately named) pc hegemony. We have both platforms, and the pc is so slow, loaded with virus problems. Plus all the software is a la carte, when you try and match an entry level mac book, the Dell is more expensive, and still doesn't work well.

Sheeple is the perfect description for the inexplicable pc herd of the last 20 years.

[GenericBlogger]

I agree with you for Apple products since the mid 90s. Before that time, Apple offered computers that were far better and capable with graphics and other computer tasks.

Typically, the total value of a product or service consists of two values, utility and esteem.

The utility value covers the practical aspects. For example, can the computer support all available software, is it reliable, can it handle all internet web sites, is it the right tool for the job, etc. Some argue that Apple still makes the best computers for graphics. They may be right but they are usually the high end professionals. Apple doesn't offer a better product per dollar for most of those who emphasize the utility value.

The esteem value covers the feel good aspect of owning a product. Many Apple customers have a cult like adherence to Apple products that they include in the overall value. For some of them, owning something made by Apple has an almost metaphysical or spiritual dimension. For others, they are cool products or status symbols to own and worth the price. Apple is a brand that reflects their lifestyle, thinking and preferences. Apple's prices for them are worthwhile and their opinion is pretty much unshakable.

[Jon1]

Your premise seems rational - except that it is not holding true in reality. As an example, while I was in an Apple Store today buying a 160 Gig iPod with my $100. store credit from my iPhone and about 5 people came in wanting an iPod Touch but they were sold out... People were buying the Nano by the handful. So where is the lost trust? The deal is, Apple lowered their price to affordable on an entire line of products - and people are not holding back to see what happens, they are buying boatloads of them. You are trying to make news where there is none and missing the real story.

[ImmanuelGoldstein]

Haven't you learned by now never by version 1.0 of ANY High tech product?

[Woofer58]

I know one thing that would cause an explosion of sales... if the iPhone worked with any carrier. But, of course, that can't be done, so I guess dropping the price is second best choice.
The really odd part is that if our country had open wireless, then something like the iPhone would probably do quite well in sales. So would a lot of other products that are currently doing well in Europe and Japan. As it is, the iPhone is stricly a big city toy when you need high speed i-net access.

[loslobo]

You give no reason why Apple made the price cut. Granted he should have thought it out, knowing it would piss off early customers, but I'm sure if this was Microsoft and they were on the way to sell a million, they would have raised prices.

If Apple lost it's core, Microsoft lost it's soul. Tell me Vista isn't a X rip off.(which they still can't get right)

http://www.youtube.com/watch?v=3QdGt3ix2CQ