Mario's Corner - January 2019.

The 4 Real Problems Facing Apple And Why Tim Cook Needs To Fix Them Immediately.

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First, I want to wish you a Very Happy New Year and I hope it is a Successful One!!


Yesterday, Tim Cook, the Apple CEO, sent a letter to shareholders explaining why the company will not meet its revenue targets in the fourth quarter.  This is the first time he has lowered the quarterly financial outlook since he took over as CEO from Steve Jobs.  Although he listed the two main reasons as the impact of China economic slowdown and the slower than expected replacement of iPhones globally due to the battery replacement program Apple offered in 2018, I believe that these are just temporary issues that will not make a difference to the future of the company.


However, I do think there are some fundamental business strategies and actions that Apple has taken over the past few years that Tim needs to fix for Apple to recover from its problems:


1.  QUALITY OF ITS PRODUCTS.


It is no secret that lately Apple has launched many products that are defective.  Although the company continues to insist that its products are of the highest quality, the following is just a brief list of the problems its most recent products have had: "Bendgate" for its iPhones and iPads where the products are so thin that they bend at the slightest pressure, the "Butterfly Keyboard" that has made some of its MacBooks inoperable until they are fixed by having to do major repair and leaving customers without a computer for days or weeks at a time, the IOS software updates that have converted some iPhones into "bricks' that cannot even be turned on, and the failure to launch the Airpower that was supposed to be able to charge all of its latest wireless products at one time.


The above list points to the main problem Apple is facing today - its Quality and Assurance testing.  Whether it is not doing appropriate Q&A because it is rushing products to market or whether it is having difficulty managing its China factories, the fact that Apple cannot launch 100% defect-free products and continues to deny there are issues points to a corporate culture of deniability instead of one that takes action to fix issues.  This is undermining the general public's trust and is probably one of the reasons why customers are migrating to Microsoft, Samsung, Huawei, and other companies. 


2.   CUSTOMER SERVICE FOCUS.


​If Apple had maintained the same Customer Service focus over the past few years, the product quality I just mentioned would not be such a large issue.  To illustrate this point, let me share with you two personal experiences.  The first happened when I bought the first iPhone in 2007.  This iPhone, like many others I bought afterward, had an overheating problem.  In other words, the phone would get too hot to handle.  I immediately brought this first iPhone to the Apple store where I had bought it.  After asking me what the problem was, the "Apple Genius" (as they call employees), scanned the serial number, took the iPhone from me, and handed me a new one at NO CHARGE.  The whole transaction took about five minutes.  On the other hand, when my son needed to replace his screen in his iPhone this past December, we had to check in, wait thirty minutes, explain the issue and hand the iPhone to the Genius and come back one hour later to pick it up.  Since I had the bought the Apple Care plan for it, the cost was $29.00. However, the Genius explained that since this is the second time this happened, the next time the cost would be $149.00. Although this is a much lower cost than buying a new iPhone, the Apple Care plan for his phone costs $149.00 and, unless you take full advantage of it (as I did), it translates to pure profit for Apple.


This type of customer service (waiting a long time to speak to a Genius and having a device repaired) has become commonplace.  Additionally, I have noticed that when I take a product for repair, I usually know more about the issue (through having read "Cult of Mac and other Apple-dedicated publications) than the Genius.  This indicates a lack of product training that should be a basic part of the hiring and on-going employee education process.


3.  LACK OF TRANSPARENCY.  


This is a major on-going issue.  It seems that the Apple Modus Operandi when there is a problem with any of its products is to deny it and then launch a new or upgraded product with a "fix" for the issue.  Unfortunately, this was a successful strategy for the iPhone 4 antenna-gate.  It has since been replicated for every single product defect including the "butterfly keyboard" and the "bendable" iPhone 6. 


Although Apple has been able to diffuse this problem by publicly denying any issues with its products and then quietly replacing/fixing them when customers bring them into their stores, its credibility and brand image have been negatively impacted.  This also has motivated many customers, like my other son, to buy Samsung or other substitute phones.


​4.  PRICE AND INNOVATION.


These are the major threats facing Apple today.  Since the iPhone line produces the major share of its revenues and profits, any resistance to price increases will have a major impact on Apple.  Unfortunately, with the advent of the iPhone X and subsequent models, Apple has decided to break the $1,000 price barrier.  Although this is bearable in the United States, customers are not willing to pay this price, especially in developing countries that are expected to be the major growth driver for Apple, like India, where the average annual salary is $1,227.00.


In China, where there are many mobile phone companies that are innovative and can produce their product at the same cost as Apple's partners' China factories, this is having a tremendous negative impact on Apple.  Companies including Huawei and Xiaomi are innovative and offer comparable phones at 50% of the price of an iPhone X.


​These companies, along with Samsung, are also expected to launch the first phones with 5G, the new telecommunication standard.  


All of these issues mean that Tim Cook needs to address the above internal Apple problems and try to fix them - instead of blaming external temporary issues like China-U.S. trade imbalances and Apple battery replacements.  Otherwise, Apple is in danger of suffering the same fate as many other U.S. companies like GE and GM that have been relegated to also-rans, but which at one time where the leaders in INNOVATION and PROFITS in their industries.


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Please do not hesitate to call me at 1 (617) 391-0347 or e-mail me at mariocastaneda@bluesailconsulting.com to talk about this or any other subject.  I always like to hear from clients and readers.  

 

Also, please don't forget to read my interview with BostonVoyager magazine.  To read it, click here.

 

Please do not hesitate to contact us if you need help in developing a successful business strategy and implementation that avoid costly mistakes.  

 

Happy New Year and I look forward to seeing you here again in February!

 

​Mario