Customer service is a tough business to be in. For a company, it can be expensive, and for a CEO who has to answer to shareholders, it can be downright impossible to quantify in terms of increased revenues.
There was a time when American customer service was light years ahead of anyone else. But that is changing. Countries like South Korea have made much greater strides to keeping customers happy than many U.S. corporations have. For anyone who has called a company like Dell Computers, you know that a seemingly simple problem can mushroom into a multiple hours-long session of being shuttled from one offshore call center to another. Trust me, when a Dell computer works, it’s great. When it doesn’t, then you’ve got major problems, and you are left asking one question: how valuable is each hour of my time?
One of the big things that I have been telling people is that a major reason for Apple’s success is its Apple Store concept. If you go to Verizon Wireless and purchase a Samsung smartphone with an extended warranty and then 13 months later the device malfunctions, you have the warranty but you still have to send the phone to an authorized dealer to get it examined and fixed. That is significant downtime. In contrast, if you have an Apple product and it malfunctions, you just walk into any nearby Apple Store, meet customer service representatives who are passionate about Apple products, and get the device fixed either immediately or pretty close to immediately. And the thing you walk away with is a sense of happiness that you are part of a circle of people who have passion for what they do. As far as consumers are concerned, the company representative they see is a major part of the opinion they form of the company.
Now it’s time for a little bit of disclosure. I routinely visit Apple Stores for a couple of hours and watch. Some might say that this is a waste of time, but ask the people who followed my advice two months ago to invest everything in Apple because all of my metrics were telling me that Apple was going to have a monster earnings report in January 2012. And it needs to be said that two months ago, many top analysts were pessimistic about Apple’s chances of meeting the earnings estimates.To know a company you have to be willing to do some major legwork.
What I have noticed is that Apple’s vaunted customer service is showing cracks. When people have problems and are set up at the Genius Bar (the on-site tech support centers in every Apple Store), the system is stacked against the Apple representative. I’ve seen some of them trying to take care of two customers at the same time while fielding a barrage of questions from less experienced reps (note: I can’t call them Apple Geniuses because I reserve the word “genius” for people who are truly geniuses). They are like firefighters in a burning forest running from one hot spot to another. You can see that many of them look a bit overwhelmed and tired.
Nowhere has this problem been elucidated as eloquently as by former Apple Store employee Chad Ramey which you can read here:
http://appadvice.com/appnn/2012/01/apple-genius-tim-cook
I guess that you could file Ramey’s words under the great umbrella known as “former disgruntled employee”. The problem is that this has become a standard corporation public relations term to shift the onus of blame onto the employee. And many public relations firms know that since the general public has a very short attention span, the firms just have to shift the blame long enough until the public forgets about the situation. Maybe Ramey was a troublemaker, but then again, maybe he’s telling the truth. And for an investor that kind of truth has to be watched carefully as a predictive indicator for how a company’s stock might move.
In this case, I believe Ramey (note: I have never communicated with Ramey). Ramey’s words almost exactly match what I and some others have begun to notice: the Apple Store is becoming something of a Best Buy experience. It’s not there yet, but it’s moving in that direction.
There are two major reasons:
1) demand is outstripping capacity. Despite the incredible surge in popularity of Apple products, the size of the Apple Genius Bars has not changed. Many of today’s Genius Bars were built at a time when far fewer people owned Apple devices. In other words, the Genius Bars at many Apple Stores were kind of like two-way highways in a small town: no blockages. But the rapid growth and spread of Apple products has quickly transformed it into a major metropolis that still uses the same two-lane highway. This creates bottlenecks as well as tremendous stress on the highway itself. For someone like Apple CEO Tim Cook who is a supply chain guru, how could he not see this bottleneck coming? The problem is that most Apple Stores seem to be setup is in a way that makes it nearly impossible to maintain the aesthetic of the store while expanding the area of the Genius Bar. The result is pushing Apple reps to move customers out as quickly as possible to prevent long waits. The effect is the same as what happened to people during the surge in health care HMO’s in the 1980s and ’90s: physicians were forced to spend far less time with patients to maintain their HMO-mandated performance quotas, and patients became increasingly angered by it.
2) cost-benefit analysis. Apple has done its cost-benefit analysis and decided that they have reached a point in market penetration where the product sells itself. So don’t allocate additional resources to profit-eating customer service. In fact, if one can save some money by cutting customer service without causing commensurate losses in sales and profits, then even better.
In many ways, Apple is its own worst enemy. It created a level of customer service expectation that no other major corporation has. When a person calls Sprint Nextel, that unlucky individual knows what’s coming next. (hint: it’s not good). What Apple has shown is that the Apple Store experience is a vital component of not only having people fall in love with their products but staying in love with them. However, once people become disenchanted with the service at Apple Stores, then the real danger is that people will start asking this question, “Can I really justify paying more for an Apple product when I can get a similar product for significantly less at Best Buy?”
Apple’s customer service at its Apple Stores is still superior to other brick-and-mortar retailers, but there is a big danger. When high customer expectation is not met with reality, the result is usually disastrous.
Tim Cook and the Apple Board of Trustees have some major decisions to make. At its current pace and direction, a few things will happen:
1) customers will feel rushed when they go to the Genius Bar at an Apple Store.
2) the reps who staff the Genius Bar will get overly fatigued and start making more mistakes which adds even more time and backlog to the system.
3) Genius Bar reps will get so mentally fatigued that they will develop a negative mentality and this will become evident to customers who will then start generating a negative image of Apple.
Assuming that Apple does expand its Genius Bars, here’s another very real possible scenario which could be equally disastrous: Apple adopts the Korean Air model. Korean Air is South Korea’s largest airline company. One thing you will notice when you fly a Korean Air flight is that 95% or more of the flight attendants are younger than 30 years old. This is unlike a U.S. carrier where it seems that the average age of a flight attendant is 50.
Korean Air uses this system for a couple of reason. First, customers like seeing younger flight attendants. Let’s forget about political correctness and be completely honest. Our labor laws prevent a U.S. carrier from forcing flight attendants to “retire” after 30, but I can guarantee that if one airline was allowed to do this, they would trounce all the other airlines in terms of volume and profits.
Second, constantly rotating out older flight attendants and replacing them with 23-year-old ones has a dramatic impact on keeping salary costs down. What do you think the salary difference is between a 23-year-old flight attendant and a 55-year-old one?
Although this model works great for Korean Air, it would be disastrous for Apple because people don’t go to the Genius Bar to see a pretty face (although that never hurts). Customers go to the Genius Bar and hope to get a rep who is like a magician and can suddenly fix an Apple device’s problem within a minute. That kind of skill requires years of experience. It’s not the kind of skill that a newer (and usually less experienced) rep can demonstrate consistently.
Now, there also is a place on the production performance curve where the continued increasing cost of a person’s salary is not justified by the actual additional increment of knowledge they possess, but that’s the subject of another post.
One of the things about Steve Jobs which makes him inherently different from Tim Cook is that he rose from the dregs and created Apple. He knew what it was like to be unemployed. He knew what it was like to be a common person. And most importantly, he considered Apple his child. That led to incredible attention to detail which we rarely see these days. Tim Cook is loyal to Apple, but everyone knows that he’s more of a normal CEO and therefore his focus is on ways to cut costs and increase profits. To be fair, my gut feeling is that Tim Cook is also a far more compassionate person than Steve Jobs and that soon we will see Apple reinstate charitable donations which were entirely abolished by Jobs.
This doesn’t mean that Steve Jobs was the greatest advocate of his employees. With all that money, I still don’t completely understand why he didn’t create some sort of stock incentive plan for long-term Apple Store employees. But at least he was focused on making sure that the Apple Store experience was a truly positive one.
If Apple wants to keep its Apple Stores functioning as the wonderful experience they have been, certain behind-the-scenes changes have to be made, and they have to be done quickly because as the popularity of the iPhone 4S continues and when the iPad 3 debuts in March 2012, the price of dramatic increases in sales is a dramatic increase in the number of customers bringing their products to Genius Bars for servicing. Without Genius Bar expansion or some other technology to rapidly diagnose and solve problems, the consumer opinion of Apple will move from “amazing” to “mediocre”. Apple’s choice now will set the tone for whether it maintains its lofty status or falls.
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