Apple is not alone in feeling PR pain

Over the years, other firms have dealt with costly errors

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September 09, 2007|By Andrea K. Walker | Andrea K. Walker,SUN REPORTER

Apple Inc. learned last week how harsh upset customers can be when it lowered the price of its $599 iPhone by $200, angering the loyal fans who paid full price when the trendy product was launched in June.

Bloggers began campaigning against the company as unfair. Apple fans complained they were duped into buying the much-hyped phone early. And hundreds of iPhone owners e-mailed Apple chief executive Steven P. Jobs, saying they were more than disappointed.

Jobs, who was forced to acknowledge the mistake within days, promised to make it right with hopes that customers will give Apple another chance.

It is a painful lesson that many companies before it - such as Coca-Cola, Ford and Intel - learned over the years and were forced to make amends.

And while few companies made the move that Apple did by offering a $100 in-store credit to early iPhone buyers, many marketing experts say issuing a quick mea culpa and working out the problems are the best way to appease customers and mend a company's image.

It is not clear how much Apple's move will satisfy loyal customers, many of whom wanted to own the iPhone first because it was considered such a hip item this summer.

Some argue that the store credit Jobs is offering customers really means they just have to buy more Apple products, helping the company use its mistake to make more money.

But like other companies that made such public mistakes, Apple is working to address a consumer revolt by saying it was wrong and trying to move forward, some academics said.

"Sometimes, even with the big companies, there is a tendency to underestimate the impact of consumer backlash," said David Urban, a professor of marketing at Virginia Commonwealth University. "I think a lot of times it's just better to go ahead and know you've made a mistake. Let's see if we can own up to it and move on."

Intel Corp. may not have been quick enough in addressing a faulty computer chip in 1994, he said. The chip computed wrong answers in complex division problems. The company acknowledged the problem only after a professor pointed it out and then said it would replace the chip for customers who were likely to encounter the problem.

A customer backlash and a slowdown in sales finally prompted Intel to replace the faulty chips for anyone who asked. The company took a $475 million write-off to fix the problem.

In 1985, the Coca-Cola Co. ditched its 99-year-old recipe for a sweeter version. Customers bombarded the company with complaints and refused to drink the new version. Within 2 1/2 months, the company brought back Coca-Cola Classic. It sold the new recipe as New Coke.

"Coke came out of that nicely," said P.K. Kannan, an associate professor of finance at the Robert H. Smith School of Business at the University of Maryland. "They changed their marketing strategy and got out of the situation very quickly."

Ford did not do so well in the 1950s when it introduced the Edsel, a car named after Henry Ford's son. Hype surrounded the car for months before its debut. But the car did not meet customers' expectations, and it was taken off the market in 26 months.

In Apple's case, some marketing experts said, the company was clever in offering customers the financial incentive.

"We need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price," Jobs wrote in a letter posted Thursday on the company's Web site. "Our early customers trusted us, and we must live up to that trust with our actions in moments like these."

Jobs said iPhone buyers who paid $599 for the 8-gigabyte model and $499 for the 4-gigabyte version would receive $100 in credit at Apple stores.

But some criticized the company for not offering cash.

"The most palatable solution would have been for them to give people a $100 cash check as opposed to a $100 credit ... ," said Urban, the marketing professor. "You have to go right back to the Apple Store and spend on another Apple product."

While most marketing experts said Apple likely would survive this episode, they said some customers might question the company's future promises. Even Apple's most loyal customers might think twice before being the first to buy a new product.

"It's not the $600 that's at stake," said Jim Kane, a partner at the Brookeside Group, a Massachusetts consulting firm specializing in customer loyalty. "It's the fact that you've said, `Yes, we agree we were charging too much for the phone.' No matter what they do, people will always think they were cheating them from the beginning."

Others said the problem would be forgotten once Apple begins introducing other products.

"It doesn't look good," said Chuck Donofrio, chief executive of Carton Donofrio Inc., a Baltimore advertising and marketing firm. "But I have to say nobody will remember in a few months."

andrea.walker@baltsun.com

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