Tim Cook doesn’t want Apple to lose billions of dollars in sales, nor does he want rivals to gain market share in the lucrative Chinese consumer electronics market. This irrefutable fact means that Cook, Apple’s CEO, will do all that he can to keep Chinese consumers happy, and if taking the unusual step of publishing a letter of apology does the trick, then so be it.
Apple is sorry!
On April 1, Apple reacted to harsh criticism of its warranty policy in China by publishing, on Apple’s Chinese language website, a letter apologizing to Chinese consumers. The company provided details on improvements to its iPhone 4 and iPhone 4S repair policy, outlined how it intends to enhance customer service for its products and promised to do a better job of serving Chinese consumers’ needs.
In the letter, Cook said during the past two weeks Apple has received feedback about its repair and warranty policy and that due to the company’s “lack of external communication,” many have come to the conclusion that Apple is arrogant and has displayed a “do not care” attitude.
“We express our sincere apologies for any concerns or misunderstandings this gives consumers,” Cook said.
Cook had to do something fast. Ever since Apple was targeted in a March 15 annual corporate malpractice report by state-run China Central Television, criticism of the company has snowballed. Other media outlets found fault with the shorter warranty policy on Mac laptops that Apple offers to Chinese consumers when compared to other countries. Additionally, the People’s Daily, an arm of the Communist Party, ran an editorial attacking Apple for its “unparalleled arrogance.”
So far, the apology seems to be working. Since publishing the letter, a report from Reuters notes that the Global Times, a tabloid published by the People’s Daily, said:
The company's apology letter has eased the situation, softening the tense relationship between Apple and the Chinese market … Its reaction is worth respect compared with other American companies.
Additionally, China’s Foreign Ministry praised Apple for being conscientious in its response to consumers’ demands. “We approve of what Apple said,” spokesman Hong Lei noted at a daily news briefing on Tuesday.
China’s smartphone market
Apple’s focus on improving service for its iPhone 4 and iPhone 4S products reflects a desire to succeed at winning customers in the lucrative Chinese smartphone market, especially as China’s economic growth is projected to reach 8.5 percent this year, according to estimates from the Organization for Economic Cooperation and Development.
or services, don’t wait for tensions to build. That's how walls get erected.
Furthermore, IHS iSuppli forecasts that China’s domestic smartphone market will grow to 268 million units in 2013, up 44 percent from 186 million in 2012.
While Apple is attempting to convince Chinese consumers to buy its products, it knows that sales could suffer if Chinese authorities continue to be critical of the company. How much does Apple stand to lose? Glen Yeung, an analyst with Citigroup, estimates that if Chinese authorities continued their state-sponsored anti Apple campaign, it could cost the company $13 billion in sales.
Using the experience of Hewlett-Packard, which also suffered similar attacks by Chinese authorities, as the basis for his calculations, Yeung is reported as saying that a targeted campaign against Apple could do significant damage to the company’s revenue prospects in China. As Yeung noted:
Recall that a similar campaign hit HP in 2010, leading to a ~50% reduction in their PC share in China. Apple derives ~16% of its sales in China (CY12) and China accounted for ~24% of Apple's revenue growth in the past 2 years (2010-2012). If Apple were to lose as much as 50% of their China market share, this would equate to ~$13.1B/$3.62 in revenues/EPS. We add this to our list of concerns about Apple's market share dominance and still do not recommend the shares at this time.
Certainly, high-tech companies can learn many lessons from this incident. Here are a few:
- Make sure you are communicating effectively with consumers in a foreign country. Always remember that as a company your task is to make consumers feel that their needs, wants, and desires are being met, regardless of where they live.
- If there are complaints about your products or services, don’t wait for tensions to build. Address the issue quickly and with humility. In this case, Apple’s Cook made sure to state in his letter that while Apple is operating in China, “we need to learn the place.”
- If you are writing a letter that seeks to make amends, make sure you state exactly what you are offering, and how you wish to improve your service. For example, Apple outlined the steps it will take including making improvements to its iPhone 4 and iPhone 4S repair policy, and providing an official Apple repair and warranty policy statement on its website. The company will also increase the supervision and training of Apple’s authorized service providers, and ensure that consumers can easily contact Apple’s feedback service.
Bad press is never a good thing, and only time will tell whether recent criticism will have a long-term effect on sales of Apple’s products in China. In the meantime, let us hope that Apple’s apology will put to rest any suspicions that Chinese authorities or the Chinese people may have about Apple’s products and services.