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Apple’s Apology Highlights the Power of the Chinese Consumer

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.

Circuitous Path

Apple's lesson in China: If there are complaints about your products  or services, don't wait for tensions to build. That's how walls get erected.

Apple's lesson in China: If there are complaints about your products
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.

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19 comments on “Apple’s Apology Highlights the Power of the Chinese Consumer

  1. _hm
    April 15, 2013

    That is good step taken by Apple. But was this policy applicable to China only or also applicable to other country like India?

    Apple should also make effort to include othre customer market. How much does it cost to repair? I wish it is practical to repair this complex device.

     

     

  2. The Source
    April 15, 2013

    _hm,

    I think Apple is treading very carefully in China. Apple knows the competition in China is fierce not only from Samsung, but from Chinese OEMs.  It's amazing that Apple has had many years of experience working with the Chinese and yet a situation like this errupts, the Chinese described Apple as being arrogant, and Apple felt it needed to make a formal apology. This is a lesson for Apple and all OEMs that they have to be pay particular attention to consumers' needs in other countries.  With regards to your question, it seems the Chinese felt that the warranty policy of one year is too short.  

    The bigger picture here, though, is that Apple is no longer the dominant player that it used to be and now has to react quickly to criticisms  in China or else consumers will find another alternative. You know the phrase _hm – the consumer is King!      

     

  3. Lavender
    April 15, 2013

    Despite the apology letter from Tim Cook, this mistake will still have an impact on Apple's position and reputation in China. 

  4. prabhakar_deosthali
    April 16, 2013

    While in China a couple of years back, when I was trying to buy a Chinese mobile phone, I was told by the shopkeeper that there is no international warranty for their products.

    Isn't this a double standard by Chinese that they want an equal support for Apple products while they do not want to support their products internationally?

  5. The Source
    April 16, 2013

    Prabhakar_deosthali,

    Yes, this does sound like a double standard. It seems that the Chinese mobile phone you were purchasing didn't put in place any arrangements for the product to be serviced in other countries. What was the brand of the Chinese mobile product?  

  6. The Source
    April 16, 2013

    Lily,

    It will take some time for us to find out whether recent criticism of Apple by Chinese authorities will translate to fewer sales of their products.  If it does, then this could hurt Apple in a significant way, because Apple is depending on higher revenues from sales of its products in China, especially since Europe and other global markets are still suffering from the effects of slow economic growth.  

     

  7. prabhakar_deosthali
    April 16, 2013

    The Source

    I do not exactly remember the brand name but it was in a reputed shopping mall and this was applicable to all the electronic products such as DVD playres, Cameras and all.

    The price was very attractive but the lack of international warranty deterred us from purchasing anything .

  8. The Source
    April 16, 2013

    Prabhakar_deosthali,

    You said that the price of the product was very attractive, but you didn't buy the Chinese made mobile phone because it did not have an international warranty. Apple, of course, is held to a different standard. There's so much that consumers have to consider in making the decision as to whether a product sells or sits on the shelf, and a warranty policy is as important as price, features and anything else associated with a consumer electronics product. That's the lesson that you are offering here.

      

  9. Mr. Roques
    April 16, 2013

    Apple will certainly learn from its mistake. What is the best selling smartphone in China? If it grew 40+% and Apple is only at 10%, who's getting all the rest? Maybe there's a Chinese maker we don't know about.

  10. Mr. Roques
    April 16, 2013

    Apple will certainly learn from its mistake. What is the best selling smartphone in China? If it grew 40+% and Apple is only at 10%, who's getting all the rest? Maybe there's a Chinese maker we don't know about.

  11. SP
    April 17, 2013

    That's a good move by Apple. Apple is known for following professional ethics. Last time when there was some human rights violation in one of their subcontractors, they ordered third party investigation.

  12. Eldredge
    April 17, 2013

    It sounds like Apple was offering a less attractive warranty for their Chinese market than they offered for other markets. I can understand the unhappiness from the consumers perspective.

  13. The Source
    April 17, 2013

    SP,

    The deplorable working conditions at Foxconn factories have been well documented, and I'm not sure that Apple's investigation into working conditions at Foxconn has significantly changed how workers are treated at the company that makes Apple's products.

    Here's a story published late last year about working conditions at Foxconn

    http://www.mirror.co.uk/news/world-news/apple-iphone-investigation-foxconn-workers-1377495

     

  14. FLYINGSCOT
    April 17, 2013

    I guess one would not want to wake a sleeping dragon as its bite could really hurt.  When I visited China people were desperate to buy Iphones and Ipads so Apple better not taint its cult status over there.

  15. The Source
    April 17, 2013

    FLYINGSCOT,

    You are so right.  Apple is depending on the Chinese consumer to buy its products, and as we know Apple is in a bit of a slump right now.   

     

  16. SP
    April 18, 2013

    No one can deny the importance of playing safe with Chinese consumers. Afterall its a big market.

  17. Mr. Roques
    April 19, 2013

    Well, maybe they needed to sell the iphones at a lower price and had to cut costs somewhere. How competitive is the smartphone market in China? I guess everyone wants a piece of it.

  18. Eldredge
    April 19, 2013

    @Mr. Roques – Good point – I wondered that as well. Apple may have been trying to compete with the prices and warranties offered by their competitors in that market, rather than in a global market – but are being held to the global standard tjey have set.

  19. t.alex
    April 23, 2013

    Maybe it's just a PR move by Apple?

     

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