Wednesday, September 05, 2007

A Tale Of Two Companies And Loyalty

Publishing this in both of my blogs.

Two very interesting things this week happened that illustrated how two consumer electronics companies view being loyal to their customers...with surprising differences.

The first is Palm. Now, I'll preface this by saying I have been a very loyal Palm user for many years. I was entranced by the Palm III, years ago, and I have stuck with it: A Palm V, a Palm Vx, Handspring Visor, Handspring Visor Prism, VisorPhone, Tungsten T, Palm TX, and now my Treo 680. Through them all, I have always marveled at Palm's singleminded focus on usability and features: I have looked at alternatives every time, and settled on Palm's offering. Yet there's no denying that Palm has clearly lost any shred of a leadership position: the Danger devices, the ever improving (but still painful) Windows Mobile, and now the iPhone have all eclipsed Palm's innovation. Heck, even the new Blackberrys are getting in on the act.

Palm's answer? The Foleo, which was a device in search of a need. Basically a stripped down laptop with some interesting sync capabilities, was recently announced with near universal derision. This was Palm's big attempt to become relevant again? Releasing an overpriced, underpowered laptop that gave you all of the overhead you hoped to leave behind with your Treo, and none of the benefits (no movies on the Foleo; GREAT for those cross-country flights)? This was a major disappointment.

Now, take for a second the contrast with Apple, the second company in my discussion here. Everyone knows the story: after being beaten down to inches of their life, and having to take a bailout from Microsoft just to survive, visionary Steve Jobs proceeded to start to take bold risks with devices that filled needs for the customer base. It started with the iMac: an all-in-one computer that showed style, class, and affordability. But the really big hit came with the iPod; sure, there had been MP3 players on the market for years, but nothing like this. Easy to use, powerful, and paired with a real application to manage your media, the iPod became ubiquitous. In a short amount of time, every other company combined could not compete with Apple's iPod sales.

They continued to listen to their customers, and innovate with devices they wanted. Watch movies on the iPod? Got it, and, oh, by the way, a whole digital movie and TV store to go with it. Want smaller? Welcome to the Nano and Shuffle. And yes, unless you have been living under a rock for the last 3 months, the iPhone arrived to great fanfare and awe inspiration, outselling all other smartphones in the US in just its first month of existence, at almost twice the price of others. In short, the iPhone represented the crowning moment of Apple's recovery: they completed one of the greatest corporate comebacks of all times, with fanatically passionate customers and incredible innovation.

Now, what if I told you that this last week:
A. One company listened to its customers, focused on its amazing tradition of innovation, ruthlessly pursuing its focus, and was willing to take a financially risky move to try to ensure its continued success.
B. The other company continued to alienate its core customers, pushing away from true innovation, and selling itself out to a technology that had already been panned by many critics and leaves core users with a sense of unease about the future and if the company can be trusted.

Your answer to A. would be, instinctively, Apple, and B., Palm, right?

Wrong. Exactly the opposite.

Let's look at A. Palm heard the early reviews of its core customers to the Foleo, and decided to kill it before it ever reached the market. Period. The CEO announced the decision in his blog, as well as the estimated $10 million it cost to develop. He knew that he could not afford a flop, and could not afford to alienate the loyalty of his core customers. Instead, he not only killed the Foleo, but announced a refocusing of efforts around the Palm platform, reducing their involvement with the ever diluted Windows Mobile space. Palm knows that, without loyal customers who feel the company is responsive to their needs, and focused on the great devices, it will die. In truth, it may die even so, but releasing the Foleo would be the albatross that would pull down any hopes of a recovery. It took guts, determination, and was a direct reflection of the responses of loyal customers, and it was cautiously applauded by all.

As to B., well, you might have heard by now. Apple introduced the iPhone 2 months ago at $600 and, by all accounts, it continues to sell faster than any other smartphone. With no truly groundbreaking follow up, Steve Jobs decided to cannibalize his loyal customer base by announcing an unprecedented price cut: a full third of the price lopped off the phone, 60 days after it was released to, arguably, the greatest hype ever. Yes, there were some other variations on the iPod theme too, but the real story has been the absolute smack in the face Apple delivered to the thousands of customers who camped out to get their hands on a $600 phone that is, well, beautiful, but not meeting the expectations of the target audience it was priced for.

After days of uproar, his Steveness issued the most backhanded apology, mollifying as best he can those that saw $200 wasted with a promise for a $100 credit on iTunes media. Now, is this the way you apologize to your most loyal customers?:
"There is always change and improvement, and there is always someone who bought a product before a particular cutoff date and misses the new price or the new operating system or the new whatever. This is life in the technology lane. If you always wait for the next price cut or to buy the new improved model, you'll never buy any technology product because there is always something better and less expensive on the horizon. The good news is that if you buy products from companies that support them well, like Apple tries to do, you will receive years of useful and satisfying service from them even as newer models are introduced."

Worse, language like the above was paired with a a promise that the details of the $100 credit would be worked out soon ("Stay tuned."). How did a company that built itself back from death's door not realizing by throwing their best customers under the bus that they better have a medical team standing by to assist? They are "working it out?" This should have been anticipated and announced at the same time as the $200 price cut.

We've seen two companies who rely on loyalty from customers take very different approaches this week, and we have seen the results. Taking your loyal customers for granted is extremely dangerous, and both these companies should know: both had over 80% of their respective markets at one time, and both fell to disastrously smaller levels. One rebounded, but has not seemed to learn from the mistakes; the other is just beginning. There is only one sure thing here: both made very grave errors with their loyal customers, and the responses usually dictate the future.

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