If you are a cool teenager, you work in a shop selling records or jeans. I worked in a computer store, but my manager had worked in a jeans shop. What he told me about Wrangler was meant to relate to the BBC Micros we were selling but it’s just as true about Apple.
Apple is storing up problems for the future. The story about Wrangler jeans was as follows: the wholesalers and retailers hated them. For a while, Wrangler made the most fashionable jeans. While I was probably still wearing something my mum bought me, a pair of Wranglers was what all the cool kids wanted.
So the shops had to buy them. Not on the usual margins but on reduced margins. Worse, Wrangler wouldn’t let you just buy the sizes and designs that sold; you had to take the full range and an array of sizes. It was a ploy to push rivals out of the market.
Fashion is fickle
But fashion is fickle and as soon as a new brand of denim became all the rage, the routes to market took their revenge. They didn’t keep a steady order in for some mainstay Wrangler jeans – they returned all they could. They ordered no more pairs and enjoyed doing so.
The mobile phone market is driven by fashion as much as it is by technical excellence. Apple is riding high on both counts. The iPhone is cool because it’s technically very good. That famous attention to detail, control of the user experience and extraordinary fan base make consumers want an iPhone, and you can’t blame them for it.
They want an iPhone so badly the operators have to stock them. They have to take them with all the margin-sapping accoutrements, lack of operator branding, iTunes, and sales through Apple stores – all things that they would not entertain from any other handset manufacturer – and this is storing up resentment for the future.
When you are in business you are loyal to suppliers who have made money for you in the past and you’ll work with them through the bad times. Those suppliers that have exploited you are not friends. They are a necessary evil. You sell their products to fill the till.
If consumer sentiment changes, and it will, how you behaved in the past becomes critical to your future. When I started in the mobile business the top manufacturers were Motorola, with an ‘unassailable’ 35% market share, NEC and Panasonic. There were phones from Philips, OKI and Fujitsu. Nokia was called Mobira. The mobile phone market has evolved many times over the last couple of decades and we’ve learnt that no manufacturer has a birthright to stay on top. It’s been a very painful lesson for Nokia, but one it has come to accept.
The operators hated Nokia too. Indeed, Three tried to launch without them and failed. Customer demand for Nokia phones was just too strong. Operators sold Motorola phones even when they were abject (albeit with great network and radio performance), in part out of wanting a strong alternative to Nokia but also out of loyalty to a company that had been a good supplier and business partner in the past.
What will happen when fate wrong-foots Apple? It will happen, because it always does. It might come from a completely new player, or from Nokia having rediscovered its mojo. And when it does, you can expect two industries to overreact. The first will be the operators, who will rush headlong towards the new shiny technology or business model. They will snap it up with relish and spite.
Rate of growth
Then, as sales slow, the stock market will go in for the kill. Apple doesn’t have to do badly for this to happen. The company may still be growing, but if the sentiment from customers is bad and the rate of growth falls below what the stock market expects it will be classed as ‘disappointing’. Analysts will try to out-do themselves in predicting the scale of the fall and forecast gloom and doom. It becomes a self-fulfilling prophecy because it is all about sentiment.
A company can perform extremely badly but if the sentiment is good, the shares will rise. Tesla Motors, a car firm that has sold about 50 cars in the UK, made losses of $65m in the last quarter but its stock rose because it’s seen as having potential for growth. Apple announced good figures and the share price went down while Nokia announced poor ones and the price went up. It’s not how well you do, but how well you do compared with what the market expects. It only takes a little shift to make a monumental difference.
Apple needs to change its attitude towards customers – revenue share on iTunes, branding on the device and screens, co-operation on technical issues to solve the signalling mess, and many more things. And it needs to do this now, before it’s no longer the brand that operators’ rely on to keep hold of subscribers, or otherwise when the fall comes there will be no customer loyalty to cushion it.
Can Apple change its ways? I don’t think so. Like Wrangler, Apple doesn’t appear to have the humility chromosome in its genes.