Apple delight leads to different outcome

By DAVID MOON, Moon Capital Management, LLC
May 19, 2013

For Mother’s Day, my kids wanted to go to the cell phone store and upgrade their mother.

Actually, it was her phone they wanted to upgrade, from a Blackberry (circa about 1950) to an iPhone.

So we headed off to the phone store to extend our obligation to Sprint for two years in exchange for a newer technology.

The Saturday shopping experience took 2.5 hours, broken into two separate visits. We simply bought a phone. We did not have it programmed or activated. The actual transaction took five minutes.

At its busiest, there were ten customers in the store.

Across the street at the Apple store in the mall, those same ten customers could have been simultaneously served in about five minutes.

A co-worker of mine recently visited the Apple store on Fifth Avenue in New York. He stood at the door for a while and counted people entering and exiting the store.

Analysts can be strange.

The store had a turnover of almost one person per second. More customers came and went from that Apple store in 15 seconds than from the Knoxville Sprint store in more than an hour.

West Knoxville is not mid-town Manhattan. But there is a reason that, at $6,000 per square foot, Apple stores average more than twice the floor space sales of any other retailer.

The availability of cool products at the Apple store is not the reason. Those same cool products are available online.

People enjoy their Apple shopping experience.

People abhor going to the cell phone store. None of the four national cell phone carriers earned above 72 on the latest Consumer Reports ranking of cell companies.

Surprisingly, Apple does not train its retail employees to sell. Its stated goal is “to delight its customers.” Apple’s premise is that making money is a result of its actions, not its goal.

In the back room of the Sprint store, there was a hand-written sign for employees to see. “Have you written down your sales goals for today?”

This is the paradox of sales. Apple’s focus on customer experience leads to an entirely different retail outcome. It also results in an entirely different financial outcome.

At the Apple store, I would have paid $549 for my wife’s new phone. By extending my service contract with my cell phone carrier, however, the phone appeared to only cost $99 – because of the $450 subsidy Sprint pays Apple for each phone.

Prior to signing the electronic keypad at the counter, I read the Terms and Conditions of the transaction. I was about to unknowingly agree to pay $11 per month in insurance – for a phone that cost me $99.

This customer was not delighted.

It’s harder to be Sprint than Apple. It’s certainly a harder retail environment. And Sprint scores higher on customer satisfaction than some other cell phone carriers.

The real lesson here is about cause and effect. By focusing on the process, Apple delights its customers, resulting in higher sales.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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