In an interesting new development for Apple’s grand retail strategy, the company has announced an official plan to certify certified and authorized third parties to repair iPhone. There are a number of important aspects of this and a grand strategy for Apple’s customer base at play.
Addressing Customer Pain Points
First, I think it is important to acknowledge the pain points that exist for iPhone repair. In the early days of iPhone and Apple retail, it was relatively easy to get an appointment to repair or replace your iPhone is something broke or went wrong. As the iPhone installed base began to ramp, Apple kept adding stores in order to keep expanding their reach and servicing customers. It was inevitable the iPhone base would outgrow Apple retail, and that has been the case the last few years as Genius Bars are about as packed as they can be and customers often have to schedule appointments at least a few days in advance. This has been a growing pain point.
Another pain point to acknowledge is Apple’s base has become so large and stretched out into parts of the US and other countries that are outside of the reach of many Apple retail stores. I have heard stories from iPhone owners who have had to travel an hour or more by train or car to go to an Apple store for a repair or service appointment. Apple retail can’t be everywhere. And that is why Apple blessing third parties to do iPhone repairs is a strategically interesting move.
The Strategic Play
There is the obvious strategy here of Apple looking to service their broader base that Apple retail alone can’t service. And, really, this strategy is all about servicing and creating attractive value propositions to continue expanding their base. For example, if you live in a remote town with no Apple retail, perhaps knowing you are covered by a local vendor makes it more attractive to enter the Apple ecosystem for the first time.
Another part of this strategy, I think it is interesting it the way it could fuel the second-hand market for iPhones in an even more significant way. It’s a little known secret that a sizable chunk of Apple’s iPhone installed base is second hand/hand me down iPhones. I’ve seen estimates as high as 400 million second hand/hand me down devices in the market. I have not officially modeled this, but I think between 250-350m is extremely likely worldwide. It is an extremely common practice for consumers to sell their iPhones on the second-hand market or hand them down to a family member or friend. With third-party repair, and the potential competitive pricing than can be enabled by third parties, this could become an important way for Apple to boost its base even higher via the second-hand market.
Apple could also spur an even bigger third party authorized seller/repair cottage industry and increase the economic incentives for third-parties from a business perspective. This could have an impact on the overall presence of Apple third-parties stores, which, by nature, would help increase the lure of the Apple ecosystem.
Strategically, both increasing the base, further validating the second-hand market, and giving more options to customers is a related strategy to grow the iPhone installed base and keep them engaged and satisfied. Apple knows once they acquire a customer, that customer rarely leaves, begins to spend more on a YoY basis in Apple’s ecosystem, and continues to buy new hardware and accessories.
The Risk
While minimal, there are some risks in this strategy. The biggest one being the customer experience with a third-party option. Apple has an entire structure and process to keep the customer experience premium when it comes to Apple retail. Everything from the time you walk into the store is intentionally planned, and associates have been trained. This is obviously not the case when you go to a third-party seller. Without a lack of control, Apple risks having its customers have a sub-par experience when they use a third-party solution. Given Apple is officially blessing these third-party vendors and telling their consumers Apple has certified them, by nature, any bad experience has a chance to reflect poorly on Apple.
The big question is how Apple will handle the messaging and certification process to make it clear to customers which third-parties are trained and authorized to do repairs. One thing that came out of the news from Apple was that third-parties would be able to use non-Apple parts. If a third-party offer this, it has to be disclosed to the customer and let them choose if they want to use the Apple part or the non-Apple part which will likely be cheaper. Here, again, there could be trade-offs in customer experience if they choose the non-Apple part, and it doesn’t last as long or has a negative impact on the customer experience. The bottom line is consumers will choices when using third-parties, and hopefully, they are in a position to make a well-informed decision when it comes to their repair choices.
Overall, this is a smart move that I feel has the potential to create various new dynamics that make the Apple ecosystem even more attractive and sticky. Yes, there are risks, and trade-offs, but as I mentioned Apple retail simply can not satisfy the entire Apple customer base, and this seems like a smart way to extend the reach of their customer touchpoints.
