Apple Genius Bar – Loss Leadership

Loss leadership is common among products: supermarkets are well-known for selling bread at a below cost price in order to attract more customers, who then go on to purchase more products than they intended to in the store, thus subsidising the loss made on the loaf of bread with higher sales revenue. But Apple – the highly innovative technology company, with a market capitalisation higher than Microsoft – have applied the loss leadership approach to customer service. Their retail outlets – a result of expanding forwards through the supply chain – offer one-to-one shopping sessions, tech support to get new users up and running, and, most significantly, a ‘Genius Bar’.

The Genius Bar is essentially a section of the retail outlet that is devoted to fixing users’ technical problems; whether it is a simple mistake made in organising a photo collection, or a critical hardware failure, a ‘Genius’ will attempt to fix the problem. Apple now allow customers to leave their faulty products overnight, if the problems are that serious and pick up the product within 24 hours and discuss associated charges. Moreover, it provides a chance for customers to receive real customer service – contact with a human being who can respond to queries and explain things in a jargon-free conversation, unlike Microsoft’s shoddy digital help and support. All of this is provided for ‘free’, despite high labour costs of associated with training staff. So why does Apple even bother?

The answer is the same answer why any firm needs to give customers quality service, where you meet expectations while increasing long-term profitability albeit at the expense of adverse cash-flow. When the so-called ‘Genius’ is presented with hardware issues, additional charges for servicing the product and spare parts can be sold to the customer. Although this may be seen as profiteering, it is actually a win-win situation: the customer receives their own product back repaired – not someone elses refurbished model – and Apple can get away with monstrous profit-margins. This is in addition to increasing sales volume from encouraging new users to make the switch from Windows, who in turn will later need the help of a ‘Genius’. But the benefits are not just quantitative.

Arguably the main benefits are the qualitative ones. The high-level of customer service helps portray the ethos of Apple; that is, the simplicity, the innovation and the family feel among their customer-base. This community and belonging culture within customers creates loyalty, emphasising the importance of the customer receiving their original product. But, customer service is not the be all and end all of marketing. Customer service may be viewed as a form a part of the promotional mix – a unique method of advertising – whereby the service conforms to their customers expectations, which consequently subconscious benchmark, based on the messages put out by Apple. Therefore, whether Apple delivers satisfactory service or not is essentially determined by themselves…

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