Quality - Price - Service (pick two)

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My family is in the commercial roofing business, and this quote is on my father's office wall.  My grandfather and his brother started the business in 1923.  It was then run by my father, and is now ably run by my oldest brother.  It's one of my favorite quotes because it really gets at the notion of value, and the difference between what you pay and the value of what you receive.

Over the years my father, my brother, and other key people in our business have tried to build long term customer relationships based mainly on quality and service.  These relationships aren't really driven by price -- they're driven by superior expertise, quality, and service.  That's what our customers really value and that's what drives repeat business and referral work.

Some roofing customers value price above all, at least initially.  At least until the first major roof leak or roof failure.  Then they realize the upfront money they "saved" was far less than the time and cost and inconvenience of subsequent roof problems.  That's when they start valuing quality and service a bit more than the initial price, and we end up getting their business.

A similar pattern seems to play out with Apple's customers.  The customer often starts with a Wintel PC or a cheap Android phone, valuing the initial price above all else.  Then they realize that quality or ease of use or service is lacking, and they start prioritizing these factors a bit more.  That ultimately leads them to an Apple product and a long term relationship based on superior quality, service, ease of use and so on.  These relationships foster customer loyalty, repeat business, and referrals.

Apple wants customers who prioritize quality and service, not price -- and that kind of business can endure for a long time.  Our family's construction business has been around for almost 100 years, and barriers to entry in commercial roofing are almost non-existent.  Fly-by-night contractors routinely enter and exit the business, competing almost entirely on low price.  Lots of customers still choose to do business with us.

Key points relative to value and Apple:

  • Many people value high quality and excellent service, and they're willing to pay for it.
  • The following quote from Steve Jobs is important to remember:  "There are some customers we choose not to serve. We don’t know how to make a $500 computer that’s not a piece of junk, and our DNA will not let us ship that. But we can continue to deliver greater and greater value to those customers that we choose to serve. And there’s a lot of them. We’ve seen great success by focusing on certain segments of the market and not trying to be everything to everybody."
  • Consistent with this quote, Apple focuses on delivering, over time, incremental value to market segments that can take full advantage of Apple's products.  That's why Tim Cook is always talking about product use statistics -- app downloads, Internet usage, etc. -- rather than market share numbers.
  • More and more this incremental value comes from Apple's ecosystem rather than the device alone.  The ecosystem delivers incremental value by improving convenience, accessibility, and ease of use across multiple devices.
  • The proliferation of interconnected devices/services increases the value of convenience, ease of use, platform consistency, seamless interoperability, and security/privacy, and Apple is well-positioned to capitalize on this trend.  These developments also give Apple lots of "runway" to continue improving its devices, its OS, its ecosystem, and its services in terms of functionality, reliability, convenience, ease of use, accessibility, and affordability.
  • One problem with Google's ad-based, data collection model is that it basically forces users to sacrifice security and privacy at the same time devices, services, and related security risks are dramatically rising.
  • When you look at things from the big picture perspective of devices, ecosystem, and services, "good enough" may not be a big issue for Apple.  Apple can improve hardware at a slow, incremental rate (in line with the user's ability to absorb improvements) because Apple can still make improvements in other areas -- ecosystem, iOS/OS, and services -- that increase hardware value and drive hardware sales.  Apple has lots of ways to "pull the string," as Tim Cook likes to say, which allows it to moderate or flatten the trajectory of hardware improvement in line with the user's ability to absorb, value, and actually use the improvement (thereby avoiding overserving).
  • When a technological breakthrough/improvement does occur, whether through an entirely new product (the original iPhone) or through iteration of an existing product, and the breakthrough/improvement will be valued and used by the consumer, Apple prices high initially and then keeps prices/margins relatively flat.
  • As hardware improvements become more incremental and less meaningful, Apple increases value by dropping price (as done with the iPod line), which helps prevent low end disruption.  But Apple never has to drop hardware prices as much as its competitors because much of the hardware's value comes from the convenience, ease of use, and accessibility of Apple's ecosystem of connected devices and services.
  • Any time Apple introduces a new device, a proprietary service (like iCloud), or a proprietary method of connecting to an Apple device (like AirPlay, iBeacon, Apple in the Car, etc.), it incrementally increases the value of all its devices, because everything is integrated and easy/convenient to use.
  • And the service element of Apple's retail stores adds even more value to Apple's ecosystem.

The author owns stock shares of Apple.