Is Apple losing the battle for customer loyalty?

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By: RickFerguson |

Posted on November 22, 2016

According to Business Insider, Apple's long-envied lock on iPhone user loyalty is eroding. With retention rates in China in particular falling off the cliff, is Apple's aura of invulnerability finally dimming? If so, is there a way forward for a company so long dependent on game-changing products to retain their best customers?

By Rick Ferguson

The numbers aren't dire for Apple. The company still enjoys an average greater customer retention than its competitors, but the retention rate is falling, driven largely by a pronounced decline in loyalty amongst Chinese users, leading to a 30% decline in sales in China and Apple's first quarterly sales decline since 2003. This article is copyright 2016

What's driving this decline in customer loyalty? In most Western markets, Apple still enjoys durable customer loyalty in that most iPhone users are simply keeping their current iPhones rather than switching to a different brand. Money quote from Business Insider:

"iPhone sales are hugely dependent on Apple's ability to persuade its existing customers to trade in their old iPhones for this year's model. Cowen analyst Timothy Arcuri believes that 43% of current iPhone owners are currently considering a new iPhone.

"iPhone sales have been in decline recently because customers seem to be holding on to older models, especially iPhone 6 and iPhone 6s. This year's iPhone 7 was not as dramatically new as observers had hoped, and many customers may be waiting another year to see what the 2017 iPhone looks like."

China, however, is another story. Money quote #2:

"While users largely remain loyal to their iPhones in the West, the anti-Apple trend is so pronounced in China that it has lowered Apple's average customer retention rates globally, the UBS analysts said in a recent note to investors."

Apple is in one sense a victim of their own success. During the Steve Jobs era, the company's products were so innovative, creating brand new categories of products and radically reshaping others, that its customers are now unimpressed by any product that falls short of this revolutionary ideal. In their 1997 book "The Discipline of Market Leaders," authors Michael Treacy and Fred Wiersma describe three generic competitive strategies that market leaders embrace:

Operational excellence: The company outperforms its competitors on production and delivery in order to beat them on costs.

Product leadership: the company creates a culture that regularly brings superior and innovative products to market.

Customer intimacy: The company focuses on deep customer insight to create a range of products and services based on personalisation and customization.

Apple has never been a market leader, but it has been a profit leader, and has become the most valuable company in the world, through its mastery of the Product leadership strategy. The problem with this strategy as a long-term one is that innovation is by its very nature cyclical; innovative products are quickly copied and commoditized, and product leaders soon find themselves unable to continually emerge as the winner every year. Apple started out as a product leader in home computing, was nearly vanquished by its competitors, and then began a 15-year era of product dominance with the release of the original iMac in 1998. Might the company now be at the beginning of a down cycle?

Perhaps it's time for Apple to transform from a product leader to a business driven by customer intimacy. Apple certainly possesses deep customer insight. It certainly has a worldwide userbase of loyal customers who thrive in the Apple ecosystem. By leveraging its customer insight to market to its loyal users, Apple could thrive, and even innovate, by building hardware, software, and services customized and personalised to meet its users' needs.

There's a precedent for this transformation: IBM accomplished it when it transformed itself from a computer manufacturer to a company that delivers customized IT and data services to its enterprise clients. The advantage of a business strategy based on customer intimacy is that it enables a company to dynamically evolve in real time based on that customer insight. The company becomes less dependent on beating the product cycle, and more able to respond swiftly to changes in customer preferences and market forces.

Apple is still Apple; no one need worry that the company will significantly falter anytime soon. The company may yet release the next transformational product that finds it once again far ahead of its competitors. Even so, a little customer intimacy never hurt. Apple has the ability to build and sustain long-term customer loyalty; they need only extend their hand to their best customers.

Rick Ferguson is CEO of the Wise Marketer Group. He is an Apple fanboy.

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