EMC, Apple and Customer Loyalty

Wednesday Dec 17th 2008 by Rob Enderle
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A tech vendor’s success has as much to do with customer perception as actual product quality, making the vendor-customer relationship of paramount importance.

I spent much of last week at EMC's annual analyst event, and much of the breaking news this week appears to be on speculation surrounding Apple pulling out of MacWorld. The problem for Apple is the increasing belief that Steve Jobs will soon be departing the company. At Apple, quality appears to be driven largely from Steve Jobs’s desk and EMC's CEO, Joe Tucci, appears to have a similar view, but he has tied the result to a quality process that could pass to his successor.

In Apple's case there is a strong belief that much of what Apple now is will be lost when Jobs eventually departs, with board members suggesting in the past that the firm would immediately lose billions in value.

But quality not only defines these two companies, which are vastly different, it likely will play a major role in 2009 as individuals and companies eliminate redundant vendors to contain cost. The vendors more likely to be eliminated are the ones that didn't create and nurture loyalty and thought high quality scores were enough.

Both Jobs and Tucci naturally don't trust quality scores and Apple has historically, and EMC has recently, moved to drive much more aggressively toward building customer loyalty as the primary metric to be measured. That helps both firms focus on what is important to their customers not – as others often seem to – on things that often seem to only be important to product managers and internal staff.

Because I think it will be a critical differentiator between firms in 2009, let's talk about why quality metrics are crap and why everyone should be focused instead on customer loyalty.

Quality vs. Loyalty

The problem with quality is that it is subjective. Back in the 90s I did surveys on Sony and Dell. Sony by any measure had one of the highest quality products in the market, Dell one of the lowest in terms of breakage rates. Yet, based on customer feedback, you would have thought the opposite were true.

This is because, at the time, Dell had invested in a market leading service and support organization and Sony had not. This meant that Dell touched their customers more often and built relationships with them while Sony didn't touch their customers very often at all and, when they did, the experience was so bad as to almost assure the customer would never buy Sony again.

While people and companies generally don't compare products, they all know the experience they get and they connect the contact with their vendor to their perception of the vendor. If that contact is powerful and positive, regardless of product quality, they build loyalty. If it isn't, regardless of quality, they are likely to stray. Now granted, if the product is truly crap it doesn't matter how good the support organization is, the vendor is going to go broke and the customer is going to move on.

But the lesson here, and this is often very hard for an engineer to understand, is that quality is a perception and the perception of quality can be significantly enhanced or damaged by how well the customer is treated. In fact if you look at much of the difference between a high quality car brand like Lexus and a value brand like Scion you see that the product quality is actually very similar – the experience is the differentiator and the Lexus dealership experience is vastly richer than the Scion one. Though both work to increase loyalty in different ways.

Apple Quality

Steve Jobs drives a very high perception of quality. He uses rich materials in his products; he sells the products though his own stores and online shops as often as possible, and he generally is the guy that initially presents these products to the world. He is known to spend hours or days getting the presentation of a product exactly right just so the first impression a potential buyer gets is one of high quality and lust.

His commercials present his products in a favorable light while pointing out, and sometimes creating, flaws in Windows, all to create and drive the impression that quality with Apple products is better. Even when he knew, as is highlighted in the book Inside Steve's Brain, the products clearly weren't when he took over Apple, he focused like a laser on controlling the perception of the offerings and making sure people saw them as high quality.

This was because he knows that people can be manipulated to increase their perception of a product's quality and that this belief can be enhanced by assuring a strong service experience, which in turn drives customer loyalty.

Apple has rules on product reviews that are more tightly controlled than any other vendor I cover and they will work aggressively to assure that those that speak positively about the company exceed the voice and reach of those that do not. Apple is unique in that they work more on the perception of high quality while focusing intensely on assuring that people discount negative experiences and thus create high NPS scores.

(NPS stands for Net Promoter Score and many firms have switched to this from just measuring quality because it is a better measure of what is important, loyalty.)

EMC Quality

EMC is not the marketing company Apple is and they are more reliant on metrics that measure quality and loyalty as a result. But where Apple focuses heavily on creating the impression of quality and gets to loyalty that way, EMC, partially because the storage industry has quality requirements higher than almost any other, puts a lot of effort into actually assuring against breakage, and then goes beyond that.

Like Apple, EMC knows that quality is subjective and that relationship is important. But because they are more of an enterprise relationship company than a marketing company they approach the problem differently. Rather than advertising and product presentation they focus on assuring relationships, increasing the ease of doing business, and putting resources generally on issues that customer surveys indicate are damaging loyalty. They thus assure against the risk of competitive displacement.

And like Apple, EMC realizes that any company can have a bad product or a bad employee but if the customer is loyal, that customer will realize the value of the relationship is greater than any one experience and will believe the company, in this case EMC, will make it right. This difference goes to the core difference between the companies' customer bases. Apple's approach can scale to large numbers of people but would be less successful with professional buyers, while EMC's works better between their smaller base of large companies and professional buyers.

Wrapping Up

Both Apple and EMC exemplify ways to assure customer loyalty and showcase the benefits of being able to assure this loyalty in terms of low customer churn, increasing customer acquisition, and often better margins.

The one bad practice is tying the process too closely to one individual, in this case Steve Jobs, who may now be irreplaceable and yet have to be replaced. Assuring an excellent process like these will survive any one person should be part of any plan. Other than that, both firms should be emulated. And for those still focusing just on customer quality surveys you should seriously think of switching to NPS and assuring the customers you have now are still with you this time next year. Those that don't may not be around either.

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