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With less shine, what will happen to Apple’s performance?

How will loyal Apple customers react to Apple’s first public supplier performance report card? Recent news about abuse of labor hours and environmental standards by some of Apple’s Asian supply chain partners might lead the loyal and merely satisfied to shop elsewhere. After all, loyalty, past satisfaction with purchases and implicit expectations about corporate behavior are woven together in a rope that can propel or, in Apple’s case, choke off future growth.

About loyalty, satisfaction and expectations

Customer satisfaction measures, “Did the product or service I purchased meet my expectations?” If it did not, once satisfied customers become dissatisfied, shop elsewhere in the future and, depending on the magnitude of dissatisfaction, encourage others to do the same. Customer loyalty is more than very high levels of satisfaction. A disappointed loyal customer gives a brand a second chance following any disappointment.

Most of the satisfied customers, even those whose expectations are exceeded, are not loyal, and from the economy’s perspective, this is a good thing. The merely satisfied shop elsewhere as soon as something better is available, unlike the loyal who wait for their brand to catch up should it fall behind competitors.

The shopping behavior of satisfied customers drives economic change. Disappointed Blackberry customers switched to the iPhone, encouraging Blackberry, new entrants and other share losers to adopt Apple’s innovations. At the same time, Apple pushes its advantage still further. If customers jumped ship more slowly, improvements in product performance and cost would grind to a very slow pace.
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In this way, the invisible hand of free market competition performs an amazing job raising market requirements. Even market disruptors pay attention to basic customer requirements that all brands in a category must meet. Furthermore, regulatory authorities make sure these basic requirements are met if safety or environmental risks are present. Has anyone recently purchased a kid’s toy with lead paint?

Back to the question about Apple

Any brand built on egregious environmental and labor practices made public in Apple’s supplier report will be tarnished in the eyes of customers who expected more from the brand, customers who may be among its most loyal. Brands with high loyalty cast a glow that transforms brand expectations. Just today I was in a meeting with a loyal Apple customer who said he always bought Apple because they were first to every market, priding himself on being an early adopter. In fact, Apple’s genius is following the leader, but doing it the right way.

Tarnishing of a brand need not affect its financial performance, however, if the competition is similarly tarnished. Whether or not supplier performance disappointments reverse Apple’s rising success depends therefore on three factors:

• What did satisfied customers expect about Apple’s supplier management? If they expected better performance, they are now dissatisfied and open to shopping;

• Is the supplier performance a game changer, eroding loyalty altogether for some customers? and,

• Are there comparable products with better supply chain performance? Data shows that all else equal, consumers chose companies that do less harm or more good for the world.

The Internet has made social and environmental performance far more transparent and therefore actionable for those who care about these factors. Nevertheless, the declining economy has made consumers more value-focused, with fewer customers willing to pay price premiums for environmental and social performance. A tie, you might conclude, in whether brand expectations and brand choice are more or less influenced by a brand’s environmental and social performance today than in the past.

But wrapped around the tug of war is the trend – more consumers becoming aware of how our market system produces more than meets the eye, and often its not very pretty. The Occupy Wall Street movement, Harvard Business Review blogger Umair Haque and many global institutions benchmarking brands’ environmental and social performance are making more consumers more aware of the shadow side of capitalism. So is the media, one example being an NPR report that life expectancy in Beijing is cut short by five years due to very dangerous levels of pollution emerging from the rapid growth of China’s exports and unwillingness of its government to invest in modern coal technology. The true cost of Chinese imports’ just rose in a consumer’s mind not previously aware of this fact.

Yes, there is a positive side – China has fewer poor people thanks to US and European consumption of its exports. But consumers always want it all – Help the world, but not at the environment’s expense. It’s the American way after all – a mantra that’s improved performance across most markets since the advent of barter. Companies that figure out how to break through product trade-offs win big time.

With ease-of-use becoming a requirement in cellphones and mobile tablets, and Samsung fast on its heels, Apple had best consider differentiated performance in environmental and labor factors because being the “best product” will require different things in the future. Absent change in its supplier management, the Invisible Hand will deal Apple a hand its leaders will for sure not like playing.

More articles by Kay Plantes

Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. She resides in Madison, Wisconsin and Oslo, Norway. For more information visit her website - Business Model Innovation and read her most recent book - Beyond Price.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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