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Why it is not okay to abuse your customers
April 23, 2017, 5:02 pm

I cannot seem to get out of my head the image of that poor Asian doctor who was recently dragged off that United Airlines flight. The fact that the airline did that to a 69-year-old doctor just so it could save money moving employees around is nearly as unbelievable, as the tone-deaf response from airline’s CEO Oscar Munoz, who initially blamed the passenger and only backtracked and offered an actual apology after tremendous media backlash.

There were two paths that United Airlines could have taken to move employees to another location without causing an uproar. One was to increase the voucher amount offered to passengers to a point where it was cheaper to charter a plane to move the employees, or simply to have in place, what many non-airline companies use, a fleet of smaller planes for employees' use.

What is particularly scary about the method that United Airlines chose is that it did not factor in why people were not taking a US$1,000 voucher to change flights. Its method for choosing which passengers to bump only focused on connections, so those who were ending up at the destination airport were prioritized for bumping.

What if someone's job depended on getting to a location on time? What if someone had a dying relative, a wedding or funeral to attend? What if someone were a doctor who needed to get to a critical patent? None of those possibilities was been taken into account, and the poor guy who was beaten up was in fact a doctor.

United Airline's decision has cost it millions in brand damage, and because the passenger looked Asian, many from that region are treating this like a racial attack, which could result in sanctions and boycotts. Incidentally, the trade publication PRWeek, which gave Mr. Munoz its ‘Communicator of the Year’ award, just a few weeks earlier to the bumping incident, said in an editorial: “We’re very talented, but we’re not psychic… It's fair to say that if PRWeek was choosing its Communicator of the Year now, we would definitely not be awarding it to Oscar Munoz.

The incident might even end up costing the CEO his job — all because it did not have a better way to move employees around, which is kind of ironic given it is in the transportation business. The reason why it took United Airlines so long even to understand the ‘dumping’ problem was because, in the minds of its executives, customers had stopped being people and had become an exploitable resource instead. But United is not alone in considering its customers as expendable collateral.

While the United Airlines debacle was going on, the chipmaker Qualcomm filed a claim in court alleging that Apple crippled the modems in some iPhones to cover up its use of cheap parts, and that it aggressively acted to prevent anyone, particularly Qualcomm, from pointing it out. On page 46 of the whopping 130-page document that Qualcomm filed, it alleges that Apple not only has been using sub-optimal (read cheap) parts, but also has been threatening to retaliate should anyone point that out. Point 4 on page 46, basically says there are two iPhones in market sold as the same phone: one with cheap parts, and one with good parts, but that Apple is crippling the good ones so that people cannot tell the difference (and thereby avoid the bad phone).

Many folks think that by buying Apple they are getting the best. However, if Qualcomm is correct, they either are getting a substandard phone — or worse, an intentionally crippled product. The potential consequences range from poor performance to bad connectivity, which could leave users with a phone that does not work when they most need it. Cutting quality while raising prices and aggressively covering that up only works temporarily. Given how we depend on our phones, my guess is that if this is true, it will not end well for Apple.

I often wonder if top executives and boards have some weird undiagnosed disease that causes them, from time to time, to do something so incredibly stupid, or whether they all attended management schools where they taught a chapter that screwing customers is a great business practice.

I recall having a discussion with an IBM executive back in the early 1990s about the company's practice of intentionally creating buggy products and then charging customers to fix the problems it had created. I asked why they were doing something that seemed insane, only to be told, effectively, that since the customer had no choice, IBM could do what it wanted to them and they would pay whatever IBM charged. It remains one of the most idiotic responses I' have ever heard, and shortly after I learned that the entire executive team was fired.

To hit aggressive price points with lithium-ion batteries in the early 2000s, Sony covered up that they had not updated their production lines to prevent metal contamination. The batteries became contaminated and caught fire, forcing massive recalls and pretty much wiping out Sony's lithium-ion battery business and probably began the slow decline of Sony.

It appears that Samsung cut short quality testing to get the Galaxy Note7 out quickly only to find out it was catching fire. In an effort to address that problem quickly, it guessed wrong about the cause, and replacement phones caught fire too. To recover some of the costs associated with its massive recall, Samsung decided to sell refurbished Galaxy Note7s, and I doubt that'll end well. I think Samsung has a death wish.

Between Apple and Samsung, I am not sure which has the stronger tendency for suicidal policies. Apple clearly has a problem, because it is a firm that is valued largely for its innovation, and that is one word that largely has been used in the past tense since Tim Cook took over for Steve Jobs.

While the iPhone has done well — particularly this last quarter, thanks to Samsung's burning phone issues — nothing else has risen to diversify Apple's revenue or offset a trend of increasing margin pressure. The Apple Watch has languished, the iPad is in decline, and the iPad Pro has been a disappointment. MacBooks, Macs and iMacs have been cash cows for so long that reviving them seems increasingly unlikely. As a result, Apple has moved to a strategy of aggressively cutting costs, while considering charging more and more for iPhones.

Like all of the other examples I have cited here, Apple's alleged action to cripple its phones is customer abuse. If it turns out to be true, then it means that the only difference between Apple and all the rest of these bad examples is that Apple has taken more money from its customers. I expect that as a reason to buy from a company, being cheated falls pretty low on anyone's list.

From Samsung, to United, to Apple, so far this year has been an increasingly ugly example of executives behaving badly. It really seems like there is an epidemic of stupidity out there. In any case, this month has provided a strong ‘teachable moment’. Let us hope a lot of executives learn by watching rather than doing. It is never OK to abuse customers. When companies do, they have translated ‘customers’ into ‘things’. And, nobody likes being treated as a ‘thing’.

Rob Enderle
President and principal analyst of the Enderle Group, a technology analysis firm


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