APPLE, INC.

A Case Study in External Communication

Written by:

Jenny Lee

Ian McCarthy

Andrew Nguyen

Robbie Reid

Dr. Robyn Walker

Faculty Advisor
Center for Management Communication

Prepared for:

Case Study Initiative

Center for Management Communication

2013
INTRODUCTION

As soon as the news of the Apple iPhone surfaced, David and Mary Jones eagerly bought two
and switched their wireless phone carrier to AT&T Wireless, the iPhones exclusive wireless
carrier in the United States.

Several weeks later, after a hectic morning in the office, David Jones drove home to meet his
wife, Mary, during his lunch break. Hey, David, I wasnt expecting you to be home for lunch
today. Hows work? Mary warmly greeted her husband and proceeded to set the dining table.

Its finemundane as usual, David replied. Its not the project Mr. Owens just assigned
thats stressing me out; my iPhone keeps dropping calls. My calls have dropped multiple times
during important conference calls, David sighed as he immediately went to the couch and took
his shoes off to relax.

Mary had not experienced any problems with her own iPhone and wondered if David had
somehow received a defective phone. She placed a plate of pasta on the dining table and
responded, Im sorry to hear that; we should take care of that. I havent had any problems with
my iPhone. You should give AT&T a call and well get it figured out.

David called AT&T and was connected to a customer service representative who said, We have
been receiving a large number of calls regarding the reception issue with the iPhone. The
problem is with the iPhone and not AT&T, but I apologize for the inconvenience.

David called Apple Customer Service next. Hello, I am having problems with my new iPhone.
My calls keep dropping and I keep getting disconnected. This is a recurrent problem. Bill, a
customer service representative, responded, Hello Mr. Jones, the problem you are experiencing
with your iPhone is also being experienced by other customers with smart phones. However,
you can prevent calls from dropping by getting a case for your iPhone.

Astonished by the customer service representatives comment, David asked, How would a
phone case prevent my calls from being dropped? Bill continued, Like all phones, iPhones
have antennas. The antenna is located on the lower left corner of the iPhone. It is sensitive when
tightly gripped, and a case prevents that area from being grasped. You may also return the phone,
but there will be a 10% restocking fee.

David couldnt contain himself. So, my phone will drop calls when I hold it like any normal
wireless phone? The iPhone has a defective design. You sold me this defective phone. And,
now you expect me to pay a restocking fee? This is ridiculous! Apple intentionally
misrepresented the iPhone. Why would I want a phone that drops my calls unless it is held in an
awkward manner?

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DISCUSSION OF THE PROBLEM

Apple experienced retaliation from the public once the iPhone 4 was released. Shortly after the
product launch on June 25, 2010, customers reported antenna issues with the phone. They said
that if they touched the antenna located on the outside of the phone in two places when in use,
the phones reception would drop significantly.1

They also reported that the phone would drop four or five signal bars when tightly held in a
particular way: covering the back strip in the lower left corner of the metal band. Although
smart phone antennas have proven to fluctuate in signal strength, it is evident that hardware
designers at Apple failed to take this into consideration when drafting design plans for the
iPhone 4.

The problem was featured on many blogs and on proprietary iPhone online forums.1 Given that
the bottom-line purpose of a phone is to make calls, Apple was faced with a communication
challenge moving forward. To further understand the weight of Apples situation, the demand
for the iPhone 4 prior to and after its release must be considered.

Apple launched the iPhone 4 into a highly demanding environment on June 25, 2010. Prior to
the products actual unveiling at Apples Worldwide Developers Conference (WWDC) in San
Francisco2, there was widespread speculation about Apples new phone. Two prototypes of
iPhone 4s were leaked to the news, garnering much public attention and media mentions,
resulting in widespread anticipation of the phones release.3,4 On the pre-order launch date on
June 15, 2010, Apple and partner carriers received more than 600,000 pre-orders for the iPhone 4
within the first 24 hours, which was the largest number of pre-orders that Apple had ever
received on a single day.5,6 By the end of June, Apple had sold more than 1.7 million iPhone 4s.

Given this environment of high expectations from consumers and high sales volume, Apple
could have expected much scrutiny from the customers once the product was released. Many
companies facing a similar situation would have taken extreme measures to ensure the product
performed to their standards. What did Apple do?

APPLES RESPONSE TO THE PROBLEM

Customer loyalty was at risk for Apple if they did not meet expectations when resolving the issue
for iPhone 4 users. Because Apple sold over 1.7 million faulty handsets, there was the potential
of a high volume of customer backlash. This could have suppressed future Apple product
purchases, because it is reasonable to conclude that a certain percentage of the faulty iPhone 4
customers would not purchase Apple products again.

In addition, it is likely that a percentage of these customers would communicate their negative
experiences to other prospective Apple customers. Given the high number of faulty handsets
already sold at the time of this case, all of the iPhone 4 users could be considered unsatisfied
customers. This high level of customer dissatisfaction posed a problem, especially for Applea
player in an industry with many rivals.

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Another consideration is customers perception that Apple is careless in its production and
manufacturing process. At the time of the case, Apple was an industry leader that produced a
line of many products (e.g., iPad, Macbook, Apple TV, iMac, etc.). Because the iPhone 4
received much speculative attention from the media prior to its launch, the public might have
considered Apples production process inferior or considered Apple as a producer not attuned to
the needs of the consumer. This would be especially true with Apple still releasing a product
with hardware problems.

Apples corporate goal was to ensure that it could sell its products in the future. The iPhone 4 is
a part of many generations of phones from Apple, and all of Apples products are built on
previous generations. The antenna problem could result in a negative perception of the brand
that Apple debuts products that do not meet expectations.

Apple was at the risk of possible public relations attacks from competitors. At the time of the
case, the handheld, mobile phone industry was large, growing, and highly competitive with many
players.7 This meant that Apples high volume of iPhone 4 sales with antenna problems could
have threatened its position in the cell phone market.

Although Apple sold over 1.7 million handsets within a month signaling its market dominance
at the time there was still an opportunity for the larger players in the industry to take a stab at
Apples brand. Because Apple had a family of products to sell, there was a threat to its
profitability.

ACTIONS TAKEN TO ADDRESS THE PUBLIC

Upon receiving reports of call and data strength-related problems, Apple acknowledged that
holding the device in certain ways could diminish the signal but did not offer any solutions
initially. The company told the public to avoid gripping the phone in the lower left corner and
use one of the many cases available for purchase.

Apple CEO Steve Jobs insisted that antenna problems were common to all wireless phones.
Additionally, Apple issued a press release that compared the iPhones reception to that of
comparable smart phone devices, including RIMs Blackberry. The press release mentioned that
antenna problems were common and simply a fact of life. However, it was evident that the
antenna problem was caused solely by the way the phone was gripped, a problem unique to the
Apple iPhone.

Additionally, Apple announced a press conference, which led to speculation about a solution to
the problem or even the possibility that phones would be replaced to satisfy customers and
improve the companys reputation. Instead, the company simply reiterated, "We're not perfect.
Phones are not perfect. We all know that. But we want to make our users happy."8 The iPhone
manufacturer also admitted that investigators were surprised to discover that the formula used to
calculate the number of bars of signal strength to display on the phone was wrong.

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For example, the phone displayed four bars when it should have been displaying only two. In
response, Apple announced that it would adopt AT&Ts recommended formula to calculate the
number of bars to be displayed. While the signal strength would remain the same, the iPhones
bars would accurately report signal strength and provide users with a better indication of the
reception they currently had in a given area.

Consumer Reports then released information that indicated that an iPhone case could mitigate
the antenna problem.9 At the end of the July 16, 2010 press conference in Cupertino rather
than at the beginning, and rather grudgingly Apple offered free cases. Consumer Reports also
indicated it did not think that that this solution amounted to a substantive offer from Apple,
because the company was financially capable of providing a more reasonable solution.9

According to Apple, a case prevents skin-to-iPhone contact at the lower left of the phone,
which can change the cellular antennas ability to receive and transmit signals. Lastly,
consumers had the option to return their device if they were ultimately not satisfied. Although
Apple customers had a 30-day period to return their newly purchased iPhones, Apple charged a
10% restocking fee.

PUBLICS REACTION

Apple received ferocious backlash from the general public in response to the antenna problem.
Since the iPhone 4 was a highly anticipated, not to mention expensive product, people expected
great performance from their new mobile device. However, within a day of its release, the
iPhone 4 became a topic of serious controversy.

Reactions in regards to the actual flaw in its early stages categorized iPhone customers into three
groups:

1. People who were indifferent to the lack of reception

2. People who planned to postpone buying the iPhone 4 until the problem was fixed

3. People who cut ties all together with AT&T and Apple because of this
malfunction

Still, a large percentage of people did not waiver on their decision to immediately purchase the
iPhone 4, even after being informed of problems related to the antenna and reception. Why
would someone purchase an expensive device that does not operate to its promised potential?
According to A. M. Sacconaghi, Jr., an analyst with Sanford C. Bernstein & Company, they do
so because, Its iconic, its cool, its the it device and people want it.10

The second group created by the iPhone antenna problem consists of those who still plan to buy
the phone, but not until the flaw is fixed and the phone can fully function. This public reaction is
somewhat negative, but not enough to fully deter one from buying the product.

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Bruce Namerow, owner of a web consulting company in Washington says, Ill buy it the day
Apple fixes it. I dont see how they can sell a phone that you cant hold any which way you
want. That to me is unbelievable.11 Although this group of people negatively affected the
company in the short run, others reacted so negatively that they viewed the problem as
significant enough to sever their allegiance to Apple, iPhone and AT&T.

DISCUSSION QUESTIONS

1. What steps did Apple take to address the iPhone antenna problem?

2. How effective was Apples communication with the public? If it was ineffective, what
would have been your recommendations?

3. How will Apples communication with the public ultimately affect its brand image and
customer loyalty?

4. If Apple knew about the antenna problem beforehand, what would have been a better
course of action: To postpone the release of the product, go ahead with its debut knowing
the problem would surface, or some other course of action? Choose one and describe it
in detail.

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REFERENCES
1
Chen, Jason. "iPhone 4 Loses Reception When You Hold It By The Antenna Band?"Gizmodo.
Gizmodo.com, 24 June 2010. <http://gizmodo.com/5571171/iphone-4-loses-reception-when-
you-hold-it-by-the-antenna-band>.
2
Lowensohn, Josh. WWDC 2010: What you need to know c|net. June 7, 2010.
http://news.cnet.com/8301-13579_3-20006980-37.html
3
Golijan, Rosa. "The Tale of Apple's Next iPhone." Gizmodo. Gizmodo.com, 4 June 2010.
<http://gizmodo.com/5520471/the-tale-of-apples-next-iphone>.
4
Wolverton, Troy. "Another Next-generation IPhone Surfaces, This One in
Vietnam."MercuryNews.com. Mercury News, 23 May 2010.
<http://www.mercurynews.com/ci_15072831?source%3Dmost_viewed.20F88DA3D7D369F5B
B70F372987EAE1F.html>.
5
Apple. "Apple - Press Info - Statement by Apple on IPhone 4 Pre-Orders." Apple. Apple Media,
16 June 2010. <http://www.apple.com/pr/library/2010/06/16Statement-by-Apple-on-iPhone-4-
Pre-Orders.html>.
6
Apple. "Apple - Press Info - IPhone 4 Sales Top 1.7 Million." Apple. Apple Media, 28 June
2010. <http://www.apple.com/pr/library/2010/06/28iPhone-4-Sales-Top-1-7-Million.html>.
7
Parker, Philip M. The 2011-2016 World Outlook for Mobile Phone Handsets. Publication.
ICON Group International, Inc., 20 Jan. 2011.
8
Slivka, Eric. Coverage of Apple's iPhone 4 Press Conference MacRumors.com, LLC. July
16, 2010. http://www.macrumors.com/2010/07/16/coverage-of-apples-iphone-4-press-
conference/
9
Apples Bumper case alleviates the iPhone 4 signal-loss problem Jul 14, 2010. Consumers
Union of U.S. http://news.consumerreports.org/electronics/2010/07/apple-iphone4-iphone-4-
bumper-case-fixes-antenna-issue-problem-signal-loss-tested-verified-consumer-reports-labs-
quick-fix.html
10
Deutsch, Claudia. Are iPhone customers modern-day lemmings? True/Slant. July 13, 2010.
http://trueslant.com/claudiadeutsch/2010/07/13/are-iphone-customers-modern-day-lemmings/
11
Helft, Miguel, & Nick Bilton. Design Flaw in iPhone 4, Testers Say New York Times. July
12, 2010. http://www.nytimes.com/2010/07/13/technology/13apple.html?_r=0

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