Apple better give iPhone 4 owners free cases, say crisis experts

Company is 'perceived as arrogant,' says PR specialist, needs to come clean

Facing mounting public relations troubles over the iPhone 4, Apple must act swiftly to quell customer complaints about poor reception by giving away free cases, crisis communication experts say.

"This is undeniably doing damage to Apple's brand," said Gene Grabowski, senior vice president of Washington, D.C.-based Levick Strategic Communications, referring to the company's refusal to respond to customer complaints. "Apple's being perceived as arrogant by trying to minimize a problem that users say is a big problem."

Grabowski and others were interviewed earlier this week, before Apple announced late Wednesday that it would hold a news conference Friday at 10 a.m. PT, 1 p.m. ET, at its Cupertino, Calif. headquarters. The company has said the quickly-called conference -- a major departure from its usual practice -- would be about the iPhone 4, but has provided no additional details.

Analysts have assumed that Apple will use the event to address the iPhone 4's antenna and reception issues.

Complaints about the iPhone 4's reception surfaced within hours of its June 24 launch, as buyers griped that touching the external antenna -- embedded in a steel band that encircles the case -- often dropped calls or caused the signal strength indicator to plummet. Apple quickly acknowledged that holding the iPhone 4 could weaken the signal, but told consumers to hold their phones differently, or buy a case. A week later, the company claimed that the iPhone 4's signal formula was flawed and promised to update the software .

"Apple's correctly assumed that existing iPhone owners and Apple devotees are mostly unfazed by this," said Grabowski, "but it's the potential buyers it should be worrying about. With these complaints, people who aren't yet iPhone owners won't want to buy one until they resolve this."

And the clock is ticking, Grabowski said Tuesday in an interview with Computerworld. "It's still fixable," he said. "Apple has such a strong brand reputation and so many resources. There's still time. I don't think we're at the point of no return yet, but we're getting very close to it."

Other experts said Apple's problem isn't that big of a deal.

"I think this has been made into a mountain from a molehill," said Jim Lukaszewski of The Lukaszewski Group, a crisis management consultancy. "Apple is a brand we trust, and consumers are hungry to buy its products whether they work or not. People will buy Apple's products until the cows come home."

Both Grabowski and Lukaszewski said that if Apple was their client, they would urge the company to come clean on the iPhone's antenna and reception problems, then give away free Bumper cases, or sell them at steep discount to all iPhone 4 owners.

"Apple should consider the problem as real, then offer cases at no-cost or low-cost," said Grabowski. "That would address most of the problems. They need to make a grand gesture that shows the company does care about its customers."

Grabowski also recommended that Apple be more transparent in its messages to consumers, something the company has traditionally resisted. Even among technology companies that typically play things close to the vest, Apple is notorious for its secrecy.

"They have to show some responsiveness on this," Grabowski said.

Lukaszewski agreed that Apple could most easily reverse the negative publicity over the iPhone 4 failings by giving away cases. But a full product recall, which some have speculated might be the only way to appease consumers, is "totally silly, totally out there," Lukaszewski said.

"Apple does know how to solve problems," said Lukaszewski. "They've faced things like this before, but this one is really public. I think a greater concern customers should have is the lack of service by AT&T."

Apple met its previous most-notable iPhone public relations problem in 2007 when, less than two months after the introduction of the original model, CEO Steve Jobs announced a US$200 price cut for the 8GB iPhone. Consumers who had already purchased the iPhone at the original $599 price were outraged, and flooded Apple's support forum with angry messages.

The next day, Jobs said that Apple would give a $100 credit to the company's online store to all current iPhone owners, and also acknowledged Apple's mistake. "We need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price," Jobs said in an letter dated Sept. 6, 2007. "Our early customers trusted us, and we must live up to that trust with our actions in moments like these."

Consumer Reports, the product testing and rating magazine, joined Grabowski and Lukaszewski in urging Apple to stifle the newest iPhone brouhaha by handing out free cases, which it said will solve the reception issues .

"We insist that Apple pays for the fix, not consumers," said Mike Gikas, a senior editor with the publication in an interview Tuesday. "The best solution would be for Apple to issue a case with the iPhone 4, or give consumers a credit at its online store for one."

Several Wall Street analysts, worried over the impact the continuing complaints may have on Apple's stock price, have also chimed in.

"We think that Apple's most appropriate response would be for it to issue rubber (or any other non-conductive material) cases to all iPhone 4 owners, and on all new iPhone 4 sales," said Toni Sacconaghi of Bernstein Research in a Wednesday note to clients. "It could be done immediately, would directly address the Consumer Reports concern, and would be financially immaterial."

Sacconaghi said that it would cost Apple no more than $1 per unit to hand out Bumpers, significantly less than his estimates of $75 per iPhone 4 for an in-store fix or $250 per unit for a full recall.

By all accounts, the iPhone 4 has been a huge hit. In the first three days of availability, Apple and its carrier partners sold 1.7 million devices , the most of any of its annual models. Currently, the iPhone 4 is back-ordered three weeks at the company's online store.

But the company also faces multiple lawsuits over the iPhone 4's reception, including a case filed just days after the smartphone 's launch by a pair of Maryland residents who charged Apple with knowingly selling defective phones .

"Apple's been in holes like this before," observed Grabowski. "If there's any company that can bounce back, it's Apple. I'm not saying that this won't have an impact, but the reports of their demise are premature, to say the least."

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