Consumer Issues and Investors

One for five.

That was my record for tech purchases during the 2004 holiday season.

My wife’s laptop arrived in perfect shape, worked great right
out of the box. That was pretty much where the streak ended — at one. The G5
iMac arrived with a thin pink stripe down the screen. A few calls to tech
support, and it was declared DOA, and shipped back to Apple. The replacement
had a white pinhole in the screen mask (that one pixel is dead for ever — and I didn’t bother to swap that one).

My wireless WiFi 802.11g Router didn’t work (hardware problem). The Bluetooth wireless keyboard had trouble connecting with the computer (but
the wireless mouse was fine). And the 40Gig iPod my wife gave me to replace my
first gen 5Gig iPod was great — but it came without the ordered inscription (Jim Cramer had the same problem).

As disappointing as the order problems were, I had (mostly) good
experiences dealing with tech support on replacing everything. Apple gave me a
choice of replacing or refunding my money on the iMac. A new wireless router
was shipped, along with a tag to send back the old one. They were less
cooperative on the iPod, however, telling me I would need to pay a 10%
restocking fee because I opened it. Perhaps someone at Apple explain to me how
else could I have found out there was no inscription before I opened the box?

These experiences intrigued me – I just had to laugh at 1
for 5 – so I started asking around. What I heard from friends, family, and
several hundred readers from Real Money and Dave Farber’s Interesting People list was that I wasn’t the only one having a
“funky” time with consumer tech orders. More than a few of you had horror
stories, which you gladly shared.

I got quite the earful from you guys. After reading hundreds of
emails (you can see them all here), I discovered a few interesting
things. For a guy with a mostly technical/quant predilection, I did a lot of
pure fundamental research.

This is an admittedly unscientific survey.

Perhaps we can glean
a few tidbits that are applicable to stocks. We might even be able to derive an
investable thesis or two. Indeed, there are a few lessons here for the
companies themselves to learn. With the 2005 holiday season only a few months
away, I wanted to revisit some of these issues that you, the reader, raised
about consumer tech companies this past holiday season.

Here’s what I discovered:

1) Some Productivity Gains Are Illusory

Since the late 90s, output per hour has improved dramatically.
But the measure of productivity is a quantitative one, a numerical reading of
total output per hour worked per employee. The problem with this measurement is
that it relies only upon easily quantifiable data; it ignores the qualitative side.

Example: Many tech companies have outsourced tech support. They now
handle more calls per hour than they were handling previously, and at a lower
cost. That appears terrific – if you rely on the quantitative data. But if my
mail was anything to go by, this cost savings approach is hemorrhaging clients
and damaging hard won reputation. Its approaching what I’d call

Outsourcing seems to work better for coding than it does for
telephone customer service banks in the competitive consumer products markets.
I haven’t been able to quantify the exact cost of lost customers versus saved
salaries, but if RM readers complaints are anything to go by, it is quite

All this suggests that at least some of the enormous
productivity gains (quantitative) are perhaps less significant (qualitative)
than we have been led to believe.

2) Dell generates a lot of furious emails

Dell is now the best selling brand of PC. They move so many
units, one has to expect some bad experiences here and there; that’s merely the
law of large numbers. I do not have sufficient data to draw a statistically
reliable conclusion that quality control is an issue for the PC giant. I
have a sneaking suspicion that many of
the issues are Microsoft Windows problems, and not Dell issues — but that’s
another column entirely.

But I was really shocked at how many complaints I heard about
Dell, and how serious the tone was. After you hear the 3rd person tell you “I
will never buy another Dell for as long as I live” — you take notice of it.

These emails were all post holiday season, 2004. More recently,
Jeff Jarvis (of Buzz Machine) had a big problem with his Dell. What’s so
fascinating is that a blogger kvetching about a tech problem has spilled over
into the mainstream to the point where the issue has been overheard in a mall food court.

All this implies to me that Dell’s award-winning service may not
be winning that many awards in the near future.

3) Amazon delights their customers

The overwhelming consensus from shoppers is that Amazon does an
excellent job. People who are customers become repeat customers. This is
reflected in the continued 25% year over year growth of ecommerce. As Amazon’s
most recent quarter reflects, they are doing an outstanding job of attracting
and retaining customers. Ever since my college roomate gave me a gift
certificate in 1997, I’ve been a big fan. A special thanks to the reader who
gave me their public – but very well hidden – customer service number – U.S. and Canada: 1-800-201-7575 !

Also on the big box retail side, Best Buy got very high marks —
while Circuit City did not. A glance at their stock charts reveals that
customer attitudes towards a company get reflected in their share prices.

The lesson for investors is that when you hear a few customers complain
about a given store,
pay attention.  That doesn’t
mean run out and short the stock instantly — but do not ignore these anecdotal
warnings. At the least, pay attention to what they might be suggesting.

4) The iPod economy continues

This is simply a phenomenon that shows no sign of slowing down.
With all the ink (pixels? electrons?) spilled on this subject, I won’t spend
too much time on it. According to your emails, Apple’s ongoing development of
this product continues to leave everyone else in the dust. And that was before
podcasting and video.

Can anyone catch up to the iPod? So far, the answer is a
resounding No.

5) Consumers hate Rebates

This was the single most written about topic amongst RM readers.
The phrase: “rebates suck” came up time and again. The consensus was that the
rebate process is simply a giant time sink — and a rip off to boot. Some
readers did manage to get their rebates in a timely fashion, but it seems the
vast majority of emails about rebates involved high levels of dissatisfaction.
Your tone ranged from bemused annoyance to outright fury.

Some representative comments:

“No longer will I consider buying a product of any kind because
of a rebate. ”

“My general beef is with all the stupid rebate games. I wish all
the sellers would just cut the crap and set the price and be done with it.”

“I have given up on them. I would rather eat the money than fill
out a thousand pieces of paper only to be rejected because I was supposed to
fill out a thousand-and-one.”

Some of your stories were shocking: One reader purchased
two Pioneer 50” hi-definition plasma TVs — at $8,000 per — from Best Buy,
with a $1,000 rebate. He got one check for one thousand dollars, but was told
“only one rebate per customer.” No one had told him that before his purchase.
Pioneer may have saved $1,000, but they guaranteed this customer will never buy
another Pioneer product – ever. That’s a pretty dumb marketing strategy. And I
have a sneaking suspicion I am not the first person this consumer has told
about his Pioneer occurrence. My experience suggests that he will repeat it
many times to his circle of 250 people.

Another reader noted that rebates actually work as a tax
increase. I hadn’t considered this, but it make sense. A consumer pays more
state sales tax on the higher gross sales price. The rebate lowers the price –
but doesn’t refund the sales tax. On that Pioneer plasma set mentioned above,
in NY it would cost an additional $87.50 in sales tax. You get the rebate on
the purchase, but tax is not included. Perhaps there is a way to obtain a tax
refund from the retailer or the state tax department, but really, who wants to
do even more paperwork!?

My two favorite reader comments on rebates:

“I’ll bet a state AG could make a small career going after this


“I think the fraud of the "rebate" programs tries to
shake loose a large  number of applicants with "incomplete
paperwork" and is a payday waiting to  happen for the class-action
lawyers — who will easily penetrate the rebate center shield and reach the
originating businesses.”

So much for tort reform!

My advice
to the companies that issue rebates
: You spend hundreds of
millions of dollars in advertising to win clients. You lose them over a $20
check — its penny wise and pound-foolish. Not only is the process horrifically
annoying, but you alienate your hard won clients. Wise up, and price items

As to our readers, they had some advice for the firms that
process the rebates:  Go to hell
(and that’s the clean version; we cant print what they actually wrote). In the spirit of full disclosure, my own rebate experience is here)

You can see the complete list of reader emails here

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What's been said:

Discussions found on the web:
  1. Chibi commented on Aug 1

    I guess I’ve had better luck than you. In the past ~12 months I’ve bought a Powerbook, an iBook, three Airport Expresses, A Treo 650, a 40g iPod, a digital camera, a dvd recorder and a Polar heart rate monitor. Everything works fine. 10 for 10! Yeah, it’s been the year of replacing, upgrading almost everything electronic in our household. FWIW, I bought almost all of it through Amazon or Best Buy.

  2. Josh commented on Aug 1

    I’d echo the positive dealings with After a piece of furniture I ordered from them arrived in a mangled box (delivery refused of course), they shipped a replacement right away via fedex 2nd day delivery. Sounds normal, until you consider that the box was 7′ x 2.5′ x 1′ and weighed almost 110 lbs. I’m sure the shipping charge caused them to lose money on the order, but I spend thousands per year with them and they have kept me as a customer.

  3. Angela commented on Aug 1

    I’ve had pretty good luck, but there are some cases that are irritating. I try to detach on principle, but also on principle try to take some blood. This includes complaint letters, sometimes to government authorities, boycott of products and telling people how the company messed up.

    For example I had DVD rot with a video I bought from Amazon. The Indian helpers didn”t understand the concept, wrote me long form letters that included suggestions that I SELL the product through Amazon. I got a refund through persistance, but since there are rivals who are competitive in price, who *understand* customer comments and respond quickly and reasonably I boycott Amazon.

    For used books I use which is nice becasuse you give business to small retailers.

    Amazon might have saved 5 bucks in labor from the refusal to hire good email service, though I doubt it because the cheaper labor had to go through a lot of back and forth. They lost me because they demonstrated total contempt for me as a customer and I can find people who think differently.

    I think this kind of thing will add up as we move towards markets where people get access to more complete information. The competitive value of good service will make itself known as vocal minorities of customers strike back.

  4. Ralph commented on Aug 2

    I buy most of my computer products through the local CompUSA. Over 5 years I have had to return products for any number of reasons with little problem. The in-store warranty has been satisfactory. The biggest problem was with an hp desktop computer where the motherboards sound unit was damaged due to my error. Although it took some time, the motherboard was replaced for no charge and I have not experienced any more problems. The store has the latest products across a good range of products and carries the better brands. I heard about problems with Dell service support and am glad I have resisted the temptation to go Dell. I also like the local Sears department store for audio-video entertainment products. Price differentials on internet purchases are not enough to tempt me for now though I am thinking of buying an LCD TV later on after checking whether it is available locally.

  5. BusinessPundit commented on Aug 3

    Consumer Issues and Investors

    Interesting post from Barry Ritholtz about his experience with tech purchases.That was my record for tech purchases during the 2004 holiday season. My wife

  6. BusinessPundit commented on Aug 3

    Consumer Issues and Investors

    Interesting post from Barry Ritholtz about his experience with tech purchases.That was my record for tech purchases during the 2004 holiday season. My wife

  7. Businesspundit commented on Jun 15

    Consumer Issues and Investors

    Interesting post from Barry Ritholtz about his experience with tech purchases. That was my record for tech purchases during the 2004 holiday season. My wifes laptop arrived in perfect shape, worked great right out of the box. That was pretty…

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