My son, off at college, noted that getting useful tech support for his iPod has been a dream compared to the tech support run around he got with his laptop. He asked if higher quality tech support could be a factor in their pricing structures and product markets.
Bright kid, that boy of mine.
This can be viewed as an application of pricing complementary goods. With complements, a price decrease (or quality increase) in B increases the demand for A. If you offer both A and B, it is possible that the lost profits from under-pricing B (or over-investing in quality) is more than made up for with the increase in demand for A. For example, Microsoft gave away their IE browser so as to sell more operating systems (preloaded onto 90% of computers) but Netscape could not.
Many firms give away ancillary services so as to increase demand for the underlying product. This can get tricky with tech support because there is a time lag between the consumption decisions for A and B (i.e., tech support after the initial purchase). Purchasers of A (iPods) have to foresee 1) that they may need B (tech support) later on and 2) that A's producer has better than average price/quality for B (tech support). In this case, developing such a reputation is extremely valuable.
Increasing demand this way is more profitable when the underlying product has a larger price-cost margin. As a consequence, we expect excellent reputations for ancillary services to be more common for products that benefit more from the shift in demand. That is, when it faces less competition. For most laptops, brands are pretty interchangeable. However, various versions of the Apple iPod still command more than half the portable digital player market with significant price premiums. Apple's choice of reputation is no accident.
ADDENDUM
Per recent FTC rules, I will disclose that I have not received the new iPhone from my brother who works at Apple. Well not yet, hint, hint.
My rule for buying anything is simple, if people start talking about how good the support is then I look for alternatives! I would prefer to have a product where I don't need to worry about dealing with tech support!
ReplyDeleteThere is a further explanation for the difference in quality of service. Providing tech support for an iPod is presumably considerably easier than for a more complicated (and post-purchase increasingly idiosyncratic) laptop. Apple has much greater cpacity to routinise their iPod support given the much lower variety in likely requests and problems.
ReplyDeleteI used this example in class yesterday and a student came back with internationalbs's complexity of the product explanation. Good point. Perhaps a fairer comparison is tech support for Apple's iPod versus other MP3 makers' tech support.
ReplyDeleteI think expecting good tech support depends on the situation. Anonymous is kinda right - most people prefer to get products that requires minimal maintenance. On the other hand, it's not also a bad idea to expect help, since there might be problems later on.
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