Will Apple’s Misstep Give Loyalists Pause?

NEW YORK The company that rarely falters finally did. But Apple’s swift and frank response to the public relations crisis that erupted last week after CEO Steve Jobs slashed the price of the iPhone by $200 most likely spared the brand significant long-term damage, brand experts said last week. Still, the question remains: Has Apple burned its loyal core of first adopters, enthusiasts who may think twice about rushing out to buy the company’s next “it” product?

“They will be much slower to buy the first release next time,” said Nigel Hollis, chief global analyst at WPP Group’s Millward Brown in New York. “Moving too quickly to lower the price could prove to be the big misstep, even though the basic strategy makes sense.”

Just two months after the iPhone’s launch, Apple cut its price 33 percent in advance of the fourth-quarter holiday sales season. It remains to be seen whether those whose wallets underwrote the media hype surrounding the iPhone’s launch will stay loyal to Apple. Nonetheless, observers from branding firms and academia applauded Jobs’ prompt response to the Internet-fueled uproar.

Late last Thursday afternoon—less than 24 hours after news of the price cut broke—Jobs posted a letter on apple.com that offered $100 store credit to anyone who paid the top price of $599 for the iPhone since it’s been on the market. He used much of the message to defend the price cut to $399—”it benefits both Apple and every iPhone user to get as many new customers as possible in the iPhone ‘tent'”—but also acknowledged that “we need to do a better job taking care of our early iPhone customers as we aggressively go after new ones.”

Within 15 minutes of the posting, there were some 2,200 “digs” against Jobs’ letter, indicating readers who found it interesting or talkworthy, said Pete Blackshaw, CMO of Nielsen BuzzMetrics (a sister division of Adweek).

Kelly O’Keefe, director of executive education at VCU Adcenter, said, “A lot of times a corporate CEO is afraid to say, ‘I made a mistake.'” He added, “It was a surprisingly honest letter. It actually talked about the business motivations. [Its candor] is part of a smart turnaround.”

Jobs’ reply to the outrage permeating the blogosphere contrasted sharply with other recent corporate PR mishaps. In January, Cartoon Network bungled a Boston outdoor promotion for Aqua Teen Hunger Force, with some local citizens mistaking promotional boxes as bombs. The very next month there was a days long lag between JetBlue’s tarmac debacle of flight delays and its CEO’s response. Those episodes triggered the exit of Cartoon Network gm and evp Jim Samples and contributed to the shifting of JetBlue CEO and founder David Neeleman to chairman.

Jobs, for now, has emerged from his crisis bruised but not beaten. Some loyal fans went so far as to wonder if he had orchestrated the event. “Brilliant marketing move,” wrote “sandou” on appleinsider.com. “How many people [now] know the iPhone is $399?” On the same site, “rrightm” wrote: “I just became more impressed with Jobs … because of what appears to be shear cunning and marketing savvy.”

Before the olive branch, however, some consumers demanded refunds; others suggested the drastic price cut breached the AT&T service contract tied to the phone, providing grounds for a class action lawsuit. Hundreds of agitated consumers also e-mailed the Apple CEO directly, Jobs acknowledged in his letter. “We are the few, the proud, the iFools,” wrote one, whose posting included an image of the product under the headline, “iGotScrewed.” “It’s not the money, it’s the idea that we iPhone early adopters were played like a fiddle; like lemmings we were.”

The episode impinged Apple’s integrity because it contradicted its general past practice of raising or lowering prices primarily based on adding or subtracting features, said Jim Kane of the Brookeside Group, an Acton, Mass.-based consultancy that manages customer loyalty for clients such as Philips and Major League Baseball. What’s more, Apple typically sells its products at premium prices, arguing that they’re better than rival devices, Kane said. Nevertheless, $399 is still a lot for a phone, even one that does much more than facilitate conversations.

Long term, Kane and others predicted that the current backlash will be short-lived, chiefly because of Apple’s fierce brand loyalty and a track record of delivering innovative and “cool” products. “This will be an absolute blip on the screen among the Apple loyalists,” said Kane. Or, as VCU Adcenter’s O’Keefe, speaking on his iPhone, put it: “I feel a little dumb having bought early. … [But] it’s not that I don’t think it was worth $600.”

Apple’s lead agency, the Media Arts Lab of TBWA\Chiat\Day in Playa del Rey, Calif., declined to comment, referring calls to the Cupertino, Calif., client, which did not return calls.