PART 3-MARKETING MISCUE

MANUFACTURING DEFECT RESULTS IN QUITE A STIR FOR IPOD NANO

Innovation has been key in Apple Computers transition from just a computer company into a
consumer electronics company as well. One of Apples most prominent consumer electronics
product introductions has been the iPod. Though companies such as Dell countered with
competing products (e.g., the Dell DJ), the iPod quickly became synonymous with MP3 players.
Without a doubt, the iPod has been a runaway success for Apple. With estimated quarterly
shipments of almost 7 million iPods, Apple continues to crush competitors. The company
recognized that, as with any cool product offering, it had to keep the spotlight on the iPod. To do
so, Apple introduced the iPod Nano in the fall of 2005. Considered by some to be the coolest iPod
yet, the iPod Nano was a hybrid of the iPod Shuffle, the iPod Mini, and full-sized color iPods.
Combining key features from all three products, plus some new features, the iPod Nano brought
new meaning to the phrase thin is in. With dimensions of 3.5 by 1.6 inches and a back-to-front
depth of 0.27 inches, the iPod Nano could fit into a business card wallet. Two models of this
pencil-thin player, available in black or white, were introduced. Starting at $199, the 2GB model
could hold 500 songs. The 4GB model could hold 1,000 songs and had an expected retail price
starting at $249. Accessories for the Nano included lanyard headphones, an armband, tubes in
five colors that looked cool and also served as safety protection, in-ear earphones, a dock, a USB
power adapter, and a USB cable. Apple expected the accessories to contribute significantly to its
profits from the Nano.
The new iPod was introduced with much fanfare, including Steve Jobs literally pulling
the iPod Nano out of his pocket. This demonstration of where to carry the iPod Nano may linger
in the minds of many purchasers, particularly those who retrieved their new iPod Nanos from
their pockets only to find the color display screen scratched so badly that images were distorted.
One Nano owner, Matthew Peterson, did something about the problem. Apparently, Peterson had
the iPod Nano in his pocket while he was walking, only to have the screen shatter when he sat
downand no, he didnt sit on it. Peterson took his Nano to the nearest Apple Store for repair or
replacement, but the staff at the store declined to replace the broken unit or to admit any
responsibility on the part of the company. According to Apple, the damage was not covered under
the product warranty.
At that point, Peterson felt that his only recourse was to see if there were any other
disenchanted iPod Nano customers. So, he created a Web site, http://www.flawedmusicplayer.com, where he posted an autopsy photo of the Nano that showed the damage sustained after
only four days of what should have been normal use (at least according to the way Jobs presented
the product). The Web site quickly became an online gathering place for dissatisfied iPod Nano
customers. Soon, close to 300 threads were posted on the Web sites discussion board relating
stories of damage ranging from severe scratches to shattered LCD screens. Ultimately, the Web
site got Apples attention (which was Petersons mission), and the company began investigating
the problem. In the interim, however, customers became even more irate when at least one iPod
repair company, overwhelmed by the demand for its services, temporarily raised the price of
repairing Nano LCD screens because of limited screen availability.
Three weeks after introducing the iPod Nano, Apple took responsibility for the flawed
product and offered to replace screens that cracked too easily. The company attempted to
downplay what it referred to as a minor issue by saying that the defective screens were due to a
vendor quality problem that affected less than one-tenth of 1 percent of total iPod Nanos that had
been sold. The company insisted that the defects were not a design problem attributable to the
size of the iPod Nano.

Sources: http://www.apple.com/ipodnano/; Christopher Breen, Review: iPod Nano,

Playlist Magazine, September 9, 2005, http://wwwplaylistmag.com; Amanda Cantrell, Mac
Sales May Juice Apples Earnings, CNN/Money, October 10, 2005, http://money.cnn.com/;
Michael Bazeley, EBay Nation Put to the Test, San Jose Mercury News, June 20, 2005,
K0182; Michelle Meyers, Problems Surfacing with iPod Nano Screen, CNET News,
http://www.news.com, September 24, 2005; Greg Sandoval, Apple: Small Number of iPod
Nanos Flawed, Associated Press, September 28, 2005, http://www.apdigitalnews.com/.