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September 15, 2014

Apple keeps customers happy – and paying a little more each year

Does the wisdom of crowds apply to Apple? Because there is a large crowd of people who hate it. But usually with American companies that make huge amounts of money – such as mobile carriers or TV companies – the hatred comes from their own customers.

In contrast, Apple's growing customer base seems to love it; it is the people who are not customers that don't. Apple's formula sounds simple: keep people happy to pay a premium. But it is a trick that is far from simple to pull off.

Last week it announced two new phones in larger sizes: a 5.5in "phablet", the iPhone 6 Plus, which looks tailored to the Asian market, and a smaller 4.7in phone whose size finally catches up with what rival makers have offered for years.

The smartphone market might seem played out: ownership is at more than 70% and growth at the premium £400+ end has slowed down; most growth is in the sub-£150 market. Samsung smartphone shipments dipped in the second quarter and the Korean firm's top-end phones aren't grabbing the world as they once did.

Yet Apple, whose phones all cost more than £300 (even last year's plastic iPhone 5C is £319), expects the "mother of all upgrades" in the coming four months as people who have held on to older iPhones switch to the new, larger ones.

Some analysts even think it could challenge Samsung for smartphone sales leadership over Christmas. How? First, Apple drip-feeds improvements just enough to incentivise some customers, while keeping the rest happy with software updates (where it keeps longstanding customers far better served than Google's Android).

Secondly, it has built a powerful ecosystem of app makers who, in the west, build for the iPhone first, Android second.

Even while Android phones make up the majority of worldwide sales, Apple's customer loyalty is strong – though data seen by the Observer suggests it has weakened in the past year, perhaps because bigger phones have been slow in coming.

Now the new handsets aim to tempt high-end Android owners over and capture a new chunk of the premium sector.

Apple simply isn't interested in fighting for the cheap end of the market. That's the story with the Apple Watch too. At $349 (with no UK price) and a release date some time in "early 2015", it's pricier than any other smartwatch.

What it really adds to your life is not clear yet – though that was the case with the iPad in 2010, and that defined a category. Now, Apple is making a play for the "fashion premium" market, with fashionistas cooing over its straps and gold-plated options. It's hard to go bust selling to the rich.

The least visible aspect of the whole affair might be the biggest, though. For years, mobile payments – that is, using smartphones as real-life mobile wallets – have slumbered in the west. Google Wallet has been around since 2011, but gained little notice.

But a series of high-profile hacks of US retailers' credit card records – 40m at Target last December, at least as many at Home Depot last month, 130m at Heartland in 2008, 94m at TJX in 2005 – have finally persuaded US banks and retailers to adopt the chip and pin system. Millions of US retail outlets will have to upgrade their point-of-sale terminals.

And while they're doing that, they might as well add "tap to pay" functionality. Enter Apple, adding that functionality in its new iPhones and negotiating with Amex, Mastercard and Visa for a lower fee per transaction on the basis that it pays the fraud risk for iPhone transactions.

Each payment, validated by the fingerprint reader on the phone, creates a one-time code that's useless to hackers even if they capture it, as it doesn't contain the credit card number. Only the receiving bank can decode and verify the transaction.

Apple is also emphasising privacy: it won't know or record what or where or who you pay. In a climate fearful of surveillance, it's a neat little fillip, a bonus for buying those shiny phones – or the Apple Watch, which will also feature tap-to-pay. For Apple, it's more money in the bank. And that pattern repeats each year.Perhaps the crowd isn't that wise after all.

Bosses need to work harder for productivity

Mark Carney says we are going to have to work for our long-awaited pay rise. The governor of the Bank of England used his speech to the Trades Union Congress last week to look at what happened to employment during the downturn and assess the prospects for a pay rise.

As he pointed out, the relatively small drop in employment over that period came at a cost: very weak wage growth. The pain felt by British workers from pay cuts was deeper than at any time since the 1920s – and all credit to us for putting up with it, the governor said. His hints that a rate rise will come before wages overtake inflation were softened by high praise for his audience of trade unionists.

"When British workers have been challenged, they have not given up. Some have taken less productive or lower-skilled jobs. Others are working part-time. Some have become self-employed. Others are prepared to do the same work for less than they would have done," he said.

But just as workers shared the burden during hard times, so they must do their share of the heavy lifting during the upswing if Britain's pay problem is to end, he warned. He is right – up to a point. The root of the squeeze lies in Britain's dismal productivity performance – both on output per hour and per worker, we are way down the league tables.

To get Britain's productivity growing again, he is correct to say workers must continue to learn while they earn. They must keep pace with rapid technological change and competition from around the world, which in themselves will drive up productivity. But employers are just as responsible for making this happen.

There is a danger that, in an increasingly privatised world, only the few wealthy enough to afford it will buy their own training outside work and then be able to get on. Wise businesses that want to raise productivity and hold on to their employees will invest in raising the skills of their whole workforces.

In the Gulf and the steppes, BP backs into a corner

The European Union took aim at Rosneft again last week. Sanctions will make it difficult for Russia's largest oil company to raise money in the region, but the restrictions may not be hugely disruptive to the group in the short term.

However, it is an immediate reputational issue for BP, which holds a 20% stake in Rosneft. BP said it would comply with the latest ruling from Brussels, which mirrors earlier action by the US.

Image problems are stalking BP, the latest being a US federal judge unexpectedly ruling it guilty of "gross negligence" over the Deepwater Horizon spill in the Gulf of Mexico.

To an extent, BP chief executive Bob Dudley was forced into taking the Rosneft stake by the Russians' decision to buy out the company's TNK-BP venture at a time when the UK company was short of options. Now BP is looking cornered again.

theguardian.com

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