Does Tim Cook Deserve Bravery Points?
Does Tim Cook deserve bravery credits for his “green” initiatives? Apple isn’t shy about advertising their commitment to renewable energy and recycling. Without a doubt, you probably can’t attach a specific ROI on these initiatives, and they are going to have some kind of measurable impact on the income statement. And yet, I don’t give Apple any points for bravery, because I’d make the case that these green initiatives are actually helping Apple sell more iPhones. It’s a net positive and not a cash drain.
Just Because It Hits the Bottom Line Doesn't Mean It’s a Net Negative
Most investors don’t begrudge cash expenditures that may directly impact the bottom line if they may have an intangible benefit. Advertising is one good example. Much of the advertising benefit is difficult to measure, but most investors have the sense that it’s still a net positive. More revenue is coming in as a result of the advertising than is going out to the advertising firms.
Investors will even be okay if the benefit is somewhere in the short-term future. Spending on research and development projects fall into this category. Companies are not allowed to capitalize R&D, so any spending in this area is an immediate hit to the bottom line. So R&D is definitely an exercise in delayed gratification.
Apple Is Image Driven to Some Extent
Apple is a company that was created in the image of it’s creators. And one of those creators, Steve Jobs, was a 1970s hippie who lived in a commune and backpacked across India in search of enlightenment. It was always important to Steve to cultivate an image that would attract this crowd. Throwing a hammer into the face of “the man” was only the beginning.
This crowd of ex-hippies, well into their peak earnings years, has a disproportionate amount of discretionary income compared to any other segment of the population. And they like the thought of patronizing companies that are good citizens.
When I was creating a logistics-cost forecasting model for one of my employers using the Oracle SNO application, I networked with users of the software from other Fortune-500 companies. Not only were these companies using the software to model the flow of money and gasoline to distribute products but they were using it to model the flow of carbon gas emissions.
These other companies were keeping complex models so that they could measure the impact of their various decisions on carbon emissions. Before you’re so quick to pat these guys on the back, just know that there is a clear correlation between reducing logistics costs and reducing your carbon footprint. But everyone wants quantifiable metrics on how well they are reducing their carbon footprint. Why? For their image. They were motivated by reducing their spend on transportation costs but if they could get kudos for being environmentally friendly at the same time. Why not?
The Net Benefit of Green Initiatives
Most companies spend a disproportionate amount of their advertising dollars going after “switchers”. These are all the customers who are willing to jump brands and try something new. They have no loyalty outside of who has the lowest price or best-looking feature set at the time. But if you bag one of these customers, you are just as likely to lose them in the future as well. So you end up battling a constant churn for a small segment of your customers.
Anything you can do to bag one of these constant switchers and retain them as a new loyal customer going forward is worth its weight in gold. The cost of retaining a loyal customer is far below the cost of wooing a competitor’s customer to switch.
This is where Apple’s green initiatives come into the picture. Apple is currently getting an unprecedented number of Android switchers. And none too soon because long-time iPhone customers are finally getting to the point where they may not want to upgrade every year. If Apple can convert even a small percentage of these Android switchers to become loyal iPhone users going forward, the cost benefits are huge from a future marketing and advertising standpoint.
But what would make somebody want to stick with Apple? Selling the highest quality products you can with amazing features is a good start. But what if quality and features become comparable amongst many brands? What becomes the tie-breaker? Likability.
Just like in politics where candidates strive to be that likable candidate that people will pick when faced with two equally qualified nominees. It’s that intangible X factor that is difficult to quantify. I believe that when customers are faced with various products of similar capability and quality that a significant portion of them will use corporate responsibility as their tiebreaker. They look at Samsung and Apple and ask themselves, “Who do I like more?”. But these aren’t people who they interact with. What they really mean is, “Who is trying to make my world a better place?”.
This is where Apple has an advantage. With a history going back to its creation as a hippie, feel-good, make-the-world-a-better-place kind of company gives it real street cred with those for whom price is not the main concern. For this crowd, some things are more important than money. Like, how are you giving back to your community? Are you being a responsible corporate citizen? Am I voting with my dollars to keep children in Asia enslaved?
Apple spending money on its green initiatives is the financially easy decision. It’s the currently vogue thing for CEOs to do. If Tim Cook wanted to show bravery, he’d buck the trend and state that climate change is actually a scam meant to help wealth distribution away from America and Europe. I’m sure that Tim Cook does hear from some investors who are against his green initiatives, but I’m also sure that he hears from many more who are in support of them. No CEO will ever bad-mouth stock holders without knowing he has a sizable majority on his side.
But whether any of Apple’s green initiatives actually do any good is an entirely other matter. What matters is how it’s perceived by the environmentally conscious crowd. And if it results in new loyal customers without alienating any current ones, it is well worth every penny spent.
Most investors don’t begrudge cash expenditures that may directly impact the bottom line if they may have an intangible benefit. Advertising is one good example. Much of the advertising benefit is difficult to measure, but most investors have the sense that it’s still a net positive. More revenue is coming in as a result of the advertising than is going out to the advertising firms.
Investors will even be okay if the benefit is somewhere in the short-term future. Spending on research and development projects fall into this category. Companies are not allowed to capitalize R&D, so any spending in this area is an immediate hit to the bottom line. So R&D is definitely an exercise in delayed gratification.
Apple Is Image Driven to Some Extent
Apple is a company that was created in the image of it’s creators. And one of those creators, Steve Jobs, was a 1970s hippie who lived in a commune and backpacked across India in search of enlightenment. It was always important to Steve to cultivate an image that would attract this crowd. Throwing a hammer into the face of “the man” was only the beginning.
This crowd of ex-hippies, well into their peak earnings years, has a disproportionate amount of discretionary income compared to any other segment of the population. And they like the thought of patronizing companies that are good citizens.
When I was creating a logistics-cost forecasting model for one of my employers using the Oracle SNO application, I networked with users of the software from other Fortune-500 companies. Not only were these companies using the software to model the flow of money and gasoline to distribute products but they were using it to model the flow of carbon gas emissions.
These other companies were keeping complex models so that they could measure the impact of their various decisions on carbon emissions. Before you’re so quick to pat these guys on the back, just know that there is a clear correlation between reducing logistics costs and reducing your carbon footprint. But everyone wants quantifiable metrics on how well they are reducing their carbon footprint. Why? For their image. They were motivated by reducing their spend on transportation costs but if they could get kudos for being environmentally friendly at the same time. Why not?
The Net Benefit of Green Initiatives
Most companies spend a disproportionate amount of their advertising dollars going after “switchers”. These are all the customers who are willing to jump brands and try something new. They have no loyalty outside of who has the lowest price or best-looking feature set at the time. But if you bag one of these customers, you are just as likely to lose them in the future as well. So you end up battling a constant churn for a small segment of your customers.
Anything you can do to bag one of these constant switchers and retain them as a new loyal customer going forward is worth its weight in gold. The cost of retaining a loyal customer is far below the cost of wooing a competitor’s customer to switch.
This is where Apple’s green initiatives come into the picture. Apple is currently getting an unprecedented number of Android switchers. And none too soon because long-time iPhone customers are finally getting to the point where they may not want to upgrade every year. If Apple can convert even a small percentage of these Android switchers to become loyal iPhone users going forward, the cost benefits are huge from a future marketing and advertising standpoint.
But what would make somebody want to stick with Apple? Selling the highest quality products you can with amazing features is a good start. But what if quality and features become comparable amongst many brands? What becomes the tie-breaker? Likability.
Just like in politics where candidates strive to be that likable candidate that people will pick when faced with two equally qualified nominees. It’s that intangible X factor that is difficult to quantify. I believe that when customers are faced with various products of similar capability and quality that a significant portion of them will use corporate responsibility as their tiebreaker. They look at Samsung and Apple and ask themselves, “Who do I like more?”. But these aren’t people who they interact with. What they really mean is, “Who is trying to make my world a better place?”.
This is where Apple has an advantage. With a history going back to its creation as a hippie, feel-good, make-the-world-a-better-place kind of company gives it real street cred with those for whom price is not the main concern. For this crowd, some things are more important than money. Like, how are you giving back to your community? Are you being a responsible corporate citizen? Am I voting with my dollars to keep children in Asia enslaved?
Apple spending money on its green initiatives is the financially easy decision. It’s the currently vogue thing for CEOs to do. If Tim Cook wanted to show bravery, he’d buck the trend and state that climate change is actually a scam meant to help wealth distribution away from America and Europe. I’m sure that Tim Cook does hear from some investors who are against his green initiatives, but I’m also sure that he hears from many more who are in support of them. No CEO will ever bad-mouth stock holders without knowing he has a sizable majority on his side.
But whether any of Apple’s green initiatives actually do any good is an entirely other matter. What matters is how it’s perceived by the environmentally conscious crowd. And if it results in new loyal customers without alienating any current ones, it is well worth every penny spent.
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