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Why Phone Stores Should Stockpile Replacements 253

Bennett Haselton writes: I would be in favor of a regulation requiring cell phone stores to have replacement phones on hand, for any phone model covered by a customer's insurance policy. Then customers who have insurance protection on their phones could get the damaged phones replaced instantly, and the replacement phones that are normally mailed out by overnight mail to customers under their protection plan, could instead be mailed to the stores to replace the one they just gave out to the customer. Read on for the rest of Bennett's thoughts

My phone got wet. It wasn't a warranty issue, since it was my fault. (Well, it would be more accurate to say that it wasn't the manufacturer's fault. I was going through the Ballard Locks with some friends in a river raft that we were paddling. But taking my phone on the raft wasn't the stupid part; I had it sealed in a zippable plastic bag. But on the way back through the locks, some jerks in a rental yacht pulled up to the raft, started chatting, and then suddenly urged us to get on board and get our raft into the yacht very urgently, making me think it was an emergency and causing me to lose track of my phone. As I dug the soaked phone out of my pocket once we were all on board the yacht, we later determined that the "emergency" was that the jerks were trying to get the three women in bikinis on board their boat.)

So I gave the T-Mobile store rep an abbreviated version of this story the next day, and he said that after I paid the $90 deductible under the phone insurance policy, I could get a new phone mailed out to me by overnight mail. As much as the phone itself sucked, I really wanted a working one again, so since I could see the same model in boxes on the wall, I asked why I couldn't just take one of those, since the insurance policy entitled me to a replacement. He said it was because to save costs, their insurance provider sometimes sent out refurbished phones as replacements under the insurance policy, which are worth less because they can't be sold new.

Well, that's fair. Presumably it really does keep costs down to use refurbished phones as replacements, and while not every cost savings gets passed on to the consumer, it doesn't hurt. Then I asked if I could "borrow" one of the in-store models by buying it and using it until the replacement phone arrived the next day, then returning the borrowed phone to the store under their 14-day return policy? No, he said, at least not without paying the $50 re-stocking fee. (In hindsight I probably should have paid that for the ability to start using my phone again, but it's one of those fees that grates on you not because you can't afford it, but because you're disgusted at having to pay it.)

But, that's still fair. Restocking a phone costs money too. But -- but -- why don't they just keep a stockpile of phones in a cardboard box in the back -- the crummy "refurbished" ones that can't be sold new -- and use those to satisfy customers' insurance claims? Then customers who file a claim could walk out of the store with a replacement phone, the same model they'd always been used to, and the insurance company could mail the replacement phone to the store, to replace the one that was handed out to the customer.

They would only have to have one replacement model of each phone that had been sold recently enough to consumers to still be covered under a replacement insurance plan. That still probably wouldn't take up more space than what you could fit into a medium cardboard box. Perhaps more popular models of phones could have multiple stand-by replacement models in the store, since it would be more likely for two people to walk in on the same day looking for replacements for that phone model -- and once the replacement phones get mailed out by the insurance company, the store's supply of replacements gets replenished anyway. If the store is really unlucky, and four people walk in on the same day making warranty claims on a phone model, when the store's policy was to only carry three of that model in stock, there would be no reason to penalize the store, as long as they made a reasonable effort to have enough replacement phones in stock to handle the normal rate of insurance claims.

For that matter, you wouldn't even have to have the replacement phones all in stock at the same store. One store could serve as the "replacement supplier" for all of that carrier's retail stores in, say, a 20-minute driving radius. So when I make my warranty claim at the initial store, they can tell me to drive 20 minutes and pick up a new phone. That would have been much preferable to waiting another day.

Also, if the customer's replacement phone gets given to me instantly and then the replacement from the insurance provider gets mailed to the store to replenish the one they just gave out, there's no particular reason it would have to be sent out by overnight mail. That would bring down the cost of handling the claim, which might be passed on to the consumer in the form of a lower insurance deductible or lower overall fees (again with the optimism, but lowering costs means the savings will be passed on to somebody, even if only to the shareholders of the cell phone carrier). The more of that phone model they have in stock at the store, the more slowly and cheaply the replacement phone can be mailed out, since you only need to make sure that the store's supply of that model never hits zero. So the optimal solution would involve weighing the cost of storing two or three of a particular phone (versus just one) versus the cost savings of the slower mailing method.

This is a simple (and very first-world) problem and a modest fix, but the larger point is that there's no reason to think that the free market necessarily arrives at the most cost-effective solution in situations like this. Companies compete on cost-effectiveness in arenas that are highly visible to the consumer and likely to factor into their purchasing decisions -- the highest-megapixel camera for the lowest price, for example -- but few customers at purchase time are likely to ask about the insurance claim process (and probably very few people ask how quickly a phone gets replaced when a user files a claim). As such, we're lucky that the insurance provider sends out the replacement phone by overnight mail at all, when they could presumably mail it out by 3- or 4-day mail instead, and no free market forces or government truth-in-labeling enforcers would probably penalize them for that. But an in-store-replacement rule (or a replacement-from-some-store-within-a-20-minute-drive rule) would benefit customers more and, with the savings on the mailing speed for the replacements, possibly cost the carrier less. (Even if it did cost the carrier more to carry a small box of in-store replacements in the back room, and even if that cost did get passed on to customers, I'd consider myself ahead on the deal if it meant I'd never be without a replacement phone for more than a day.)

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Why Phone Stores Should Stockpile Replacements

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