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Cellphones Businesses Technology

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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  • by Galaga88 ( 148206 ) on Wednesday September 03, 2014 @10:28AM (#47816381)

    I'm pretty sure Apple stores have replacement stock on hand. Anytime I've had to get my phone replaced under AppleCare+, I've been able to make my appointment, walk in, and walk out with a (presumably refurbed) new phone from a box in the back. Heck, if the replacement didn't work in the store, they had even more replacements ready to go.

    This is probably the result of Apple being able to afford to keep that kind of inventory on hand in their stores. Plus, Apple doesn't exactly have a lot of models of phones. A carrier like T-Mobile or Verizon would have to keep a frankly excessive number of phones on hand for any immediate warranty replacements. (How many Samsung phones are on the market at any given time?)

    On the gripping hand, it's not like smartphones are exactly *large* and would take up a lot of space in the backroom so...

    I think it'd be a nice customer service perk (and part of the reason I stick with Apple) but not something that needs to be legislated. Do carriers not keep cheap loaners in stock that you can borrow (with a credit card deposit) until your actual replacement shows up?

  • working capital (Score:5, Informative)

    by Cardoor ( 3488091 ) on Wednesday September 03, 2014 @10:38AM (#47816493)
    this is purely a question of economics and $. the answer is very straightforward for those familiar with either financial accounting or microeconomics, and comes down to a concept called 'working capital management'.

    To house that inventory (inventory being an element of working capital, along with accounts receivable and payables etc) of phones costs money, and do so means that you have to take into account the cost of that money. If you need to borrow it, then you have to pay interest on the balance. If you have the extra cash, then you need to take into account the opportunity cost of using your cash for inventory instead of, say, marketing or hiring another salesperson.

    to use a numbers example, lets say you are the store owner, and you determine you need 50 phones on hand at any given time. you need to pay $50 upfront to house each phone, or cough up 50 x 50 = $2500 upfront. When a customer comes in for a replacement, you give them one out of your inventory, and then need to order a replacement to top-you-off back to a standing inventory of 50 phones. The give-out/re-topping off is a net money neutral transaction (at least theoretically), but as you will always have to top off your inventory, you will never see your $2500 again unless you liquidate, which as long as you're a going concern, you won't do. Add onto that the fact that holding that inventory exposes you to obscolesence risks, and so your inventory, even in a liquidation scenario, might only be worth, say $1000 to you. So you have capital risk in addition to the costs of funding the inventory. Now multiply that $2500 by the however many thousands of retail shops you care to (and/or increase the number of phones needed in inventory) and you start talking real money.

    Now if the manufacturer wants to finance the whole shebang instead of the retail store owner, then great. but SOMEONE has to finance it. and it's much easier (and cheaper) to make the customer wait and only order them as-needed.
  • by david_thornley ( 598059 ) on Wednesday September 03, 2014 @10:40AM (#47816539)

    Regulation is by no means always bad. The one Bennet proposed is, par for the course.

  • Re:Agree 100% (Score:5, Informative)

    by brunes69 ( 86786 ) <slashdot.keirstead@org> on Wednesday September 03, 2014 @10:53AM (#47816661) Homepage

    Having spare parts on hand has nothing to do with providing loaner vehicles while the car is under repair whatsoever. This (silly) article is about loaner phones, the analaogy is therefore loaner vehicles. It is common practice for dealerships to give you a loaner vehicle if your car will be in the shop for multiple days, but the loaner is just a random vehicle, not the exact same type. Just like this guys loaner phone was not the same type.

  • Re:Agree 100% (Score:5, Informative)

    by hawguy ( 1600213 ) on Wednesday September 03, 2014 @11:01AM (#47816725)

    I was more surprised with the free overnight delivery and warranty covering accidents.

    It wasn't replaced under warranty, it was replaced under a carrier provided insurance plan -- a plan that usually costs around $100/year, yet still has a high deductible. I once bought the insurance, but when I lost my phone about a year into the contract, i found that I could get a used one on eBay for less than the deductible. If you lose or break a new model phone within the few months of release, it may be worth it, but after that, you're generally better off just buying a new phone if you lose yours.

Always leave room to add an explanation if it doesn't work out.