Exchange as a closed loop alternative to traditional repair of tablet computers

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1 Business case Exchange as a closed loop alternative to traditional repair of tablet computers Repair in the UK In the UK, the market for repair of electrical items has seen a general long-term decline. This has been driven by falling costs of new products, greater product complexity and reliability, and faster product obsolescence. The high cost of repair, either perceived or actual, is often cited by consumers as the reason they prefer to buy a replacement product. The cost of repair (when compared with buying new) is commonly driven by the sometimes disproportionate cost of spare parts combined with a high labour intensity. WRAP has identified a number of business opportunities for increasing repair that are of benefit to both consumers and businesses. This document is part of a series of business cases designed to highlight these commercial opportunities in the UK. Tablet computers represent a product group that is growing rapidly and expected to maintain a solid market for the foreseeable future. Offering a convenient and low cost repair service to consumers is thought to present a strong business opportunity. Target audience This business case is primarily aimed at businesses that already carry out repair of customers tablet computers or other high technology products such as mobile phones or games consoles and are looking at ways of expanding their offering. Exchange model of repair The basis of the exchange repair model is that a faulty item is swapped for a replacement item that is at least an equivalent model if not the same. Customer calls service centre. Gives broken product to courier and immediately receives new product. Courier collects broken product and gives customer a working product. Buffer Stock Service centre: Product disassembled, diagnosed, repaired and assembled to as new condition. Figure 1 How the exchange service for repair works This model is termed the exchange repair model because consumers exchange the defective item for an equivalent working item; in contrast to the return model in which consumers get back the original item after it is repaired. This approach generally suits high volume homogenous high tech products such as games consoles and gadgets.

2 Broken items are batched together from multiple consumers and are repaired as a batch. Once repaired, they form part of the company s stock of replacement items that can be sent to other consumers. Products which are beyond repair can be stripped down and used as a source of components. These can be used for future repairs by the company. Other benefits include: staff can be more easily trained to carry out complex repairs on a small set of products; there is only a single transaction point with the consumer e.g. at the point of exchanging the broken item for a working one; the amount of down-time experienced by the customer is minimal. common spare parts can be purchased by the repair organisation in bulk, thus helping to lower costs; there is no need to log and track products through the repair service. Commercial opportunities The potential market for offering repair of tablet computers is predicted to be strong, given rapid growth of the overall tablet market. Market analysis by Gartner predicts that by the end of 2015 there will have been worldwide cumulative sales of 900 million tablets. 1 Recent analysis by the McKinsey group also supports the conclusion that tablet sales will continue to display strong growth. 2 This growth is partly driven by the adoption of tablets by new groups of users such as senior citizens. The key conclusion from the available market analysis is that consumers are increasingly relying on tablets as their main method of accessing the internet and enjoying media. A broken tablet is therefore highly inconvenient and consumers want to find ways of keeping this disruption to a minimum. 1 Gartner (2011) ipad and Beyond: The Future of the Tablet Market 2 McKinsey & Company (2012) ipad and Beyond: The Future of the Tablet Market Properly implemented, the exchange model of repair could offer customers the promise of a replacement within 24 hours and at a lower cost than repairing the original unit. This offers repairers a unique selling point that is available at significantly lower cost than is offered by the manufacturer. Both options could however be implemented. How it works The customer contacts the business about the faulty tablet, directly or via a website. A fixed price replacement is offered, based on the model of the broken tablet and the nature of the fault. The customer agrees to the exchange and pays the required fee. The business then sends a replacement tablet to the customer via a courier, with instructions to collect the broken tablet at the same time. The faulty product is returned by the courier to the service centre. The tablet is assessed to ensure that the model and fault reported by the customer are correct. Once confirmed, the broken tablet is then repaired or placed in a batch of similar products for repair at a later date. The repaired products should be returned to as good as new condition and come with a warranty. The repaired products are used as stock for future deliveries. Products beyond economic repair are used for spare parts. Given the large price disparity between various repairs, it could be worthwhile offering fixed price options which depend on the nature of the fault. The overall condition of the item could also be taken into account. The product Tablet computers, or tablets, are portable touchscreen devices that allow users to access the internet, consume multimedia and make use of a multitude of custom apps. They have recently seen rapid market expansion due to the introduction of the Apple ipad line in 2010 and the new wave of devices from example Google and Amazon. The competitive market for tablets is increasing as Microsoft has also signalled its intention to focus on tablets rather than traditional desktop computers.

3 The key manufacturers also own content portals that are tied in to the device and offer the user videos, music and apps for sale. In an attempt to lock users in to their content ecosystem, some manufacturers are selling tablets at near cost price. The growing popularity of tablets is evidenced by consumers who are increasingly shifting their web-browsing habits towards mobile devices, including tablets. In December 2012 over 14.5% of global web traffic originated from mobile devices, compared with 8% and 4% in December 2011 and 2010 respectively. 3 Due to the relatively recent increase in popularity of these devices there is no information on the length of time that consumers expect to keep their tablets. Common faults Tablets are relatively simple devices in respect of the number of discrete components. Most are comprised of the casing, the glass front panel, a large screen, a battery and a single main circuit board. Smaller ancillary components such as camera modules, wireless antennas and speakers may also be present (Figure 2). The LCD screen is the most expensive spare part, and any single fixed price repair offering must be priced to make a profit on this repair. Current repair offerings Apple offers a two year extended warranty for its ipads; this costs and excludes coverage for accidental damage. Out-ofwarranty repairs which include accidental damage are depending on the model. Both warranty and out-of-warranty repair services are delivered by means of a replacement device that is new or equivalent to new. Normally, Apple requires the customer to send the device first before receiving a replacement. However, with its Express Replacement Service, Apple will send the replacement at the time it is requested. A separate battery replacement service is offered for a fixed fee of 85; this is also delivered as a replacement product. Many independent businesses offer to repair tablet computers, although many exclusively focus on the Apple ipad line of tablets because of their popularity. Third party screen repairs cost between 120 and 200, with other repairs generally costing less. What are the challenges and how can they be overcome? Figure 2 The latest Apple ipad taken apart to show the individual components. Image courtesy of ifixit.com The large glass fronts and LCD screens are the most vulnerable parts of the tablet and represent the greatest number of faults. They can usually be replaced independently of one another but in some devices they are fused together. Tablet repairs are usually labour-intensive because of the glue and permanent fixings used in their construction StatCounter Cosmetic damage The key barrier to offering the exchange model of repair is that the devices that are received will show varying degrees of wear and tear. This is particularly an issue for tablets where scratches on the screen are common and customers are sensitive of this. It may be necessary to replace the casing if its condition is such that a customer would reject it otherwise. It may be possible to get customers to grade their products in advance and to offer a replacement of a similar grade. This could be enforced by charging a surcharge if the received product is in worse condition than declared. Customer attachment The customer may object to receiving a replacement instead of the original product. Some may have an emotional attachment to

4 their tablet and will object to replacing it. A traditional repair model would be better suited to this group of customers. Loss of data Since the tablets are exchanged, this will cause a loss of data for the customer. Fortunately the emerging trend is to back-up all customisations, purchased content and personal data on cloud servers, allowing simple data recovery over the internet if the tablet is replaced. Many devices have optional memory cards that can be removed and re-inserted into the replacement device. Data privacy The data stored in the customer s tablet will have to be securely deleted before sending the unit out to the next customer. Spare part availability Spare parts for tablets can be prohibitively expensive and this is a significant challenge for a competitively priced repair service. A common fault for an ipad is a damaged screen; a genuine Apple replacement is available from third parties for materials, repair displaces the materials input with labour. The carbon footprint of a new Apple ipad is reported to be 170 kgco 2 e 5, significantly less than a laptop 6 or desktop 7 computer (approximately 350 and 700kgCO 2 e respectively). Almost 70% of this footprint is attributable to the production stage. Whilst it is important to avoid unnecessary greenhouse gas emissions, the production of the tablets also consumes valuable resources and produces environmentally damaging effluent. Having a tablet repaired instead of replacing it avoids these environmental burdens as well. Conclusion If properly implanted, this repair model could increase rates of repair for tablets, whilst keeping costs down for both consumers and repair organisations/oems. Figure 3 Removing the glass front from the latest ipad. Image courtesy of ifixit.com By employing an exchange repair service, the cost of some spare parts can be reduced as stocks of spare parts can be built up from broken products. The cost of further spare parts can be reduced by purchasing bulk shipments. Both of these strategies require high volumes of repairs in order to be successful. Environmental benefits Repair is generally considered to carry significant environmental benefits over purchasing new replacement products. This is because, while new products consume 5 Apple Environmental Report for the third generation ipad 6 Oeko Institut, Germany (2012) Timely replacement of a notebook under consideration of environmental aspects 7 Fujitsu White Paper: Life Cycle Assessment and Product Carbon Footprint of an ESPRIMO E9900 Desktop PC

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