Why Apple Stores Don’t (And Shouldn’t) Pay Commissions

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Apple made a conscious and important choice about sales commissions and customer experience
Apple made a conscious and important choice about sales commissions and customer experience

Over the weekend, The NY Times posted another investigative piece in its iEconomy series that about Apple. This installment focused on Apple’s retail stores. As with previous articles in the series, this one focuses on legitimate concerns about the American economy in an age of globalization. Like the other pieces, this one targets Apple specifically and ignores the range of Apple competitors that employ similar practices.

The primary issue that the Times brings up with regard to Apple retail stores is that employees can sell thousands upon thousands of dollars worth of Apple products and still earn a relatively modest wage. The underlying sentiment is that if a retail employee sells so much hardware, he should earn more because he is contributing to Apple’s vast revenues.

The only way for things to shake out that way and remain fair would be if Apple offered performance-based awards or commissions. Apple chose not to do that because doing so would have delivered a fundamentally different customer experience than the one envisioned by Steve Jobs – a fact that the NY Times chose not to explore in any real depth.

Apple consciously chose not to offer pay-for-performance incentives when Steve Jobs and Ron Johnson conceived of the store more than a decade ago. While the Times seems to imply that Apple may have chosen a flat hourly wage as a way to save money, anyone familiar with Apple or who has read Walter Isaacson’s biography of Jobs is likely to realize that money wasn’t the motivation for that decision.

Steve Jobs believed in creating experiences for Apple customers. All you need to do is look at the packaging of any Apple product (and the unboxing videos that show up on YouTube when a new product is launched) to see that. The Apple store needed to be the ultimate customer experience for Apple. The fulfill the vision that Jobs and Johnson had for the stores, the outlets needed to feel welcoming, friendly, and more like a place to learn about products than a place to buy them.

That model was crucial in 2001 when Apple launched its retail chain. At that point, there was no iPod, no iTunes Store, no Apple TV – Apple’s only product line was the Mac. Even after four years of Steve Jobs remaking Apple following his return to the company in 1997, the Mac was a niche product. At that point Apple’s retail stores needed to attract and entice customers to simply learn about Macs as much as to sell them.

Paying commissions and encouraging competition through compensation is antithetical to that creating that experience. The Times acknowledges this just once thanks to the comments of former Apple retail executive Denyelle Bruno.

At Apple, the decision not to offer commissions was made, Ms. Bruno said, before a store had opened. The idea was that such incentives would work against the company’s primary goals — finding customers the right products, rather than the most expensive ones, and establishing long-term rapport with the brand. Commissions, it was also thought, would foster employee competition, which would undermine camaraderie.

The idea of Apple stores as a tangible Apple experience has another unique twist that would have been stifled by sales staff paid on commission: Apple doesn’t need its customers to buy products from its retail stores to make money. Since Apple is both a manufacturer or goods and a retailer, the company will make money if someone spends an hour playing with an iMac in an Apple store but then buy’s one from Best Buy instead. That’s a unique perspective in retail and it completely flies in the face of retail traditions that would advocate in favor of commissions.

It’s important to note that other companies have experimented with similar flat-pay models. Most have done so to create a more engaging and customer-friendly experience. Best Buy, one of the biggest Apple retailers after Apple’s own stores also has a similar policy. So does Brookstone, which sells a number of iPhone and iPod accessories. Electronics retailers Radio Shack and Fry’s, on the other hand, do pay based on commission.

Source: NY Times