Bottom line: LeEco’s smartphones will have difficulty finding a major audience over the next 2 years due to technical problems and poor after-sales service, making it hard to meet its aggressive targets.
An investigative report on the year-old smartphone business of online video superstar LeEco (Shenzhen: 300104) is showing how the company’s dreams of quickly becoming a major player in the crowded space might be more difficult than it realizes. Specifically, the report in the respected Yangtse Evening News is spotlighting major shortcomings in LeEco’s after-sales service, a critical link for its smartphones that are facing inevitable technical problems due to their newness.
I’ve been a LeEco smartphone skeptic for a while now, so perhaps some readers may think I’m biased in spotlighting this particular problem that all new companies face when rolling out a major new product. But the reality is that in all my years of using older cellphones and newer smartphones, never once have I owned a model that didn’t have a major problem at least once that required me to take it to a repair shop.
This new report follows one such case involving a woman who purchased her LeEco phone, only to quickly discover it had a number of problems such as inability to locate her position, weak signal and tendency to overheat. (Chinese article) But when she took it to an authorized repair shop, she was told the necessary parts were out of stock and she would have to wait 2-3 months for replacements.
When the woman called LeEco’s customer service center, she was told the best course of action was to mail her phone back to the company and let them repair it. The entire process, they informed her, would take 2-3 months. She went back to the original repair center, and they informed her that even though they were an authorized repair center, LeEco was promoting a model that encouraged people to mail their broken smartphones back to a centralized location for fixing.
The reporter did a bit more legwork to confirm the woman’s story was correct, though it didn’t seem to try very hard to find out if many of the company’s new smartphones were experiencing similar problems. But as I said at the outset, such problems are almost inevitable with any smartphone at some point in time, and LeEco’s newness at the business probably means its models can expect to see more problems than older rivals.
This tale reflects a couple of things, first and foremost that LeEco is new at the business and should probably maintain a lower profile until it sets up a more reliable after-sales network that won’t generate this kind of negative publicity. The kind of centralized after-sales network LeEco is eyeing probably also reflects the very real fact that it is trying to cut costs from the very beginning due to intense competition in the market.
All of this reflects a bigger problem at LeEco, namely the tendency of its charismatic chief Jia Yueting to overhype his many of businesses, most of which the company has only entered in the last couple of years. A more experienced CEO would probably take a lower-key approach to new product roll-outs and wait until all the problems were worked out before turning up the publicity machine.
A more seasoned executive would also let word of mouth be one of his main promotional tools, since a positive user experience is always the best publicity. All of that brings us back to LeEco’s earlier proclamations that it hopes to sell 50-60 million smartphones this year and 100 million in 2017, which includes its own brand as well as its recently acquired Coolpad (HKEx: 2369) brand. (previous post) This latest report shows that meeting those aggressive targets could be difficult, and perhaps Jia should focus more on building a solid reputation for reliable and easy to fix smartphones, and less on hyping the products.
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