ON THE CASE
A smartphone repair service wants to open a do-it-yourself store, but fears cannibalizing its existing business.
THE SITUATION Changes in technology are so rapid that they can quickly put companies out of business if they’re not careful. Popular products can lose favour with fussy consumers, new technologies can create advantages for new companies too hard for older companies to overcome and, sometimes, new tools allow customers to do what they once had to pay someone to do. Kashif Khan, founder of Kmaster Electronics, a smartphone repair business in Toronto, was trying to stay ahead of the game by opening a new fix-it-yourself location just outside the city. This venture would sell parts to customers who wanted to fix their own phones on site. Customers would have access — at no charge — to on-site workstations stocked with the necessary tools. “Am I on the leading edge or am I prematurely destroying my own service model?” Khan wondered.
When we last checked in on Kmaster five years ago, Khan was wondering if it should start servicing LCD projectors. But about six months ago, Khan started to notice an increasing number of customers looking to buy smartphone parts. “They know we’d be happy to repair their phone for them, but these customers want to try it on their own. They call us because we’re seen as a trusted service provider, even though the sale of parts isn’t our focus,” he said.
At first glance, DIY stations seem like a counterintuitive idea for a repair business — built on service fees — since they could jeopardize Kmaster’s main source of income. Fees for repairs range from $10 to $90, sometimes higher, depending on the problem. Khan has a team of service technicians working for him, and he even offers smartphone repair training seminars to students across Canada.
But Khan was worried that emerging trends were making it easier for customers to bypass service shops. “Do smartphone customers need service repair shops if they can buy parts online and, with a few clicks, learn how to fix their phones by watching a YouTube video?” Khan wondered. If the trend persists, service shops would see a decline in business. “Think about the decline in document printing and faxing services as consumer machines became more accessible. It’s not a perfect analogy, I know, but I’m afraid that the same could happen to our service model.”
Opening a DIY location would mean committing to operate the venture for a year in order to assess its viability. “Currently, we only make a small mark-up on the parts we buy from a wholesaler,” Khan said. He sketched out a retail shop housing 10 workstations, each of which would be equipped with the tools necessary to carry out basic smartphone repairs. “I may be able to boost our spare parts business by inviting customers to ‘fix-it-yourself, on site,’” he said. Khan would have to source parts directly from Asia and buy in bulk.
“The advantage of a fully equipped workstation is clear. I wouldn’t imagine that many people own the specialized tools required for smartphone repair,” Khan said. “Some customers will be motivated to do it themselves to save on the repair fees. There will be others for whom the benefit will be intrinsic: they are looking for the satisfaction of being able to repair their own devices. So let’s help both groups out.”
Khan conceded that there would be instances — perhaps half of the cases — where DIY customers would ask for assistance, and Kmaster would provide a trained technician at an extra charge to help them complete the repair. He could see opening six to eight locations across the country quite rapidly if the initial pilot proved viable.
Furnishing parts for DIY customers would allow Kmaster to move into the parts wholesale business as well. There was no doubt that he would be able to sell a significant volume of parts online if he focused on becoming a wholesaler. “I’ve trained more than 500 students, many of whom are running repair businesses across the country,” Khan said.
On the other hand, there could be a risk in even piloting the DIY business, since Khan would have to bypass his wholesale suppliers and, in effect, compete with them. He thought about the potential reaction — likely negative — from his supplier network.
“But I’m worried that running a distribution business will be markedly different than running a service shop, from a process perspective. And my service revenues could fall rapidly,” he said. There would also be a risk that pouring resources into a complex new business would mean the service business would rapidly decline. “I’d be doing less marketing and this could accelerate the shift from service to DIY . What if I need to reverse the changes?”
This case study was prepared by Financial Post Magazine and the Pierre L. Morrissette Institute for Entrepreneurship at the Richard Ivey School of Business (Western University). The case method is a key learning tool in the cross-enterprise leadership approach used at Ivey. The views represented here are solely those of the case authors. Some details may have been changed to protect privacy.