Business case
Exchange repair – a closed loop
model for repair of MP3 players
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.
Target audience
This business case is primarily aimed at
businesses that already carry out repair of
electronic products on behalf of customers and
that are looking at ways of expanding their
services.
It may also be of interest to retailers and OEMs
of MP3 players.
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.
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.
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 approach generally suits high volume
homogenous high-tech products such as games
consoles and gadgets.
The broken items are repaired as a batch and,
once repaired, form part of the company’s stock
of replacement items that will be sent to other
consumers.
Products which are beyond repair can be stripped
down and used as a source of spare parts. These
can then 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 shipments, thus
helping to lower costs;
 there is no need to log and track products
through the repair service.
This exchange business model works best on a
large scale; and is reliant on economies of scale
for success. The Apple iPod has around a 65%
share of the total MP3 player market3 and
therefore presents the greatest business
opportunity for repair of MP3 players.
Properly implemented, the exchange model of
repair could offer customers the promise of a
replacement MP3 player within 24 hours and at a
lower cost than repairing their original unit. This
offers customers a unique selling point that is
available at significantly lower cost than is
offered by the manufacturer.
How it works
Because of the small size of the product, there
are a number of variations to this model which
can be considered for MP3 players.
At point of product failure, the customer contacts
the repair agent. A set of diagnostic questions is
used to confirm that there is a genuine fault.
The customer will then receive an equivalent
product in exchange for the broken one, either in
person, by courier or by post.
Figure 2 The latest Apple iPod nano taken apart to show the
individual components. Image courtesy of ifixit.com
Commercial opportunities
Despite the recent economic slowdown, the
consumer
electronics
repair
industry
is
performing well. In 2011 the industry consisted
of over 800 enterprises, employing 4,000 people 1
- up from just 2,000 people in 2008. The
turnover for the industry has remained steady at
around £200m per year.
By employing an exchange repair model, the
costs of the call centre, courier, labour and parts
can all be reduced as products are repaired in
batches and not on a one-off basis and only one
central repair facility is required. Naturally, the
exact costs of the service will depend on the
volumes and the specific product.
A case study on the repair of a Sony PlayStation
games console revealed that the overall costs of
the exchange model were significantly lower than
the traditional return model for repair. 2 This case
study demonstrates the potential success of the
exchange repair model for high-tech high-volume
products.
1
ONS, Section S of Annual Business Survey. Provisional
Results for 2011
2
http://www.remanufacturing.org.uk/pdf/story/1p390.pdf
The mode of transport used will depend on who
is doing the repair; for example, retailers may
prefer customers to drop off faulty products and
collect an exchange product in-store.
Faulty products are returned to the service centre
and remanufactured so that they are in ‘as good
as new’ condition and come with a warranty.
Products beyond economic repair are used for
spare parts. The remanufactured products are
used as stock for future deliveries.
As there are only relatively few faults which MP3s
experience, it makes sense to charge a fixed
price by model for this service. For the service to
be attractive to customers the price should be
less than that of purchasing a new item.
The product
The products covered here are portable
electronic MP3 players.
These are often
complex, high-tech products.
The original manufacturers’ repair service for
MP3 players can be prohibitively expensive,
which influences consumers to buy new instead
of repairing. However, these high prices do not
necessarily reflect the true cost of repairs. An
article from Which? reports that independent
3
http://www.forbes.com/sites/darcytravlos/2012/07/13/theipad-will-mirror-the-ipods-market-dominance-heres-whyand-why-it-matters/
repair organisations frequently offer the same
service at a fraction of the cost charged by the
manufacturers.4
organisations. In general, the price is fixed by
fault and model. Typical prices are:
 for a screen replacement: £20 to £70
Photo from Wikimedia Commons
© Matthieu Riegler, CC-BY
depending on screen size; and
Figure 3 Different Apple iPod models; the shuffle, the nano, the
classic and the touch. Image from Wikimedia Commons.
Purchase of these products is influenced by
fashion, and many consumers will choose to
replace them before they reach their functional
end-of-life. Consumer focus group research has
found that the average expected lifetime of an
MP3 player is 2-5 years.5
Common faults and repairs
Common faults for MP3s include:
 failed hard drives;
 cracked or damaged screens;
 corrupt software;
 water damage;
 battery faults;
 for a 160GB hard drive replacement: around
£95,
In addition to out-of-warranty repair, Apple also
offers a two year extended warranty for iPods;
this excludes cover for accidental damage. The
cost depends on the iPod model, being £26 for a
nano or shuffle and £40 for a touch or classic
model. However, the extended warranty is only
available for two years from the original purchase
date.6
What are the challenges and how can
they be overcome?
Customer attachment
Some customers may object to receiving a
replacement instead of the original product.
They may have an emotional attachment to their
MP3 player and will object to losing it.
Customers may also have customised their MP3
players, for instance by engraving or adding
memory. An exchange repair service will not be
able to accept products which have been
customised.
 click wheel faults;
Loss of data
 headphone/sound problems; and
Any data saved on the product will be lost.
Fortunately the emerging trend is to backup all
customisations, purchased content and personal
data on cloud servers, allowing simple data
recovery over the internet if the unit is replaced.
 connector problems.
In general, system failures are less common with
MP3 players that use flash memory as it is more
resilient than hard disk drive memory. MP3
players are also subject to cosmetic damage such
as scratched casings.
Current repair offerings
Manufacturers currently offer both in- and out-ofwarranty repair of MP3 players. Apple offers an
Express Replacement Service for iPods, through
which a customer can obtain a replacement iPod
in exchange for the broken one at the same cost
as a standard return repair service.
Fixed price repair of iPods has become a
common practice by independent repair
4
http://conversation.which.co.uk/technology/is-apples-ownrepair-service-a-rip-off/
5
Public understanding of product lifetimes and durability, A
research report completed for Defra by Brook Lyndhurst,
July 2011
Expensive spare parts
Spare parts for MP3 players can be prohibitively
expensive and this is a significant challenge for a
competitively priced repair service. A common
fault for an MP3 player is a failed hard drive, and
replacement hard drives cost up to £110 for a
genuine spare part.
By employing an exchange repair service the cost
of 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 and developing good
relationships with suppliers.
Such strategies
often require high volumes of repairs in order to
be successful.
6
http://store.apple.com/uk/browse/home/applecare 2011
Image courtesy of ifixit.com
Conclusion
MP3 players are an ideal candidate for exchange
repair. As such by employing an exchange repair
model instead of a traditional return model for
MP3 players significant cost savings can be
made.
Figure 4 Inside an iPod Touch. Image courtesy of ifixit.com
Environmental benefits
Because they are small, MP3 players are often
thrown away and are rarely recycled or re-used.
A significant proportion of these discarded MP3
players are suitable for a second life following
repair or refurbishment.
Apple reports that, for the iPod classic, 50% of
its lifetime greenhouse gas emissions occur
during production (this figure is 76% for an iPod
touch).7 The estimated lifecycle greenhouse gas
emission for an iPod classic is equivalent to
23 kgCO2e; with 50 kgCO2e for an iPod touch.
Repairing an iPod instead of replacing it with new
saves between 10kg and 38 kgCO2e per iPod.
7
http://images.apple.com/environment/reports/docs/iPod_Cla
ssic_Environmental_Report.pdf
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July 2013