One of the world’s largest smartphone makers, Samsung, has recalled 2.5 million of its latest handset, the Galaxy Note 7. The move has already wiped $20bn off Samsung’s share value and consumer confidence is visibly shaken. Ellie Riddles goes Behind The Headlines to analyse the flames engulfing the electronics giant.
In early August, Samsung revealed their latest Galaxy Note 7 smartphone to the world. The new phone was instantly welcomed by tech-geeks and consumers alike. The word on the street was that Samsung had finally created a handset that would rival Apple’s infamous iPhone.
However, this euphoria was short lived. On 31st August, the first reports were emerging of issues with the handsets’ battery, which caused them to catch fire. Samsung responded promptly and issued an initial product recall, mainly in the US, pledging to solve the issue, and offering customers either a replacement handset or a refund.
A few weeks later, however, the problem appears unresolved as reports of a new, replacement Note 7 model bursting into flames emerges – one of these was when a phone ignited on board a Southwest Airline flight, which then had to be evacuated.
The game was truly up on Tuesday 11th October. Following weeks of speculation and uncertainty about the safety of the handset, Samsung announced it was halting all sales of the phone, asked all customers to power down their handsets, stop using them and take their handset to their nearest store to receive their refund. This refund could then be freely spent on a competitor’s device, such as an iPhone or Google’s new Pixel phone which launched last week.
The recall is so serious that the Daily Mail has reported that Samsung are sending customers fire resistant boxes and protective gloves to return their handsets.
Why is it important?
This is undoubtedly one of the biggest consumer PR crises a brand has faced in recent years. Safety is of paramount importance – both for companies to uphold and for customers’ peace of mind. Samsung has, without a shadow of doubt, lost the trust of not only its consumers, but also its shareholders. To date (12th October), Samsung has seen $20bn wiped off its share value since the recall announcement and slashed its quarterly profit forecast by a third.
The timing is also far from perfect. The irony of the situation is that Samsung deliberately released the Galaxy Note 7 handset weeks before Apple’s new iPhone, in order to pip their biggest rival to the post and attempt to close the gap with the tech behemoth. And it could have worked – Apple is, arguably, at their weakest position in a number of years with declining sales of the iPhone handset. There was a golden opportunity for Samsung to win some crucial market share which, now, has all gone to waste.
However, this crisis has not only damaged Samsung in terms of the cost of recalling all the handsets and issuing refunds (which is expected to cost the company $2.5bn) but the South Korean electronics maker will now lose out on crucial festive season sales – inflicting even further damage to the account books.
What’s the reaction been?
There have been two very different types of reactions to the product recall. From a business perspective, investors have demonstrated their concern by pulling their share options out of Samsung, causing the $20bn wipe-out of its share value.
Consumers, on the other hand, have taken their views to social media platforms, which have ‘exploded’ with memes mocking the company. The Daily Mail and Daily Mirror have even dedicated articles compiling the best memes from the internet for their readers to enjoy.
Without a shadow of a doubt, this crisis has done Samsung long-term reputational damage, with almost every analyst and journalist across the globe agreeing on that point. And with $20bn wiped from their share value, the repercussions of this crisis will linger on for months, if not years, to come.
Samsung will now have to get its reputational re-building team working 24/7 to restore consumer confidence in the brand. It will be a struggle, but it’s critical that they do so to maintain consumer trust.
To do this, Samsung will have to pull out all the stops to assure both the general public and stakeholders that they are effectively investigating this crisis. The first thing will be for Samsung to, quickly, publish the report as to what went wrong with the devices. At the same time, their CEO needs to publically apologise for the issue, explain the findings and, crucially, outline how this error will be resolved in the future.
One way I expect that Samsung will have to outline their future plans will now be increased safety information for all devices, not just smartphones. This could even include statistics from the test phases and clearly displaying the approval of devices by safety regulators, such as the Korean Agency for Technology & Standards or the U.S. Consumer Product Safety Commission – so customers feel assured that the devices have been recognised to be safe. If executed well, this could even be an opportunity in the future for Samsung to lead in the area of stringent safety testing but, for the moment, they will have to concentrate on rebuilding trust in the brand.
Transparency will have to become Samsung’s new business mantra – the Galaxy Note 7 issue has affected so many consumers and devices globally that there can be no more ‘secrets’.