Samsung (OTC: SSNLF) and its Galaxy Note 7 phone are having a really difficult month.
In September, Samsung decided to recall 2.5 million phones after receiving complaints of the phone’s battery exploding. The phone had only been out for a month when the complaints started rolling in.
Samsung released the Galaxy Note 7 on August 19th, a month before Apple (NASDAQ: AAPL) was expected to launch and release its new iPhone 7.
The Galaxy Note 7 was highly anticipated from both customers and reviewers. Samsung was very enthusiastic and confident in the Galaxy Note 7’s ability to take over the high-end smartphone market from Apple.
But that enthusiasm and confidence was quickly crushed when complaints started coming in about exploding batteries. After more and more incidents started popping up, Samsung made the decision to recall the phone and work towards fixing the problem.
Trying to get the product back into the hands of the consumers before it became too much of an inconvenience, Samsung quickly announced that the problem had been fixed and it would be offering replacement phones to all customers.
Samsung reassured customers that the replacement devices were now equipped with safer batteries. Unfortunately, the problem still wasn’t fixed.
Over the past week, there have been seven incidents reported where the batteries in the replacement phones caught fire.
On Monday, October 10th — after these seven incidents were reported — Samsung continued to stand firm and insist that the replacement phones were safe to use.
The very next day, Tuesday, October 11th, Samsung finally gave in and announced that it will be ending production for the Galaxy Note 7 and pulling it from the market. It’s asked all telecom carriers and retailers (globally) to stop sales and exchanges of the devices.
Samsung requested that all customers turn off any original Galaxy Note 7s and/or any replacement devices and return them to where they bought them. Customers will then be able to receive a different phone from Samsung or from a different manufacturer.
Samsung Takes a Hit
Samsung recalled almost 191,000 devices that were sold in China — the same day it decided to kill the phone altogether. Chinese customers weren’t happy about being the last ones to receive the recall.
Samsung’s decision to wait so long to allow for a recall in China probably just ruined one of its biggest customer bases, not to mention any brand loyalty that those customers might have for Samsung.
Greg Roh at HMC Investment Securities had this to say:
The reason consumers prefer brands like Samsung and Apple is because of product reliability. So in this case, brand damage is inevitable and it will be costly for Samsung to turn that around again.
The way Samsung decided to deal with the recall and, more importantly, the way it decided to fix the problem with the batteries was nowhere close to ideal.
The company should have taken its time with fixing the issues, so at least customers wouldn’t have lost trust in the Samsung brand. It had a lot to lose and probably should have made more effort to ensure the replacement phones would not have any problems.
Samsung will take a huge hit from the death of its Galaxy Note 7. Before it even announced that it would be stopping production on the phone, Samsung’s shares fell 8%.
Richard Windsor of Edison Investment Research had this to say:
As a result of making a complete mess of the Galaxy Note 7 recall, Samsung is more likely to lose a large number of high-end users to other Android handsets rather than to Apple.
The real issue is brand and reputation. As long as Samsung carried out the recall smoothly and kept users very happy, the issue would eventually blow over.
Unfortunately, this is very far from the case, and the fact that Samsung appeared to still be shipping defective devices could trigger a large loss of faith in Samsung products.
Samsung tried to dominate the high-end market, and it tried to do it at a time when Apple was about to launch a new phone that was looking very lackluster. There was so much potential for Samsung to take the reins of the market.
It had time and opportunity on its side and could have definitely reaped the benefits from Apple’s lack of innovation.
Maybe the company was a little too ambitious and negligent when it came to trying to release the Galaxy Note 7 before the new iPhone came out. Whatever the reasons might be, what’s done is done.
Right now, Samsung needs to regain the trust of its customers and reassure them that its devices are made with the utmost care and quality.
Until next time,
Jennifer Clark
Wealth Daily