Industryweek 11834 080216 Samsung Note7

After Galaxy Note 7 Recall, Samsung Can’t Miss This Deadline

Sept. 6, 2016
Dozens of Samsung Note 7s have exploded and charred, leaving their users without a phone and the company with some loss of trust. With the Apple iPhone 7 on its way, how is Samsung responding to an important challenge?

Consumers have only so much patience — and that’s why Samsung has given itself a two-week deadline to start replacing Galaxy Note 7 phones with faulty batteries that can catch fire and even explode. As Apple prepares to unveil its latest iPhone in less than a week, the South Korean electronics giant needs to reassure customers that the latest premium smartphone is safe.

The stakes are high. Samsung has maintained its lead in smartphones — despite a global slowdown in handset sales — and fended off Android rivals in China and elsewhere with high-quality phones and unique features. If the Note line fails to recover, Samsung risks being seen as just another Android phone maker and might give upstart rivals an opportunity to close the gap.

“Things go wrong. That’s the reality of life,” said Laura Ries, president of brand-strategy firm Ries & Ries. “What matters is how you deal with it. For a high-end product, that means you go out of your way to give people replacements, get out in front and handle the problem.”

Before the recall, the Note 7 had drawn praise for such features as an iris scanner and big screen with curved edges. The phone won positive initial reviews and was heavily marketed before its release. But only two weeks after the debut, Samsung was beset with reports of faulty batteries that overheated while charging, resulting in charred phones.

The company clearly decided to fix the problem quickly — whatever the cost — rather than risk even greater damage to its reputation should more phones explode and hurt people. What’s more, Samsung has a big incentive to get replacement Note 7s in the hands of customers as fast as possible, with the iPhone set to hit stores about a week after its unveiling. And it wouldn’t hurt Samsung to put this incident behind it well before the crucial holiday season, which last year accounted for about 28% of handset sales.

It looks like the replacement model was in the works before Samsung announced the recall. As soon as the problem was discovered, Samsung probably started working on a fix, according to Bloomberg Intelligence analyst Anand Srinivasan. That way the company was able to announce a solution as soon as it made the bad news public.

There are still unanswered questions that Samsung needs to address to quell consumer discontent. The replacement program isn’t an official recall program with the blessing of government officials, said Jerry Beilinson, a technology editor at Consumer Reports. The company hasn’t said which devices have the faulty battery and which ones need to be replaced, leaving customers unsure if they should continue using the phone. The company risks losing some loyalty if it doesn’t provide more details and guidance, Beilinson said.

As long as the problem doesn’t persist and the resolution is fast and comprehensive, the long-term impact will be minimal. In the U.S. in particular, the Note 7 has the advantage of being seen as the only viable Android alternative to the high-end iPhones, which means diehards won’t abandon the brand, said John Butler, a Bloomberg Intelligence analyst. It’s almost certain that Samsung will have fixed all the issues before the holiday shopping season kicks off, he added.

In recent months, Samsung has been expanding its already considerable market share. The company shipped 77 million smartphones in the second quarter for a market share of 22.4%, that’s up from 73 million, or 21.3% share a year ago, according to IDC. Apple’s shipments dropped 15% to leave it with an 11.8% market share. Huawei posted an 8.4% increase and OPPO more than doubled shipments from a year earlier. The recall could rob Samsung of momentum it had built by capitalizing on a lull in demand for iPhones between new models.

Sales of the Note 7 will be halted in 10 countries, Koh Dong Jin, head of Samsung’s mobile division, said Friday. He said there are about 2.5 million units in the hands of users and carriers.

Lee Seung Woo, an analyst at IBK Securities Co. in Seoul, estimates that about 1 million handsets are affected by the battery problem, with about 600,000 sold overseas. He expects shipments of the Note 7 this year will shrink to 12 million units from a previous estimate of 14 million units.

“The unexpected recall would surely irritate buyers,” Lee said, “and the latest incident looks worrisome.”

By Jungah Lee and Jing Cao, with assistance from Ian King.

Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!