South Korean tech giant Samsung has finally abandoned its exploding Note 7s, coming to the conclusion that the faulty phones were not worth saving.
Samsung Drops Galaxy Note 7
According to the online publication Stuff, after reports of problems with replacement devices, Samsung finally came to a difficult decision. The company confirmed on Tuesday, Oct. 11, that it had permanently terminated the production of the Galaxy Note 7. It has been a tough decision for the South Korean company, however it has been the only option left.
This will hurt the tech giant much more than the initial recall, but sacrificing the Galaxy Note 7 remains the only way to protect the broader brand. The once acclaimed as the best smartphone ever made, put the Samsung Electronics brand in big trouble. The Galaxy Note 7 fiasco is nothing short of devastating for Samsung.
The South Korean company was midway through replacing 2.5 million Galaxy Note 7 devices. Sales in South Korea were even resumed. But what initially looked like just a smooth recall has turned into a fiasco when reports emerged of replacements bursting in flames too.
Galaxy Note 7 Debacle's Consequences
According to market analysts, the Note 7 could cost Samsung a total of 3.6 trillion won (US$2.75 billion) in lost operating profit over this quarter and next year, from a sales perspective alone. The estimated loss includes disposals, lost sales and other costs. And all this comes in addition to 1 trillion won of replacement charges incurred last quarter.
Before the Galaxy Note 7 fiasco, the South Korean company was forecast to make a significant operating profit in October to December. But the profit loss might not be the biggest issue Samsung is facing at the moment. Tech experts believe that the company will have big difficulties fixing its damaged brand image and I agree with this.
The reputational damage might challenge Samsung for years ahead and it might hurt much more than the lost operating profit. The Galaxy Note 7 was supposed to be the company's flagship phone. Even if it wasn't the most popular smartphone coming from the South Korean company, the recall raises some trust issues.
Initially it was thought that faulty batteries were to blame for the fire hazard, but I wonder whether that this the whole picture, after all. And I am not alone. Tech experts and consumers alike come to question Samsung's engineering and quality assurance process.
The Galaxy Note 7 fiasco has also shown up some deficiencies in communication. The South Korean tech giant has yet to explain the crisis management and the new problems after the replacement. And one thing is certain, the longer the Galaxy Note 7 debacle drags out, the more damaging it will be for the company.
On Tuesday, Oct. 11, shares of Samsung lost 8 percent. This is the biggest single-day shares slid of the South Korean high tech company since 2008. The drop in shares value cuts US$19 billion from Samsung's market value.
Any Chance To Rebuild Customer Trust?
According to CNET, the Galaxy Note 7 fiasco is so devastating for Samsung's reputation that the South Korean tech giant will have a hard time to win back the customers' trust. The crisis faced by Samsung is unprecedented, different even from the Tylenole debacle in 2010 or the massive Volkswagen recall this year. Samsung was in enough trouble after the initial recall, but a second recall of the replacement units is unprecedented.
This situation raises questions not only about the company's ability to design and release a safe product, but also about its management and capacity of judgment in a crisis situation. The negative residual effects in terms of brand damage and consumer perception could last for years. And what is more troublesome, the negative consumer perception may extend to Samsung Electronics' wide line of products, from televisions to refrigerators to washing machines.
However, there is hope not all is lost. I think that Samsung could take some logical steps to control the damaging after effects. The company can still repair its reputation and win its customer base back.
One measure the company can take is to get proactive in convincing the roughly 1 million customers who bought a Note 7 to trade in their phones. Fortunately, in all instances Galaxy Note 7 caught fire no one got seriously injured. The last thing Samsung needs is something more tragic than a singed airplane carpet and a few ruined phones.
The South Korean company could also make some good on this disaster. In order to keep its customers happy, Samsung has to go beyond simple offering a replacement for its Galaxy Note 7 phones. Many customers did buy more than just the phone, many likely also bought charging docks, phone cases and other accessories.
And, as difficult such a decision could be, Samsung has to make a more drastic move and go beyond just dropping Galaxy Note 7 production. The company should kill the Note brand all together. The brand is compromised beyond repair and starting fresh may be the only way to ensure the Note 7 fiasco is a faded memory.