Maxwell Barna talks us through Samsung's exploding phone crisis, and takes a look at what it means for Samsung's competitors, and for the brand in the long run.
It’s been a bad few weeks for the folks at Samsung, and that's putting it pretty mildly. In fact, that’s putting it very, very mildly. The issues for the tech titan started last month when they were forced to officially recall one of their most highly-anticipated phones of the year—their flagship, the Galaxy Note 7.
Last Tuesday, in a shocking and unprecedented move that rattled the tech world, Samsung announced that it’d be recalling even the replacement phones and ceasing production on the Note 7 indefinitely. As if all that weren’t bad enough, the Federal Aviation Administration, as of Saturday, October 15, has made it illegal to carry the Samsung Note 7 on airplanes. People found in violation of the new rule will face a civil penalty of up to $179,933 and imprisonment of up to 10 years.
Long story short, things are only getting worse for the folks at Samsung, and it’s really difficult right now to see the light at the end of the tunnel. Here's why it's such bad news for Samsung's brand, and how it can contain the damage as much as possible:
It’s a Monumental L for the Samsung Brand
It’s still pretty early to call how this is all going to affect Samsung in the long run; but right now, we know that it’s putting a huge dent in its bottom line. According to a Branding Brand survey released a few days back, 40 percent of current Samsung users say they will never buy a Samsung phone again. Worse, of that 40 percent, 30 percent say they’re going to an iPhone, the Note 7’s direct competitor.
Samsung first reported projected net sales losses to the tune of around $5 billion. Unfortunately, that was before they halted production on the Note 7 entirely. That number is now somewhere in the $17 billion ballpark. Samsung’s projected third-quarter profits have been slashed by almost a third, from $6.9 billion to $4.6 billion.
If those stats make the situation sound dire, it’s because things really are bad. According to analysts from Nomura Group—the financial holdings company that works with Samsung—the big fear is that this widespread recall won’t just affect those interested in the Galaxy Note 7, but Samsung’s other smartphone models, too.
They’ve projected they may have to cut Samsung’s fourth-quarter mobile division profits by a staggering 85 percent. No, that wasn’t a typo. Eighty-five percent.
For Samsung’s Opponents, it’s a Huge Win—Especially for Apple
Y’all remember that time like, last month, where the entire world freaked out because Apple got rid of the headphone jack on the iPhone 7? It was headline news for weeks. How long do you think it’s going to be before billboards start popping up for the iPhone 7 that say, “Yeah, but does it catch fire and explode in your fucking hands?” (You’re welcome for that brilliant marketing copy, Cook. Make the check out to Maxwell Barna, thanks.)
We knew the branding backlash for Samsung in the wake of the recall was going to be brutal, but no one knew just how great it’d be for Samsung’s competition.
Let’s look at the context here. The Samsung Galaxy Note 7 was one of the main competitors to Apple’s iPhone. In fact, in side-by-side comparisons, it was pretty universally accepted that Note 7 wiped the floor with the iPhone 7. Even before the whole headphone jack removal thing, critics were pretty resolute in the Note 7 being the heavyweight contender. But with the Note 7 basically turning into a WiFi-enabled IED, the conversation shifted dramatically.
With the Note 7 no longer on sale, Apple now has a huge leg up in its years-long competition with Samsung—and probably a sizable growth in its customer base. But it's not only Samsung defectors who Apple will benefit from, it's also the enormous damage to the South Korean company's reputation has taken with the Note 7 debacle. For those of us who were sitting on the fence about which of the world's two most important phone manufacturers was the best, this is the push we needed to pick a side. And that side is Apple.
Like we mentioned above, a staggering 40 percent of current Samsung users say they’ll never purchase a Samsung phone again, and 30 percent of those people say they’re going straight to Team iPhone. According to the same Branding Branding survey, 62 percent say they’ll opt for another Android-based device.
For Google’s new Android-based Pixel, that could include an 8 percent pickup rate. Nature abhors a vacuum, which means there’s a lot of new market share freeing up with the absence of the Note 7.
How Is Samsung Making Things Right, and What Happens Now?
Any way you slice the pie, the deck is stacked against Samsung. Right now, the company is going above and beyond to mitigate these awful circumstances. Across the board, Samsung is incentivizing the recall for its customers because, apparently, people need more of a reason to give their phones back than, “If you don’t, you risk serious bodily injury and/or burning your house down.
For customers who want to pick up another Samsung phone, Samsung is forking over $100 on top of the refund and other incentives. Even customers who want to go elsewhere—to the iPhone, for instance—will receive $25 on top of a full refund. Samsung is also reportedly going as far as sending fireproof packaging and gloves to customers who purchased the Note 7 direct on the Samsung website, so that they can safely return the advice with as little risk as possible.
The big question here is: is it enough? Samsung is being proactive, acting in their customers’ best interests and recalling every single Galaxy Note 7 despite a comparatively minuscule number of affected phones—all to avoid potential hazard. By anyone’s standards, that’s super ethical and beyond cool. But at the same time, it’s hard to pretend that this error—the catastrophic recall of its flagship smartphone on such a widespread scale—won’t be a consideration for anyone looking into purchasing a Samsung product.
In reality, Samsung’s mobile phone division is only a drop in the company’s yearly profit budget. They have enough cash on hand right now to cover the tremendous losses they’ll most likely report this year. So it’s not necessarily about recouping the losses right now.
For Samsung, this is about the long game. Going above and beyond to rectify this situation and repair the relationship with their customers could make or break their mobile brand for years to come. It's not clear yet whether the Note series will be able to survive the fallout.
So far, we’d say things are going about as well as could be expected.
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