Samsung Electronics has gone for a $5.3bn sacrifice to save the company. The decision, for sure, is not just about the doomed Note 7 – originally estimated to ship 13mn – itself, but about the brand and its years-long relationship with its customers.
The financial burden of the Note 7 termination on Samsung after about 2.5mn recalls is huge. The Suwon-based company has disclosed a hit of approximately $3bn on operating profit through March 2017, on top of an already announced $2.3bn cut for the preceding period.
“Samsung just has to bear it,” said Yoo Jong-Woo, an analyst at Korea Investment & Securities Co “The top priority is to rebuild trust.”.
Samsung has been struggling with the fallout from the troubled Note 7 phones, which were overheating and catching fire even after a recall to fix the problem. Its shares plunged more than 8% last week, wiping about $20bn from its market value.
The end of the Note 7 represents a big setback for the South Korean electronics giant in its battle with Apple, whose iPhone 7 hit stores in September. Samsung has now lost much of the momentum it built in smartphone sales.
“It’s a very critical moment for Samsung,” said Martin Roll, a brand strategist and author of Asian Brand Strategy. “How Samsung is handling this crisis is kind of a way for Samsung to step into the modern era because Asian firms have only started to emerge as very iconic, contemporary consumer brands like Apple.”
Amid tonnes of global negative publicity, there’s also the risk that the Note 7 troubles will spill over to other smartphones in the Galaxy lineup, especially among undiscerning consumers. The best known South Korean brand faces a serious image problem in China, where customers and government-owned media have railed about Samsung’s handling of its recall.
What next for the pride of South Korea? Samsung has to come clean on the Note 7 debacle with a thorough explanation of the mysterious battery defect. Until it can come up with some clear answers, it faces thorny challenges.
Going forward, Samsung, the largest of South Korea’s “chaebol” (vast, politically connected, family-run conglomerates), has bigger problems to deal with post Note 7 demise. Whether the Samsung brand takes a lasting hit will depend, in part, on how long the mystery of the Note 7 batteries will continue and whether the company is perceived by consumers as stonewalling.
Samsung hopes to gradually make the Note 7 episode a fine footnote in the overall history of the company. For that, the company should keep focusing on quality control throughout its supply chain and at every step of the product development cycle after perceived a situation of “too many models but lack of focus.”
Samsung, despite an initial slow reaction to the Note 7 fiasco, has taken a smart, wise and confident decision by sacrificing its flagship smartphone. Sure, a one-product failure in a large and diverse company, shouldn’t lead to doomsday projections.