It’s about much more than the fate of just this phone.
With each day that Samsung’s Note 7 problems remain in the headlines, the damage to Samsung’s brand and long-term business prospects grows.
Every day, flights are taking off with what amounts to an anti-Samsung commercial, warning people not to use or plug in their device. At stores and airports, where there used to be scores of ads touting the Samsung brand, there are now dire signs warning of a mass recall.
Having to scrap the Galaxy Note 7 will be costly. The Note is one of two main flagship phones for the company and its newest product heading into the all-important holiday selling season. We’re talking at least a couple billion dollars in lost profits and some $10 billion in revenue, plus the cost of the recall, says Jackdaw Research analyst Jan Dawson.
But, having failed to quickly restore confidence and facing a potential second recall, the Note 7 is likely done for. Production has been halted, and even if Samsung tries to create a replacement for the replacement model, it’s not clear major retailers or carriers would want to sell it.
Samsung needs to quickly shift its attention from trying to resuscitate this phone to salvaging its reputation.
“Samsung needs to make sure that the perception consumers have remains on ‘there is something wrong with the Note 7’ and does not become ‘there is something wrong with Samsung,’ ” said Creative Strategies analyst Carolina Milanesi. “Unfortunately the messier this whole thing gets, the more consumers will start to question Samsung.”
While Samsung moved decisively to halt sales of the original Note 7 on Sept. 2, the company’s muddled response to issues with the replacement phones has exacerbated its problems.
“Emerging as being clueless about what is wrong with its own device, being weak and unclear in communicating with owners … is really not making Samsung look like a leader,” Milanesi said.
And here’s why the situation for Samsung is particularly troublesome: It’s far from the only game in town when it comes to Android devices.
If Apple were to have an issue, for example, it would still be the only place to get an iPhone. So if you wanted to get an iPhone the following year, you’d still have to go with Apple’s model.
Not so with Samsung and its phones. It may be the largest provider of Android phones, but there is no shortage of other companies eager to take its place.
LG, HTC and Sony all compete at the high end of the phone market, as does Google now with its well-timed and just-introduced Pixel.
What has helped Samsung achieve name recognition has been its hardware designs and the billions it has spent in advertising to help build its brand over the last few years.
The Note, in particular, had been a strong point for Samsung, helping it stand out thanks to its large screen and built-in S-Pen stylus. The company boasted that Note users were the company’s most loyal, while analysts say they were also the most profitable thanks to the strong margins on the big-screen phone.
But that loyalty is being put the most severe of tests, especially with the prospect of a second recall now a distinct possibility.
“The perception will be that Samsung is not just the victim of a bit of bad luck but actually has faulty quality control processes, which is a lot more damaging,” Dawson said. “That, in turn, could spill over into how people view future devices, which could be a lot more damaging. Samsung is going to have to do a lot of work between now and the spring to ensure that the next Galaxy S phones aren’t hampered by lingering concerns about quality and safety.”