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Samsung’s Galaxy Note 7 Recall: A Reputational Disaster

October 10th, 2016

Authored by industry experts:

Joel Berrian, CPCU, ARM, AIC
Jberrian@big-ins.com
Joe Bermudez, Esq
Jbermudez@big-ins.com

When we first blogged about Samsung’s Galaxy Note 7 product issues and initial recall, we discussed several useful recall lessons unintentionally provided by one of the world’s best consumer goods companies. Several weeks later, the continuing saga of Samsung’s unfortunate handling of the Note 7’s production errors, recall, and replacement fix further emphasizes the invaluable recall lessons we previously identified and provides us with a new invaluable recall lesson.

The devastating reputational saga began with the apparent decision to rush the production of Samsung’s new product in order to pre-empt its main rival’s product launch. Shortly after the Note 7 made its debut, media stories about the flawed battery and resulting fires, bodily injuries and property damage went global. Samsung’s response to the reports was miscalculated. Rather than communicate transparency and cooperation, Samsung appeared to close ranks. Because of the lack of communication, stakeholders – consumers, corporate customers, and governmental agencies – were left to cope with the crisis utilizing the only forum available, public media. Questions and concerns about the Note 7’s product safety and Samsung’s crisis management were discussed in a very public and brand-damaging manner. And, because Samsung did not properly communicate with stakeholders, it lost control of the message. Once Samsung began to properly communicate about the product issue and crisis handling, the issue appeared to die down.

As we learned today, the production error, recall, and crisis management issues are of historic proportions:

  • Samsung has halted production of the replacement Note 7
  • The replacement fix for the initial recall has failed
  • Fires in replacement phones have caused a plane evacuation and additional injuries
  • The CPSC is investigating whether a second recall is required
  • Airlines, air regulators, and airport officials have publicly called for continued bans
  • Wireless carriers now refuse to sell or exchange the replacement Note 7

The costs to Samsung, its wireless carrier customers, and its loyal consumers are enormous. Samsung’s reputation, not only in the mobile phone arena, but in respect to its global consumer product business is hanging in the balance. We will all watch to see if this previously successful consumer product giant can turn it around.

As we provided earlier, Samsung’s troubles can be utilized by many companies, big and small, as invaluable recall lessons. And, regrettably, we have gained another invaluable lesson.

Eighth invaluable lesson:

Get the fix right

As learned from the recall of Samsung’s Galaxy Note 7, getting the fix wrong is much worse, in terms of reputational damage, than dealing with the original product defect and initial recall. A recall is a crisis and the crisis must be properly handled.  Multiplying the impact of the original mistake by rushing and getting the fix wrong only extends and exacerbates the reputational damage. Recall costs and expenses also continue to grow. And, more importantly, customer loyalty quickly diminishes as lost profits and damages continue to grow. While the original error can be severely damaging, getting the fix wrong can be catastrophic.

All companies, whether in consumer goods, auto, food, component parts, or pharmaceuticals, suffer recalls. It’s a fact of (product) life. Companies will get it wrong but recalls do not have to be catastrophic. We invite you to read and discuss the seven invaluable lessons we previously identified.

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