Up on his knees: what helped Samsung to overcome the reputational crisis

Up on his knees: what helped Samsung to overcome the reputational crisis

April 28 will start selling the new flagship smartphone Samsung — model Galaxy S8, which will be the first new South Korean manufacturer after the losing streak. The number of pre-orders for the S8 in the world crossed the mark of 1 million — the company even was not ready for such a demand.

Meanwhile, six months ago, Samsung was on his knees. Last fall, the leadership of Samsung in the 23 top Manager — knelt in the Chinese city of Shijiazhuang. So they wanted to thank the local partners for support in hard times, but some media took it as a gesture of apology.

Soon after that an official apology to the Korean company appeared in the world’s major Newspapers — The Washington Post, The New York Times and The Wall Street Journal. President and CEO Samsung Electronics North America, Gregory Lee in his letter said, “an Important provision of our mission — to offer best-in-class safety and quality. Recently, we are unable to fulfill that promise. We’re sorry”.

Explosive new

Start Galaxy Note 7 was impressive. In August last year, Samsung could not cope with the pre-orders for this model. Galaxy Note 7 was positioned as a replacement for the previous flagship, the Galaxy Note 5, and the number of pre-orders for it exceeded its predecessor in more than three times.

On the eve of the most anticipated in 2016, the start of sales of the shares of Samsung Electronics Co. soared by a record 4.7 percent. The capitalization of the Corporation then amounted to 232 trillion won ($210 billion) and the market value of Samsung was five times higher than Japan’s Sony Corp.

Smartphone sales began on 19 August in South Korea, USA, Canada, Mexico, etc. the Inhabitants of these countries are able to receive pre-ordered the device on the same day, and buy smartphones at the local retailers. In Russia and in Europe sales were to begin in mid-September as demand for Note 7 significantly exceeded supply.

The first reports that several owners of new devices in South Korea exploded battery, appeared at the end of the summer. And already on 2 September Samsung announced 35 fixed fire Galaxy Note 7 during charging. The Corporation was hastily postponed the start of deliveries to other countries to conduct additional tests. The same day Reuters reported that the company has suspended the sale of the flagships and recall the already sold models worldwide due to problems with the battery. According to the company, the replacement of devices sold was supposed to need two weeks. At a press conference in Seoul, which took place on the morning of 2 September, the representatives of Samsung for the first time apologized for the problem, but noted that it is unclear why the battery light up.

Because of the incidents of fire and explosions, the Federal aviation administration (FAA), the United States advised the passengers not to turn on and not charge the Galaxy Note 7 is on Board the aircraft, but better — do not take a smartphone with “an explosive temper” (a nickname he received in Network) both in Luggage and in carry-on baggage. To the FAA is joined by other us regulators. Thus, the Commission on safety of consumer goods called the Galaxy Note 7 to stop the use of smart phones and disable them.

Later vs Note 7 on Board made the largest airlines in the world — American Airlines, Delta, Air France, Austrian Airlines, Lufthansa, Emirates, Aeroflot, S7 and others. And the Internet was flooded with stories about how in different countries are set on fire and exploded first sold flagships. So, in the United States on September 13, revealed 92 cases of battery overheating, which eventually led to the fire and smoke, said in a joint statement the South Korean Corporation and the government of Canada. From this it follows that none of the users who reported the fault, did not receive injuries. However, on 12 September, Business Insider reported that in new York Note 7 exploded in the hands of a six year old boy, the result of which he suffered burns. In the United States in Florida due to the explosion of the smartphone the car lit up. According to Samsung, by 15 September at the hands of the inhabitants of the States was about 1 million units in Canada — 21.5 thousand phones that require urgent exchange.

However, in early October, Samsung has resumed sales of the smartphone in South Korea, saying that the defects are corrected. However, a new batch was no better than previous reports of new fires continue to flow to the company and to appear in media. Therefore, 11 Oct manufacturer announced the cessation of production and sales of Galaxy Note 7, recognizing that the device threatens the safety of users. The company has asked owners to turn off Note 7 and don’t use it.

All Samsung had to recall 2.5 million shipped devices and free to replace them with new, reported Bloomberg. This cost the Corporation $1 billion, estimated by analysts from Credit Suisse Group AG Daishin Securities Co. and Pelham Smithers Associates.

Time apology

During revocable campaign that customers can return a defective smartphone at the point of sale where the purchase was made, or exchange it for other models — or Galaxy S7 Galaxy S7 edge (they are, however, cost a bit less). Despite the fact that in Russia smartphone sales have not begun, the Russian branch of Samsung Electronics has expressed its willingness to replace Note 7, which were purchased from informal vendors.

Numerous news about burning smartphones and their feedback impact on the financial performance of the company. In the third quarter of 2016, the profit of Samsung was $4.6 billion — 30% less compared to the same period of 2015. For the manufacturer this was the lowest rate in 2015-2016. As reported by the Associated Press, after the cessation of production, the Corporation lost $17 billion market value.

Internal investigation continued until the end of January, simultaneously acquiring various rumors. In particular, the WSJ, citing informed sources reported that the cause of the problems of the model could be too large battery size and workmanship. At this time, Samsung has investigated more than 200 thousand thousand smartphones and 30 batteries, to check were involved in independent research organizations — UL, and TUV Rheinland Exponent. Experts have studied the hardware and software part of Galaxy Note 7, Assembly, quality control and delivery to points of sale.

Ultimately, the company came to the conclusion that the explosions of smartphones Galaxy Note 7 was due to shortcomings in the design of the battery and the Assembly process of the device. In the future, to avoid similar problems, the company introduced a multi-security Protocol and scanner batteries. For the quality of the batteries is now in charge formed according to the results of the investigation, the working group of external advisors and experts that advises Samsung on security of batteries.

In mid-February 2017, when it seemed that the worst is over, a new scandal erupted. The South Korean authorities prosecuted the actual head of the Corporation Whether or not the JI Yong in bribery and embezzlement worth more than $36 million Court Central district of Seoul issued a warrant for the arrest of Lee Jae Yong.

After all these troubles Samsung, according to IDC for the year 2016, lost a little more than 1 percentage point in the smartphone market compared to 2015. In 2016, the South Korean manufacturer shipped networks 311,4 million devices against 320,9 million a year earlier.

Samsung Galaxy S8+ and S8

Photo: Kim Hong-Ji / Reuters

“People are willing to forgive mistakes”

Despite the decline in both indicators, the Corporation kept the first place among manufacturers of smartphones. The closest competitor of Apple in 2016 has taken a 14,6% market and set was 215.4 million devices. New Galaxy S8 with the 5.8 inch display will help to improve the company’s business. According to General Director of the Agency CrosDigital Olga Sivkovo, an avalanche of pre-orders for it showed that customer loyalty to the brand Samsung is very high. “During the development of the crisis over Note 7 Samsung communication remained open: the company has recognized an error in the design model, recalled a batch of smartphones, payment of compensation, it has shown how important users”, — said Sivkov.

The President of branding Agency Depot WPF Alexei Andreev is convinced that the Corporation was saved by the power of the brand: “Samsung enjoys a strong loyalty from the audience that people are willing to forgive mistakes. The company showed social responsibility by publicly acknowledging he made a mistake, and not just off the line with sales, but also suggested that the owners “explosive” model to replace the devices on new. Clients appreciate honesty and often believe that the shell twice in one funnel does not fall”.

Leading Mobile Research analyst Eldar Murtazin is sure that no failure of the Samsung was not. “Corporate governance far from customers, and they are indifferent, — says Murtazin. — How the company resolved the issue with the Note 7 only increased the loyalty of customers and brought the brand to another level”. Agree with him Director General of information-analytical Agency TelecomDaily Denis Kuskov. “Firstly, the Galaxy S8 is good, he explains. — Second, the Galaxy has always been a quality leader, and the story of Note 7 is not so much influenced by the reputation of the company, and the accusations against the head of the company is slightly affected sales”.

The representative of the network “the Messenger” Sergey Tikhonov notes that the demand for new products from Samsung in the “Connected” panic: the popularity of Samsung Galaxy S8 and S8+ at the stage of pre-order in four times higher than the previous model Galaxy S6 and S6 edge. “Phablets (smartphones with 5-7 inch screen. — ) are one of the growth drivers total market of smartphones in Russia, and the output of the novelties will only spur this segment and, consequently, sales of smartphones in General,” says Tikhonov. He recalled that, according to Svyaznoy, the Russians in the first quarter has acquired more than 3.5 million phablets in the amount of about 45 billion rubles, which is 58% higher than a year earlier.

The unenviable fate Note 7 played into the hands of his follower, said Tikhonov: many followers of the brand who were planning to buy a new model last year, do it now.

To withdraw or to remain silent?

How not to behave when in production it was discovered defect, in 1994, showed Intel eventually announced the first ever global recall of equipment. Its engineers found that the calculators on the Pentium incorrectly believe. The defect was soon corrected, but it has already sold to processors decided to remain silent: error happened extremely seldom, and the company hoped that the majority of users no lack of notice and those who notice it will be possible to settle a small price.

Four months later, the problem was discovered, an American mathematics Professor. He was sent to Intel’s request, it kept silent, and then he shared the information with others. A month later, the scandal was splashed on the pages of The New York Times. As a result, corporations have begun to both users and PC manufacturers, especially IBM. Six months after the company discovered a defect, she was forced to declare unconditional exchange of chips. “A small price” pulled in $500 million.

Following the scandal heard around the world, cost him the hero — Ford Motor Co. $3 billion In 2000-2001 the company has recalled more than 3 million SUVs in which burst tires Firestone (the cause of accidents was in them, but it only came out a few years later). The head of the Corporation that gesture was worth a post: the shareholders decided that swapping the whole car, not just tires was too wasteful.

But Japanese Takata, maker of airbags, we took the example of Intel. More than ten years, the company was silent about the defect — her pillow sometimes exploded, including distorted technical data, which were sent to the relevant departments. The result is a dozen people were killed, hundreds were injured. Supply contracts with her ripped Toyota, Mazda, Nissan, Honda. In 2017, the U.S. Supreme court ruled that Takata needs to pay $1 billion compensation and penalties, and prosecutors have charged her top-managers of charges of concealing information, resulting in danger to life and health of people.

Product recall — situation of crisis, so no single recipe for companies caught in a bad story, no. Obviously, the higher the health risks that carries the product, the greater openness and willingness to review expect from the company. “Providing relevant and detailed information about the product can reduce the fear. Thus, the higher the degree of transparency [in the event], the better buyers will understand the reasons for the opinion and believe that the company really cares about its customers — the researchers write Raoul kübler and Albers sonke. — It can also increase the level of satisfaction among buyers and thus reduce negative impact on the perception of the brand and quality.”