The Samsung Debacle and the Long Term Impact on its Reputation

I would sure hate to be the person at Samsung who made the decision to go with the battery supplier they are using in the 2.5 million Galaxy Note 7s they have shipped around the world. Samsung has now canned this supplier and will use the same battery supplier Apple uses.

As you know, there have been over 35 reports of Galaxy Note 7s catching on fire and, in one case, causing serious damage to a vehicle. It has gotten so bad the FAA is now requiring flight attendants, when announcing the safety rules on planes, to tell passengers that if they have a Galaxy Note 7 with them to not turn them on or charge them when on the plane. Samsung has recalled all Galaxy Note 7s and, while they plan to replace them, it will take up to two or three months to get new ones back to their customers. Their stock is tanking because of this. It gives Samsung’s mobile division a black eye that could have a long-term impact on the future of their smartphone business.

This could not have happened at a worse time for Samsung. It came before Apple’s own iPhone 7 launch and it will only help Apple if those on the fence who were leaning towards a Galaxy Note 7 can’t even buy one in the very near future. While the Galaxy Note 7 has had great reviews, the fact they catch fire makes the current versions on the market totally unusable.

At the device level, Samsung will overcome these difficulties although it will take some time. The new battery supplier, one who already has a solid track record as the battery supplier for Apple’s iPhones, should give future owners of the Galaxy Note 7 some assurances that, once they get their new model, it will be much safer than the previous one. But this is clearly a setback for Samsung’s mobile division and could have a long-term impact on people’s perception of Samsung’s quality control and proper component sourcing capabilities.

But this is not the first time Samsung has had a huge misstep and ended up with serious PR problems and internal management headaches.

In the early 1990s, Samsung desperately wanted to become a world player in PCs. While they created their own PCs, they only had success in South Korea. When they tried to get channel support in the US and Europe, critical markets for PC growth at the time, they were shut out.

So they took aim at a Southern California company called AST. Although AST was not a huge brand like IBM, Compaq, HP or Dell at the time, they were still a top 5 PC vendor in those days and, more importantly, had strong channel acceptance in the US and Europe.

I was working with Samsung at the time as a consultant and was one of seven people in the US that were put on a special council to review the proposed AST acquisition. When all of the facts were presented, I was one of two on the council who took a very strong stand against this deal.

I had already been working in the PC business for 10 years by then and had seen at least one wave of consolidation of PC vendors take place in the 1988-89 time frame. Although AST had survived that wave of consolidation, they ended up weaker and their channel position was not as secure as Samsung and many other people had thought it was. I concluded that, if Samsung was serious about this deal, it would take serious marketing dollars as well as huge investments in channel development. I also questioned their ability to bridge the culture gap — at that time, they had no experience in US retail.

But on the day we were to present the recommendations of the council, we got word Samsung had closed the deal for AST. Internally, it was being championed by a senior member of Samsung’s management and he got it pushed through without ever seeing any outside research on the possibility of the deal succeeding. But four months into the deal, Samsung concluded the deal was a bad one and fired the senior executive who supported the deal and, within 15 months, AST was out of the market. Even worse, it branded Samsung as a failure in broad world wide PCs, something they have never recovered from.

I am not saying this issue will be the end of Samsung’s smartphone business. Indeed, their momentum will carry them forward and, if they correct this mistake quickly, they can keep this business on course. But something that happened with the AST issue could possibly haunt them in the future with these battery issues. Once Samsung failed in their PCs bid, the trust factor for Samsung in that segment of the business kicked in and has become a negative part of their history.

Given the magnitude of this battery issue, I suspect, at the very least, Samsung has not only a major PR issue to deal with but a trust factor that could color customer’s view of Samsung’s smartphone well into the future. A worse outcome for them is, if consumers conclude Samsung’s smartphones are even at the slightest risk of failure, it will shape people’s view of them and, in many cases, shift these folks to look for alternatives to purchase. As you can see, this is more than a PR problem for them. At its root, it suggests Samsung’s management decisions when it comes to component sourcing is questionable and this weak link in the chain impacts their overall quality control and final products.

This debacle will have a major impact on Samsung both internally and with future customers. It will be very difficult for them to come out of this unscathed even if they fix this problem.

Published by

Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.

7 thoughts on “The Samsung Debacle and the Long Term Impact on its Reputation”

  1. Samsung fully deserves what they’re getting. They own this.

    If it’s about the ecosystem, this is a classic example of how having multiple sources is good for the buyer. Should one want/need to switch away from Samsung (or any other company) they can, all while staying in the ecosystem. Cannot do that on iOS, you’re locked in.

    1. OTOH,

      “Should one want/need to switch away from Samsung (or any other company) they can, all while staying in the ecosystem. Cannot do that on iOS, you’re locked in.”

      Android users are locked into Android, whatever OEM they choose.

      Since almost all Android phones come with preloaded OEM and telecom sw, moving from device to device may prove surprising in one way or the other.

      Almost all Android users are locked into devices that will never have a significant system upgrade and, worst case, may never have necessary security sw patches.

      I believe iOS is seen as the CHOICE for anyone wanting to leave the Android ecosystem and, if problems like this one occur for other Android OEMs, you can bet your sweet bippie that Apple will win big.

      1. You are indeed beholden to a large degree to your carrier (for phones) and your OEM on the OS side of things, but absolutely not on the device side of things. On Apple your dependent on Apple for the OS, the HW, and for approving the Apps. It’s not even close.

        1. “…, but absolutely not on the device side of things.”

          Here’s your blind side: Each OEM builds their devices however they wish. As a consumer, how do I tell which one to buy? Easy, right?

          Just check and compare OEM reputation, the 10 key device specs, any special ‘sauce’ a device serves… This is Android’s too many choices problem. If you’re on Android and you are not beholden to any single OEM, you are beholden to Android shopper stress.

          Take the Note 7 for instance. The best phone ever made, except it explodes sometimes. All those 2M buyers; how much hassle are they being put through? And how will they handle being forced to choose a second best phone? Android shopper stress.

          1. I’m shamelessly on the “there’s no such thing as too many choices” side. Oh, and my headphones with jack? They’re obsolete when I say they’re obsolete.

            However, I will grant you that when you can no longer purchase headphones (or anything else that would normally plug into a headphone jack) with a headphone jack, then it’s obsolete. Like with serial and parallel ports, a much more civilized way to handle it.

            I refuse to defend Samsung or any company over faulty stuff. Samsung owns this. Oh, and I’m not a fan of companies, not even my BMW, remember? 🙂

  2. Some companies recover well from a quality control debacle (Intel Pentium comes to mind), but the key thing is to act swiftly and don’t leave a bad aftertaste in the customers mouth.
    Right now many Samsung owners are unclear about how and when their phones will be replaced (nobody wants to be phoneless for even a few days), while being somewhat alarmed by news reports about phones catching fire. That is not a happy place.
    Replacing the customers’ phones and giving them a free accessory or spec bump, could go a long way in restoring goodwill. There is still time, but not it won’t last forever.

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