Earlier this month, Samsung took out full-page newspaper advertisements in the US to apologise for its explosion-prone Note 7 smartphones, saying it fell short on its promise of best-in-class safety and quality. As Samsung looks to restore its battered reputation, the damage has already been borne by its balance sheet and brand value. As per business valuation and strategy consultancy Brand Finance, Samsung is ranked third in the world’s most valuable brands in 2016 — valued at $83,185 million, with a forecast that the brand value is likely to take a hit.
Samsung, a brand of national pride, is more than just a business in South Korea. The brand’s revenue equals one-fifth of the nation’s economy and yields such power that South Koreans are known to refer to the nation as the ‘Republic of Samsung’. However, 2016 proved to be a very challenging year for Samsung and one that sorely tested its reputation. This comes at a time when the Samsung management is undergoing a serious transition. “Under chairman Lee Kun-hee’s guidance, Samsung had established itself as global player that offered quality products,” says Lulu Raghavan, MD, Landor India.
In light of recent events, with Lee missing in action due to health reasons and his son Jay due to take over, there are definitely questions about the direction the brand is headed in.
Securing its reputation
Samsung Electronics posted a 96% plunge in third quarter (July-Sep) mobile earnings to 100 billion won ($87.63 million) from a year ago, its lowest level since the fourth quarter of 2008.
Samsung’s smartphone sales in the third quarter of 2016 as a whole declined 14.2% year-on-year — its worst performance ever.
While the premium segment was directly hit due to Note 7 crisis, the dented brand image had a cascading effect on sales on other models too.
“When it comes to mid-tier and low-tier smartphones, there are many alternatives such as LeEco, Oppo and Gionee, which have better pricing and features,” says Anshul Gupta, research director, Gartner. “People who were earlier in two minds are now looking at Chinese brands.”
According to Gartner, Samsung’s Q3 2016 market share worldwide in smartphone sale stands at 19.2% compared to 23.6% in the same quarter last year. However, it is not just about market share but market reputation — saving the brand from further erosion. According to Raghavan, during the Note 7 crisis, Samsung made two critical missteps: the brand failed to coordinate with the safety authorities of the US while recalling the product. Second, there was mixed messaging about the actual reason for the product failure which was finally blamed on the battery.
“Samsung has recalled its problematic products, which was necessary. However, it needs to do more to engage with its customers to explain the issues and reassure them that it remains focussed on product quality,” says Siddharth Singh, associate professor, marketing, Indian School of Business. Smartphones sales will be hit but mostly for the short term, according to analysts.
Since this was a first serious offence, the brand still had some insulation from its loyal customers. “A lot depends upon how Samsung comes out of the crisis and the launch of Galaxy S8.The first quarter of 2017 will be critical for Samsung,” says Tarun Pathak, senior analyst, Counterpoint Research.
Beyond the mobile fiasco
Samsung washing machines (34 models, starting 2011) have been facing issues including explosion reports and covers blowing off and the brand has been aware about these safety concerns since 2013. The company has received more than 700 reports of incidents and nine reports of injuries including a broken jaw, the CPSC said (as of November 4, 2016). The company is now working with CPSC to address the issue and inform consumers through various online and offline mediums.
“In isolation, each mishap was perhaps recoverable. However, when looking at these issues collectively, the brand has been playing catch up in redressal,” says Raghavan. While the loyalist might be inclined to give the benefit of the doubt, a new consumer will be sure to evaluate Samsung in light of these events.
“It’s time to reinvent the brand,” says Alpana Parida, MD, DY Works. “At Samsung, the problem is that of one large company with many different products under its umbrella, dependent on a single brand. Samsung should hive off the telephone business as a separate brand and insulate it from the rest.” After all, the problem with monolithic brands is if one product has a problem, it can hit the entire brand value.
“With two disasters at hand, Samsung should be very careful about its marketing initiatives going forward till it has regained its credibility as a brand, and not just separately for its products,” sums up Raghavan.
Samsung ranks third in the world’s most valuable brands at $83,185 million
(Brand Finance report 2016); substantial hit expected
– Smartphone sales in the third quarter of 2016 as a whole declined 14.2% y-o-y globally— Samsung’s worst performance ever
– Samsung’s previous worst performance for smartphone sales was a 12.3% drop in the fourth
quarter of 2014
– For Samsung, it’s crucial that the Galaxy S8 launches successfully, so that partners and customers regain trust in the brand