Recall
a short-term negative, but long-term blessing in
disguise
By Kim Tae-gyu
Samsung Electronics' decision to recall its Galaxy Note 7s due to overheating battery problems may be a boon for Apple which will release its new iPhone 7 this week.
However, how the recall decision will affect Samsung and its rivals over the long-term remains to be seen.
It is obviously bad news for Samsung in the short-term.
Still, some analysts say the company will be able to maintain customer loyalty as the case shows how responsible it is.
Samsung swiftly chose customer trust at the expense of profits in the recall decision, they said.
The company decided to recall around 2.5 million of the large-screen handsets, Sept. 2, nine days after the first claim of a battery catching fire while charging.
"The Samsung CEO delivered an apology swiftly, while disclosing all the problems and clearly promising compensation," said Kevin Lee, head of local PR consultancy INR.
"No doubt Samsung will face some short-term losses in its income. But over the long haul, it will be able to strengthen its brand more as a reliable partner in the global market."
Samsung's mobile chief Koh Dong-jin announced the recall while apologizing twice for concerns raised and the inconvenience and to customers.
Prof. Kim Chan-souk at Cheongju University said, "In dealing with disasters, the two principles of transparency and promptness are most important. Samsung kept them very well, which is easy to say but hard to do."
Kim said Samsung's reaction is comparable to the classic example of best practice carried by Johnson & Johnson, one of the most respected firms in the United States.
In 1982, seven people died in Chicago after taking Tylenol capsules made by Johnson & Johnson, which had been tampered with. Police failed to find the culprit but the response of the drug maker was praised.
The firm stopped Tylenol production and distributed warnings to hospitals. It shelled out a large amount of money to recall all Tylenol products whose retail value was up to $100 million; and even issued warnings in the media telling people not to use the products.
As a result, its market share shrank from 35 percent to less than 10 percent, but the drug manufacturer rebounded soon in a dramatic fashion thanks in no small part to its quick and proactive action.
Kim also commended Samsung's top executives, who listened to rank-and-file employees' opinions.
Initially, it seems that Samsung thought of just replacing the batteries of the Galaxy Note 7 because the claims of fire incidents were 24 to 1 million. But management changed their mind due to sincere requests from employees.
An engineer uploaded a posting in the firm's internal site, saying "Please recall all the devices. I will give up my annual bonus. I am ashamed of this." Around a quarter of staff members read it, leaving hundreds of comments to show their agreement.
For Samsung employees, it is a big deal to offer to forfeit their bonuses since the maximum amount is half of their annual salary. In particular, workers at the mobile division usually get generous payouts.
In coming up with the unprecedented recall decision, Koh said that Samsung management took the employees' opinion into consideration.
Samsung's recent efforts to renovate its corporate culture under the stewardship of Vice Chairman Lee Jae-yong also worked in reaching the conclusion, industry watchers said.
Investors seem not to deem the mishap as very negative news as Samsung's share prices remained almost flat on the Seoul bourse Monday, the first trading day after the recall was announced.
"Samsung's share prices already factored in the battery issue last week. It will leave a skid mark in Samsung's financial reports for the third quarter but the effect is likely to be just a one-off," said Kim Ji-san, an analyst at Kium Securities.
"In other words, investors seem to believe that the Galaxy Note 7 will continue to be popular once sales resume."
Koh said that Samsung will restart sales after providing replacements for buyers of the first models that run the risk of catching fire.
The model debuted on Aug. 19 in 10 countries including Korea and the United States and its global release was set to begin soon.
Samsung Electronics' decision to recall its Galaxy Note 7s due to overheating battery problems may be a boon for Apple which will release its new iPhone 7 this week.
However, how the recall decision will affect Samsung and its rivals over the long-term remains to be seen.
It is obviously bad news for Samsung in the short-term.
Still, some analysts say the company will be able to maintain customer loyalty as the case shows how responsible it is.
Samsung swiftly chose customer trust at the expense of profits in the recall decision, they said.
The company decided to recall around 2.5 million of the large-screen handsets, Sept. 2, nine days after the first claim of a battery catching fire while charging.
"The Samsung CEO delivered an apology swiftly, while disclosing all the problems and clearly promising compensation," said Kevin Lee, head of local PR consultancy INR.
"No doubt Samsung will face some short-term losses in its income. But over the long haul, it will be able to strengthen its brand more as a reliable partner in the global market."
Samsung's mobile chief Koh Dong-jin announced the recall while apologizing twice for concerns raised and the inconvenience and to customers.
Prof. Kim Chan-souk at Cheongju University said, "In dealing with disasters, the two principles of transparency and promptness are most important. Samsung kept them very well, which is easy to say but hard to do."
Kim said Samsung's reaction is comparable to the classic example of best practice carried by Johnson & Johnson, one of the most respected firms in the United States.
In 1982, seven people died in Chicago after taking Tylenol capsules made by Johnson & Johnson, which had been tampered with. Police failed to find the culprit but the response of the drug maker was praised.
The firm stopped Tylenol production and distributed warnings to hospitals. It shelled out a large amount of money to recall all Tylenol products whose retail value was up to $100 million; and even issued warnings in the media telling people not to use the products.
As a result, its market share shrank from 35 percent to less than 10 percent, but the drug manufacturer rebounded soon in a dramatic fashion thanks in no small part to its quick and proactive action.
Kim also commended Samsung's top executives, who listened to rank-and-file employees' opinions.
Initially, it seems that Samsung thought of just replacing the batteries of the Galaxy Note 7 because the claims of fire incidents were 24 to 1 million. But management changed their mind due to sincere requests from employees.
An engineer uploaded a posting in the firm's internal site, saying "Please recall all the devices. I will give up my annual bonus. I am ashamed of this." Around a quarter of staff members read it, leaving hundreds of comments to show their agreement.
For Samsung employees, it is a big deal to offer to forfeit their bonuses since the maximum amount is half of their annual salary. In particular, workers at the mobile division usually get generous payouts.
In coming up with the unprecedented recall decision, Koh said that Samsung management took the employees' opinion into consideration.
Samsung's recent efforts to renovate its corporate culture under the stewardship of Vice Chairman Lee Jae-yong also worked in reaching the conclusion, industry watchers said.
Investors seem not to deem the mishap as very negative news as Samsung's share prices remained almost flat on the Seoul bourse Monday, the first trading day after the recall was announced.
"Samsung's share prices already factored in the battery issue last week. It will leave a skid mark in Samsung's financial reports for the third quarter but the effect is likely to be just a one-off," said Kim Ji-san, an analyst at Kium Securities.
"In other words, investors seem to believe that the Galaxy Note 7 will continue to be popular once sales resume."
Koh said that Samsung will restart sales after providing replacements for buyers of the first models that run the risk of catching fire.
The model debuted on Aug. 19 in 10 countries including Korea and the United States and its global release was set to begin soon.
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