After the Note 7 fiasco, what’s next for Samsung?

The South Korean giant has made the right moves with attractive exchange programmes offering the S8, but one more mistake could mean game over

Missing the Note 7? Well, the S7 would like to have a word with you.

“Inspire the world, create the future.” That, according to Samsung, is the underlying principle defining the company’s vision for the future. The South Korean brand further states that, by 2020, it will seek annual sales of $400 billion (Dh1.47 trillion) while becoming one of the top five brands in the world.

And how exactly will it get there? Well, mainly by continuing to do what it claims to do best — “delivering the world’s best products through operational excellence and innovation prowess”. However, in light of the Note 7 fiasco, perhaps Samsung should put an asterisk after that line, and mention “Conditions apply” at the bottom.

To be fair, the Note 7 did ooze Samsung’s innovation prowess, but that operational excellence bit was sorely missing during the phone’s manufacturing process. It was also absent when Samsung shipped out “safe” versions of the Note 7 during the global recall, these started exploding too. And when the company finally put the Note 7 out of its misery. It’s also not too great that, weeks later, Samsung still has not been able to figure out what exactly caused the phones to explode. Incidentally, it seems the brand’s stores in the UAE are yet to get the memo that the Note 7 is dead. Some of them, such as the ones in Lamcy Plaza and Dubai Mall, still feature Galaxy Note 7 advertising in their windows.

All this certainly doesn’t sound like stuff that will inspire the world. It sounds instead like roadkill. No wonder the company’s latest third quarter financial results look like something out of a horror movie. The mobile division’s profits nosedived to $87.8 million, a staggering 95 per cent loss compared to the profits in the same period last year. Its impact was powerful enough to ripple across the entire conglomerate — Samsung’s total operating profit, which includes all of its diverse businesses, was $4.5 billion for the third quarter, down $1.9 billion year on year.

But the company’s diverse line-up of phones — often mocked as a throw-everything-at-the-wall-and-see-what-sticks approach — turned out to be a silver lining. Samsung reveals sales of the S7 series and the mid-range A and J series remained “stable”, while the mobile division expects a recovery in earnings to a level similar to that seen in the fourth quarter of 2015. In other words, the brand will bounce back and it will be business as usual next quarter.

Pic: MAD Magazine
Pic: MAD Magazine

But will it be? Will the burn marks left behind by the Note 7 vanish so quickly? Will people forget all the memes, jokes and funny videos that clogged their Facebook feed, and continue to be loyal to Samsung? Especially when there is no great alternative to the Note 7 within its ranks — the S7 Edge is already six months old while the next Samsung flagship is still on the horizon. Meanwhile, competition is stronger than ever before — the iPhone 7 has gotten rave reviews, while the Google Pixel is showing off its AI chops, and the LG V20 is trying to woo you with its dual screen and audiophile-grade sound. And yes, Samsung has to deal with legal challenges from customers — Reuters reports that over 525 Note 7 users have filed a lawsuit in Korea, seeking a compensation of 500,000 won (about Dh1,626) per person. Similar class action lawsuits will surely hit Samsung in the US and other parts of the world.

But the Harvard Business Review believes the Note 7 crisis will not hurt Samsung’s brand image in the long term — which, according to branding consultancy Interbrand, is currently estimated to be worth $51.8 billion. HBR lays down three reasons for this. In its home country, Samsung is seen as a source of national pride and consumers will be quicker to forgive it and give it a second chance. Second, the crisis is limited to a single product and essentially self-contained — users will look upon it as a one-off occurrence and quickly return to their pre-crisis patronage of the brand. And finally, Samsung has a large, loyal base of existing customers that insulate the brand — after all, as HBR points out, when given the choice of a refund or another Note 7 in the recall’s early days, 90 per cent of customers chose another Note 7. Even now, some Samsung “superfans” are holding on to their Note 7s despite the danger.

Samsung is certainly trying hard to keep the fans within the fold, by offering freebies such as the Gear VR headset to Note 7 owners and pre-bookers — provided they switch over to a S7. Customers in South Korea have it even better — Samsung has announced an upgrade programme where former Note 7 users will need to pay only half the price on a S7 or S7 Edge, and can later exchange it for the S8 or the Note 8. Meanwhile, the company has started hyping up the S8 —  Lee Jae-yong, who is expected to be the next boss of Samsung, revealed to the Wall Street Journal that the S8 will come toting better AI, a slicker design and an improved camera. And in the coming weeks, expect leaks and teasers about the S8 to start popping up all over the internet.

So where does Samsung go from here? The company certainly has the war chest to deal with courtroom dramas and for a marketing blitzkrieg that can nullify the negative publicity from the Note 7 disaster. Maybe in a few months, people would have indeed forgotten and forgiven Samsung, and will be gaping at their new S8. But Samsung knows it is on a tightrope walk here and the next few months are going to be critical. One misstep — or, horror of horrors, another exploding phone — and Samsung might end up in a hole so deep, that it will take not only a quarter but years to crawl out of it.