Case study – exploding batteries and the power of branding

In Q4 of last year, Samsung introduced their flagship (most expensive) mobile device to the market, the Note 7. Unfortunately the release was besieged with problems; reports emerged of the phone spontaneously combusting. It forced Samsung to issue a recall. However, this did not dampen consumer enthusiasm as people patiently waited for the revised product. Alas the ‘improved’ version continued with the self combusting theme leading to a final recall and the Note 7 being consigned to a permanent grave.

It was rumoured that Samsung wrote off approximately $5 billion for the whole affair. Last week Samsung announced their full year results; despite the write down, they recorded their highest profit jump in 3 years (operating profit of $7.92 billion)!

What we will look into today is the importance of the ‘brand’ that has allowed Samsung to be resilient enough to absorb such brutal blows. I recognise Samsung is bigger than just its mobile division but it still requires careful management for a significant event not to spill to other parts of the business.

Defining ‘brand value’ is a subject in itself. Financially a definition could be the value attributed to customers willing to pay more for your brand. In hard numbers Forbes ranks Samsung 11th with a ‘value’ of $36.1 billion, the link has a full explanation (fyi, Apple is way out ahead with a value of $154.1 billion…).

We’ve also previously described it as creating an emotion from the consumer. I’d say both go hand in hand. Most of us do not choose preferences being totally impartially.

Trying to understand/explain how Samsung built up the ‘Samsung’ brand is difficult. Remember, this is a conglomerate we’re talking about. We’re going to deal with the Note brand and the mobile division (called Samsung Electronic).

 Samsung manages several brands within the mobile sphere – product differentiation to cater for different markets as well as for all budgets. I think Samsung’s strategy is to show that you can get the same ‘experience’ regardless of price – materials, feel, UX is consistent enough. But there is of course marketing to make you want to aspire to the top end. On top of that they need to entice say people to switch – say from Apple.

Samsung introduced the Note brand in 2011 – a niche product to cater for a small number of people who wanted a bigger screen as well as a stylus – initially ridiculed as it harked back to ‘old’ tech from the early 2000s. But the product gained traction, in fact it overtook the ‘Galaxy S’ as their flagship and prompted their competitors to copy and create a new segment.

So a lot was riding on the note 7 release – not because it’s their best seller, but because it represents a flagship to show off the capability of the company and a peek into what filters down into the ‘lower’ brands. The report into its failure cited a design flaw in the case of the battery that further caused confusion due to two battery supplies. A $5 billion blow plus brand erosion, possibly killing off the Note brand too.

It however hasn’t dampened sales of other mobile products – an acceptance of the market this is an isolated incident? I’d argue that brand erosion will be minimal – in fact I think Samsung could introduce a Note 8 and be successful. How? People were actually unwilling to give up their Note 7s when recalled, there was an attachment to them that could not be fulfilled by other phones (despite the actual differences being minimal).

The Samsung brand is one of trust and reliability – I think people trust them to ensure they can fix any issues. Samsung have also been smart in being quick to carry an investigation to close the issue as well as being transparent to show they’re learning from their mistakes.

I can only think of Apple and Google that can carry that much credibility in tech. It’s not to say that other manufacturers make lesser quality products, but a sign of the brand value. Most companies seem in an arms race on product spec and out doing each other on the ‘best’. Maybe they should focus more on the intangibles to differentiate themselves.

I’ll finish on a cautionary note – the market will not be so forgiving towards Samsung if they suffer another mishap on this scale. Maybe transparency was their only option.

J

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