Business·Analysis

Galaxy Note 7 fire debacle couldn't come at a worse time for Samsung

Galaxy Note 7 was supposed to compete with Apple's iPhone 7 and 7 Plus. Now it is literally no contest.

World's top smartphone maker turning off loyal customers, missing chance to take advantage of Apple missteps

This Oct. 7 photo provided by Andrew Zuis, of Farmington, Minn., shows the replacement Samsung Galaxy Note 7 phone belonging to his 13-year-old daughter Abby, that melted in her hand earlier in the day. (Andrew Zuis/via Associated Press)

There is a pervasive mind set in the cellphone business.You're either iOs or Android. You might make the switch once. You'll rarely go back.

There are good reasons for this line of thinking that go beyond blind brand loyalty. 

Switching from Android to Apple's iOS means getting used to the peculiarities of a different operating system.

It can mean having to deal with migrating apps and pictures and contacts and ringtones. 

Some things work on one system that don't quite work the same on the other. It's a hassle. So people generally don't do it.

Which is why Samsung might want to pay particular attention to Paige Liboiron and her thoughts on the whole Galaxy Note 7 fire fiasco.  

Liboiron is an early childhood educator in Regina and formerly a big fan of her Galaxy Note 7. 

Paige Liboiron says Samsung hasn't done enough to compensate her and other owners for the problems with her Galaxy Note 7 (Paige Liboiron/Facebook)

When Samsung recalled her first phone, she says she waited a month for a new one. 

She got her replacement just last week. 

"And now we're supposed to power them down and return them," she said.

"I work in a daycare so sometimes [it] can be hard to get away for a bit. The fact that it's being recalled again [and] I need to go down and get a new phone and go through a bunch of stuff again and switch everything over again is really inconvenient and frustrating," Liboiron said. "It's definitely changed my opinion on Samsung.

It's definitely changed my opinion on Samsung.- Paige Liboiron , Samsung Galaxy Note 7 owner

"I do love the Android phones and have always sworn I won't go back to Apple, but who knows after this. I've got a lot of thinking to do."

Missed opportunity

Samsung is not Volkswagen. It didn't hide the fact that its phones were flammable. It dealt with the issue head on, originally offering a replacement and then, when those too started to spontaneously combust, scrapping the model altogether.

But there are two problems for Samsung — one beyond its control and one of its own creation.

First, the timing of this issue couldn't come at a worse time for the Korean conglomerate.

The company was riding high, already the world leader in smartphone sales both by volume and market share, according to International Data Corporation; in the second quarter of 2016 Samsung had year-over-year sales growth of 7.7 per cent.

Apple, on the other hand, had a 15 per cent decline.

Apple's latest iPhone iterations, the 7 and 7 Plus, also received mixed reviews, with more than a few users very unhappy over the loss of the headphone jack. Apple declined to release initial sales figures for the new models, leading many to conclude they weren't good.  

Meanwhile, other than the whole catching-on-fire thing, Samsung's Galaxy Note 7 — which was supposed to compete directly with iPhone 7 and 7 Plus — got rave reviews.

So this was Samsung's chance to put its foot on Apple's neck. Instead, Samsung was blown up by its own petard.

Now its stock has tanked, Apple stock is soaring, and people like Paige Liboiron are openly thinking about defecting. 

Which brings us to the problem that is Samsung's own creation.

Is that all there is?

Samsung, while being upfront and quick to offer a new device, has done nothing beyond that for its customers.

"They will have to give the consumer something more than just replacement, something to compensate them for some of their time and inconvenience that they're going through," says Queen's University business professor Ken Wong.

"Then they're going to have to do something to make certain that the rest of the Samsung line isn't contaminated by this experience, because return business, repeat business in cellphones these days, is absolutely vital," says Wong

It wouldn't take much.

"It would be nice if they maybe gave us a $100 gift card to the phone company of our choice to go towards a new phone or even our bill," says Liboiron.

Worldwide, Samsung has recalled 2.5 million phones. If the company were to take Liboiron's advice, at $100 a pop — a fraction of what customers paid for one of Samsung's (unlocked) fire-prone phones — that would cost Samsung $250 million.

Think about that.  

The fires have already cost Samsung $14 billion US in market value.

That figure doesn't include the loss of future sales of the Galaxy Note 7.

And it also doesn't include the intrinsic cost of the loss of loyalty, which could actually see customers switching over to Samsung's most bitter rival.

When you take all that into consideration, $250 million really doesn't seem like very much at all.

About the Author

Aaron Saltzman

Senior Reporter, Consumer Affairs

Aaron Saltzman is CBC's Senior Business Reporter. Tips/Story ideas always welcome. aaron.saltzman@cbc.ca twitter.com/cbcsaltzman

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