The Impact of Faulty Galaxy Note 7 Phones on Customers' Perception of the Brand

The Impact of Faulty Galaxy Note 7 Phones on Customers' Perception of the Brand

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Contents

Introduction        3

Research Objectives        4

Critical Literature Review        4

Research Methodology        7

Findings and Discussion        9

Data Analysis        10

Discussion of Findings        13

Conclusion and Recommendations        14

References        16

The Impact of Faulty Galaxy Note 7 Phones on Customers' Perception of the Brand

Introduction

Just two months after the official launch of the galaxy note seven, Samsung was forced to recall all sold units in the market after an outbreak of fires and explosions of the device worldwide. The recall resulted in mixed reactions from the public after efforts by the company to replace damaged devices failed as a result of the high and rising number of cases. According to Mullen and Thompson (2011), the recall cast doubt on the company’s product quality even among its loyal customer segments across the world. A significant portion of the market decided to switch to other brands. On the securities market, the company lost over ten billion dollars in value as a result of the recall and the company was forced to stop production of the brand entirely and launch an internal investigation into the cause of the glitches.

The recall could not have occurred at a worse time. The galaxy note seven was launched primarily as the company’s flagship brand in the year and was supposed to insulate the company from lost sales that would have been registered on customers who would have switched to Apple, the company’s arch-rival. Samsung had strategically planned the release of the Note 7 a month before the debut of Apple’s iPhone seven. As a result, the company would have been able to safeguard its market share and prevented its loyal customers from switching to Apple. The strategy backfired badly. Not only did the company lose a substantial portion of the luxury phone market but also suffered a damaged reputation that led to a decline in the sales of most of its other products. According to Harris (2016), losses sustained by the company were not exclusive to the Note seven brand, there was a general decline in the sales of most of the other brands of the company worldwide as a result of the fiasco. The company was forced to rethink its marketing strategy to maintain its brand value. The change is in line with crucial marketing theories including the marketing mix analysis, stakeholder mapping and the consumer decision making processes regarding brand features. This paper analyses the impact that the recall had on the brand value, market share and profits of the company.

Research Objectives

To determine the impact of the failure of the Galaxy Note 7 on Samsung’s brand value and market share.

Critical Literature Review

In manufacturing organizations product errors usually occur from time to time, and can impact on either a single or multiple product lines. To avoid lawsuits and loss of market share and brand value, organizations usually recall faulty products are the earliest possible time after detection.  In the recent past, some multinationals have been forced to recall defective products, including Toyota and General Motors. According to Chen, et al. (2009), product failures and the resulting recalls usually result in substantial damage to brand values developed over long periods of time, and damage the reputation of the affected companies significantly. Different enterprises typically react differently to faulty products. Common strategies employed by firms include complete denial of fault by a manufacturer, recalls forced by the legal system and voluntary recalls (Hong et al., 2003). It is usually assumed that proactiveness regarding recalls may to some extent reduce the damage suffered by a company that selects voluntary recalls as a mitigation strategy, making it the most popular response adopted by companies that have experienced from faulty products recently.

The effectiveness of product recalls as a means of reducing the damage suffered by a brand as a result of faulty products is still not substantial. According to studies conducted by Niraj and Madan (2000) even in cases where recalls were made quite early after detection, shareholders in the automobile industry still lost considerably in securities value and the market share of the affected company greatly diminished. Organizations that selected a passive strategy in responding to faulty products also lost significantly in both brand value and market share. According to Souiden (2009), product recalls usually result in significant damage to the brand value of companies that fail to own up in time for faults in their products.

Studies have also established a link between product faults and recalls and customer purchasing behavior. According to Hsieh and Lee (2014), product recalls as a result of faulty products usually form part of the factors that affect customer purchase decisions. Consumers who are familiar with a particular firm are less likely to change their loyalty to a specific brand after a recall, but consumers who are relatively new to a particular brand that is found to be faulty are more likely to switch to a different brand (Bortoli & Freund, 2017). Brands with a loyal customer base were also inclined to undertake successful new product trials after a recall of a faulty product, unlike brands without less loyal customers. These studies show that customers may change their product preferences after a product recall.

According to Bortoli and Freund (2017), a consumer’s purchase decision is basically determined by the level of their involvement with a product. The level of consumer involvement with a product determines how long they take to make a purchase decision. In cases of high engagement, consumers will gather all available information regarding a product, and will carefully evaluate their choices before making a purchase decision. Low involvement results in consumers seeking quite less information about a product before making a purchase decision, and they may only consider the price or overall reputation of the brand. Intermediate involvement leads consumers to weigh considerably fewer factors than high involvement but more than consumers with low involvement.