Organizational Strategy / Product Development / Technology

Exploding Phones and the Reality of Recalling Products

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In the fast-paced economy of the twenty-first century, no matter which industry, great pressure is exerted on research and development (R&D) and innovation departments to push bigger and better products in shorter development cycles to either outpace competitors or simply maintain relevance and market share amongst fickle consumers. In a crowded space such as smartphones, the results of this can be disastrous, as seen by last week’s massive recall of the Samsung Galaxy Note 7.

“With battery cell defects in some of our Note 7 phones, we did not meet the standard of excellence that you expect and deserve. For that, we apologize, especially to those of you who were personally affected by this,” said Tim Baxter, president of Samsung Electronics America, in a statement hoping to alleviate public fears after the smartphones were found to overheat and catch fire without any indication. To date, there have been ninety-two reports of the batteries overheating in the U.S., including twenty-six reports of burns and fifty-five reports of property damage according to the Consumer Product Safety Commission (CPSC). These include fires in cars and in a garage to a man in Florida suing the company as he endured second-degree burns on his leg and thumb from the device being in his pocket. The Federal Aviation Administration (FAA) has also issued warnings that all Note 7s must be switched off and not plugged into any outlets onboard any flights.
This is clearly a bad place to be for the world’s largest electronics manufacturer. The Note 7 was supposed to be the newest iteration of its flagship device, but as the chart below demonstrates, it doesn’t seem like it will hit the adoption numbers Samsung’s executives hoped for unless they can perform a public relations public relations miracle. Yet, what is more shocking is the terrible execution of Samsung’s recall plan. With no clear directive, users were initially issued a “voluntary recall notice” by the carriers they bought their phones from and not made fully aware of the consequences that could happen if they chose not to exchange their phone. It was only when the CPSC as a regulatory body issued a formal statement that users must “contact the wireless carrier, retail outlet or Samsung.com where you purchased your device to receive free of charge a new Galaxy Note7 with a different battery, a refund or a new replacement device.” were the real implications of keeping a Note 7 made officially public.

To make matters worse, the company ran out of supply for the corrected version of the phone, therefore making it very slow for buyers to exchange the phone if they even wanted to. With 2.5 million units sold prior to the issuance of the exchange, Samsung, as of 15th September, had only replaced about 130,000 units.

To put into context the adverse impacts of such mismanagement, the bumpy recall is said to have wiped as much as $14 billion off its market value, and has almost handed victory to Apple, as they released their new range of smartphones this week, as users who were ensured which phone to buy are now either forced to wait or go with Apple. The inefficiencies in handling the recall have also made regulatory bodies unsure of how to penalize Samsung, a South Korean company that account for almost one-fifth of that country’s exports.

Such a wide-scale recall isn’t unprecedented in recent years, as the Samsung event brings to mind the 2009 recall of 2.3 million Toyota vehicles with faulty accelerator pedals and the 2010 recall of 1 million Infantino baby slings after they were linked to the suffocation of 3 infants. What is unprecedented is the viral effect of Samsung failures in a market that relies extensively on public relations and marketing. Most recalls take place silently with the company reaching out through all channels of purchase and making sure that each product has been replaced or returned. In the case of the Note 7 however, the continued miscommunication has made many people frustrated, as in today’s world a smartphone is almost a necessity. While there are many lessons to be drawn for companies, the essential reminder is that one must be always be honest with the consumer and regulators while taking ownership of mistakes that may have occurred during manufacturing to ensure such failures don’t occur again.

 

Sources:

http://www.nytimes.com/2016/09/16/business/samsung-galaxy-note-recall.html?_r=0

http://www.wsj.com/articles/samsungs-management-of-recall-wounds-companys-image-1473928872

http://www.cnbc.com/2016/09/09/cpsc-urges-samsung-galaxy-note-7-owners-to-turn-them-off-and-stop-using-them.html

http://www.wsj.com/articles/u-s-consumer-safety-agency-plans-recall-of-samsung-phone-1473968157

http://www.cnbc.com/2016/09/15/consumer-safety-agency-plans-recall-of-samsung-galaxy-note-7-dj-citing-official.html

http://www.reuters.com/finance/stocks/005930.KS/key-developments?pn=2

http://www.theverge.com/2016/9/16/12948988/samsung-sued-exploding-note-7-injuries

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