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Samsung Galaxy Note7 Project

Trang Phan

Operations Management – Professor Ellen Kraft

Stockton University
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Abstract

The purpose of the following report is to gain a better understanding of the recent mobile

phone industry scandal involving the Samsung Galaxy Note7. Batteries in these devices suffer

from a defect causing overheating and explosions. This report will cover the history of the

company, from the beginning of the business in 1938 to the modern days and examine

documentation relate to the exploding incidents of the Note7. Furthermore, the report reviews

the most recent financial reports from the South Korean company to analyze the impact of this

event on the company’s financial and brand image. The report studies how the company reacted

to the exploding Note7 situation and how the problem is related to the ten-operations

management decision making focusing specifically on the company’s supply chain management.

Finally, the report includes alternative solutions that Samsung Electronics Co. Ltd could have

used to react and recover from this incident.

Keywords: (Samsung Galaxy Note7; Overheating and exploding; Supply chain

management; Product design; Customers loyalty)

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Samsung Galaxy Note7 Project

Introduction

Innovation and creativity are the gifts human beings have acquired that make them

superior to other species. From hunting to agriculture to transportation, creativity and innovation

are part of every step in human evolution. Communication is not an exception. Humans started

to communicate with each other through smoke signals, then messengers, then letters and

telegrams. This endless creativity has allowed humans to developed technology which led to the

creation of the phone, and eventually the mobile phone. Nowadays, the mobile phone industry is

one of the fastest growing industries within the technology sphere. As one of the world’s biggest

smartphone makers, Samsung consistently invests and develops new phone models to compete in

the market. When Samsung first introduced its latest product – the Samsung Galaxy Note7, the

phone instantly broke to the front of the public eye, as the phone was considered one of the best

phones to date.
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Background

History of Samsung Electronics Co. Ltd.

Samsung is a South Korean company that offers a variety of goods and services around

the world including information and communications technology, entertainment, consumer

electronics, and medical equipment. Samsung was found by Lee Byung-Chul in 1938 as an

exporter of fish, vegetables and fruits from South Korea to other countries such as China and

Japan. From 1958 to 1969, Samsung began to expand into other industries including food

procession, chemical development, insurance, retail and shipbuilding. When Lee Byung-Chul

died in 1987, his son, Lee Kun-hee, took over the company and established four distinct

business groups – Samsung Electronics Co. Ltd, Shinsegae Department Co., Ltd., CJ

Corporation and the Hansol Group. Samsung mainly produces televisions, mobile phones,

radios and computer equipment. As Lee Kun-Hee took control of the business, Samsung started

expanding globally stablishing factories and Samsung Center locations in the U.S., Germany,

Spain, Britain, and China with roughly 319,000 employees worldwide. As the years went by,

Samsung has become one of the world’s largest electronics and mobile phone manufacturers by

revenue, overtaking the Nokia Corporation which has been the mobile phone market leader since

1988. Samsung is considered to be one of the most powerful companies in the world has a large

influence over South Korea’s economy, politics, media and culture. Samsung set a specific

vision, mission and goal as the company continues to expand. The vision for the new decade is

to “inspire the world, create the future” while its mission is to “inspire its communities by

leveraging Samsung’s three key strengths: technology, innovative products, and creative

solutions.” The company has set a specific goal for 2020 to reach annual sales of US$400 billion,
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and to remain as No.1 company in global IT industry, and to place the company in top 10 world’s

best workplace.

Samsung Galaxy Note7.

Among smart phone manufacturers, Samsung is considered the leader of the smart

phones industry. As a result, new products from Samsung always receive elevated levels of

public attention. Recently, Samsung unveiled a new member of Galaxy Series family – the

Samsung Galaxy Note7. It was widely considered to be one of the best phones ever created and

carried Samsung’s finest design, speed and features. This included a beautiful 5.7-inch screen

size with Super AMOLED and edge-style curved display, impressive 12-megapixel camera,

water-resistant, inspiring S-Pen tools and a big battery that lasted for hours. Unfortunately, it was

found that dozens of the big batteries were prone to overheated while charging causing them to

burst into flames. This defect led Samsung into one the darkest eras the company has seen.

Overheating Incidents of Other Phones in the Past

The Note7 is not the first Samsung phone to suffer from overheating issues. Over the

past few years, owners of the Samsung Galaxy Series such as Samsung Galaxy S2, Tab 2, Tab 3,

S3, S4 Active, S5, S6, S6 Edge, S7 and S7 edge, complained that their smartphones overheated

while charging and drained the battery quickly. Along with the faulty batteries, several other

reasons such as software errors, SD card and faults in the apps were blamed from the battery

issues. For example, according to a user on Reddit, ‘welcometowoodbury’, the issues only

appeared after they updated their applications or the phone’s software. After investigation, one

of the applications that served phones virtual reality features, called Oculus, has been blamed as

one of the main reason for poor battery performance and overheating of the phone.
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Documentation of Events

Timeline of the Events.

On August 2, Samsung revealed that Galaxy Note7 which quickly attracted millions of

user and media attention due to its new and impressive features. On August 19, the Galaxy

Note7 was officially sold in several markets, including the United States and South Korea.

The first photo of an exploded Note7 appeared on the internet on August 24 when a user named

‘Mr. Ni 666666’ posted a series of photos to the famous Chinese social media site – Baidu. The

user claimed that a Galaxy Note7 had exploded while charging on August 23. He also stated he

heard a sudden sound like a bomb before discovering his phone was on fire. Here is one of the

pictures the Note7 user posted on Baidu:

From this picture, it is clearly visible that the

cable he used to charge the phone was a black

cable, while the official cable from Samsung is

white. Many people argued that he might have

used a third-party micro USB charger instead

of the one supplied by Samsung which could

have caused the explosion. At that moment,

Samsung had not made any official comment as well as held any investigation into the exploding

incident.

A few days later, Ariel Gonzalez uploaded a video on YouTube on August 29, showing a

burnt and damaged screen of a Galaxy Note7. He stated "I came home after work, put it to

charge for a little bit before I had class, went to put it on my waist and it caught fire." He also

added that his phone was brand new and was not even two weeks old at the time of the incident.
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On August 30, another Galaxy Note7 user posted a few photos of a burnt handset, which

he said exploded while charging. The post, was published on Kakao Story – one of the most

popular social media applications in South Korea, was deleted as the pictures reported to look

similar to the photos of a burnt Galaxy Note7 that was previously posted. Samsung had verified

the facts afterward, according to Business Korea.

Shortly after the first photos of the exploded devices appeared on the internet, there were

a total of five “exploding while charging the Note7 phone” claims in South Korea according to

the Korean news agency, Yonhap News. These claims had led to a delay in shipments of the

Note7 phones to South Korea department stores on the 31st of August in favor of investigating

the claims.

September 2, Samsung issued an apology and announced a massive “voluntary global

recall” of 2.5 million Note7 phones due to battery flaws and the sales of the phones had been

stopped in South Korea. Samsung Mobile Communication President, Koh Dong-Jin, held a

press conference explaining the Note7 shipment delays and stating that “as of September 1st, a

total of 35 claims were registered with Samsung's service centers at home and abroad. Only 24

units on a scale of 1 million were affected by the battery problem.” The president of Samsung

Electronics America, Tim Baxter, said that “Samsung is taking a proactive approach to address

customer needs around the Note7,” and encouraged customers to participate in their product

exchange program to exchange their current Note7 for a new Galaxy Note7 with an updated

battery or for a Galaxy S7 or Galaxy S7 Edge. Yonhap News from South Korea also stated that

Samsung was in discussion with other carriers in the United States such as Verizon Wireless,

AT&T, T-Mobile, Sprint, BestBuy and Amazon in order to make their product exchange

program available to meet the safety standards and satisfaction of Samsung customers.
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Just a few days after the recall, Nathan Dornacher, a resident in St. Petersburg, left his

Note7 charging in his Jeep Grand Cherokee. Moments later, the jeep was engulfed in flames

after the phone exploded. In light of exploding incidents, on September 8, the U.S. Federal

Aviation Administration (FAA) released a statement on the recent Samsung Galaxy Note7

devices to advise passengers “not to turn on or charge these devices on board any aircraft and

not to stow them in any checked baggage.” Following up with the U.S. FAA, numerous of

worldwide airlines also recommended the Note7 owners not to turn on or charge the phone while

on board any plane due to the safety of other passengers.

According to the Samsung Electronics America website, in the U.S. market, Samsung has

received 92 reports of overheating batteries with 26 reports of burns and 55 reports of property

damage. As a result, on September 9, the U.S. Consumer Product Safety Commission (CPSC)

urged Note7 users to stop using the phone and issued a formal recall on September 15th. Elliot

Kaye, chairman of the U.S. CPSC, said “because this product presents such a serious fire hazard,

I am urging all consumers […] to take advantage of this recall right away.” Some university

within the U.S. issued statements banning the phone on campus. Stockton University became

the first higher institutions to ban the use of Note7. Pedro Santana, a Stockton University Dean

of Students stated in an email sent to all the students on September 12 that the school “wanted to

take a proactive measure and assure that the environment is safe, and free from a potential fire”

as Stockton University has about “3,000 students that live on campus and anywhere from 10,000

individuals that come on campus each day.”

Meanwhile, Samsung announced the new, non-exploding version of the Note7 phone

would be available in the U.S for exchange on Wednesday, September 21 and it would begin

resuming the sale of Samsung Galaxy Note7 with an update battery on September 28 in South
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Korea. The company also stated that due to the identical look of the new and old Note7 phone,

they decided to change the battery indicator light on new Note7 to green instead of gray so that

customers and officials could identified the difference.

At this point Samsung thought they had identified the correct issues causing the Note7

phones to overheated and catch on fire. However, some users of the new Note7 began reporting

that the replacement phones were still overheating and in some cases releasing smoke.

On September 23rd, CNN reported that some customers in South Korea who received the

replacement phone had reported to YTN – a TV network in the country, that the phone’s battery

was still overheating and drained too quickly after using. A Samsung spokeswoman confirmed

to CNNMoney that the company was aware of these complaints; however, the issues had

occurred because of other production issues unrelated to the batteries.

Despite statements made by Samsung that the new batteries were safe, on October 5,

Southwest Airlines confirmed one of its planes, flying from Louisville to Baltimore, had to

conduct an emergency evacuation before takeoff due to a report of “smoke emitting from an

electronic device.” It was found that the faulty device was a replacement Note7 phone from

Samsung. Numerous claims regrading to the replacement Note7 batteries also had been made.

CNET News collected some of the claims originating from within the U.S. market, which are

listed below:

• October 5 – Southwest Airlines plane, scheduled to fly from Louisville to

Baltimore, evacuated because of a smoking Samsung device.

• October 7 – A Minnesota teenager stated she felt a “weird, burning sensation” in her

thumb while holding her Galaxy Note7.

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• October 8 – A Kentucky man was hospitalized after he inhaled smoke from the burnt

replacement Galaxy Note7 and investigators pointed Samsung out as they tried to cover up

this incident. At the same day, the U.S. Consumer Product Safety Commission said Samsung

might have to hold a second recall of the replacement Galaxy Note7 phones. In the same

day, all U.S. carriers allow customers to exchange the replacement Note7 phone for any other

phone in stores.

• October 9 – Two men from Virginia and Texas reported their replacement phones had

caught fire. Within the same day, AT&T suspended exchanges of Samsung's Galaxy Note7

to ensure the safety of its customers.

(source: CNET)

From the information gathered by CNET, it was clear that Samsung had not identified the

correct problem. As a result of these new incidents, on October 10th, Samsung asked its carriers

to stop sales and exchanged of Galaxy Note7. The company immediately issued a second recall

for exchanged phones on the October 11th and halted production of its newest Galaxy family

member – the Samsung Galaxy Note7 in order to further investigate. The company also

attempted to make it up to customers by offering a full refund and a $100 credit for those who

purchase another Samsung phone.

A month after the second recall, Samsung America began an apology campaign for its

Galaxy Note7. The company ran an apology letter in three major U.S. newspapers, The Wall

Street Journal, The New York Times, and The Washington Post. The letter indicates that “An

important tenet of our mission is to offer best-in-class safety and quality. Recently, we fell short

on this promise. For this we are truly sorry.” The letter further states that the company will re-

examine every aspects of the phone and find the right answer. On December 9, Samsung
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released its latest announcement that the company decided to kill off the entire product line, and

would remotely disable any remaining phones that have not yet returned on December 19, 2016.

Impacts of the incident to Samsung

December 9th is the date that Samsung announced the death of the Galaxy Note7. This

has impacted the financial health of the company as well as the image of the brand itself.

Financial Impact

Stock Price

The Samsung Galaxy product line holds about half of Samsung Electronics’ business, so

the impact of the Note7 event on the company stock price notable. There was a large drop in the

stock price, more than 10% over 2 days immediately after the recall. As of September 9th,

Samsung’s closing stock price fell 6.3% to KRW1,575,000 (~US$1,329.73) and 265.17K trading

volume, reflects a lost off KRW15.9 trillion (~US$14.3 billion) of its market value. Monday,

September 12th, the company opened up with the stock price of KRW1,490,000 and closed up

with KRW1,456,000, the common shares of the company jumped down 7% with 529.99K

trading volume. After killing off the Note7 line on December 9th, Samsung’s stock price fell 8%

since the start of the week, wiping about US$17 billion off the company’s market value and

pulling back the South Korean market 1.2%.

Sales of the Phone

According to the Korea Herald, Samsung was expected to reach 12 million Note7 phones

by the end of 2016, or almost double the 9 million Note5 phones it shipped last year. Before the

two recalls, the company announced that it sold 400,000 units of the phone within the first week

of releasing the Note7. Samsung also stated that demand for the phone had surpassed the supply.

Though, as of September 30, after the nightmare of the exploding phones, the company was able
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to sell about 2.5 million Galaxy Note7 worldwide. So far, 93% of all recalled Galaxy Note7

devices have returned and the company is looking for more returned phones coming as soon as

the remaining phones are remotely disabled starting on December 19.

Quarterly Result

On October 27th, 2016, Samsung Electronics released its financial results for the third

quarter ending in September 2016. It was stated that the revenue for the third quarter was KRW

47.82 trillion (approximately US$42.1 billion), down about 6.1% from Q2 and down 7.5% from

Q3 of 2015. The operating profit for the third quarter of 2016 was KRW 5.20 trillion

(approximately US$4.6 billion), dropped 29.7% from 2015. The declines in revenue and profits

were primarily caused by the Note7. The results of the third quarter was also marked as the

lowest results in two years. (source: Samsung Electronics, 2016)

For the fourth quarter of 2016, it looks like Samsung might still face a loss in revenue due

to the cancelation of Note7 production. However, the company wants to look at the positive side

of the financial results for third quarter of 2016. Samsung revealed that the company expected a

slight improvement in year over year earning. “The mobile business expects a recovery in its

earnings to a similar level with that of the fourth quarter of 2015, led by solid sales of the Galaxy

S7 and S7 edge,” the company said. From this statement, the company might still be able to

migrate the expected sales from the Galaxy Note7 to the Galaxy S7 and S7 edge.

Brand Image Impact

Beside the impact on the company’s financial standing, the overheating and exploding

incidents also impact the company’s brand image as lawsuits are files against the company and

its customers migrate to other smart phone brands.

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Lawsuit

Three former owners of the Galaxy Note7 in the U.S. joined together to file a lawsuit and

take the company to court. The lawsuit, currently awaiting approval from a judge, does not

involved damages or injuries caused by overheating and exploding phone. The three plaintiffs,

John Waudby, Robert Spuntak and Mohamad Ibrahim, are suing Samsung for failing to provide

the plaintiffs replacement smartphone for several weeks while still charging them for the

inaccessible device and phone plans. According to the Tech Times, Richard McCune, one of the

lawyers to work on the case, said that “the loss that the case is focused on is the continuing

payments for data and voice plans.”

Not only did the company get sued for the Note7, but the company is also defending

itself in court for issues related to the Galaxy S6 Active. The lawsuit was filed by Brandon

Covert and Jennifer Covert alleging a failure to fix the problem, recall the phone or alert the

consumer of the potential danger from the phone. From the lawsuit, it is stated that on August

2nd, around 2am, Covert’s family were asleep when a “loud explosion, resembling a gunshot” hit

the house. Covert’s family woke up as they saw Brandon’s Galaxy S6 Active was on fire and

“shooting out flames four to five inches high and quickly filling the room with smoke.” The

Covert family filed a complaint suggesting that Samsung “chose to conceal the problem from

public” even though they knew their products might overheat and explode while charging. The

Coverts’ lawsuit also includes more than 30 consumer reports going all the way back to 2011 and

it raises a number of concerns about other Samsung models and the possibility of catching fire.

Customers Loyalty

Indicated in the apology issued by Samsung, a tenet of the company mission is to “offer

best-in-class safety and quality” and most of the company’s customers choose Samsung products
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because of the safety and quality Samsung promise to provide. However, after all the incidents

regarding the Note7 phone, many customers have raised questions about the principle of the

company mission.

On September 12th, a few days after the recall of the Galaxy Note7, CNET held a Twitter

poll to see whether or not Samsung might loss customers to Apple due to its exploding incident.

The results revealed that 30.5% of the Galaxy Note7 owners would like to participate in the

Samsung’s Product Exchange Program. However, 48.5% of the phone owners said they would

rather switch to the new iPhone 7 from Apple rather than exchange for another Note7. 11.5% of

Samsung customers chose to switch to other smartphone producers instead of getting a

replacement phone from Samsung and 9.5% of respondents stated they chose to keep the phone

and refuse to participate in exchanging the phone. The poll had a total of 3,329 participations,

though CNET could not be sure that all the responses were made by legitimate Note7 owners.

However, this poll indicates that Samsung did lose some of its customers to other mobile phone

producers as a results of the Note7 issues.

Solutions to the Problem

How Samsung Solved the Problem

September 2016 had marked as a very tough month for the South Korean company,

Samsung Electronics Co. Ltd as the company had to issue two recall of the exploding phone

within a month. The Galaxy Note7 recall is one of the industry’s largest in history, and

obviously, it is a major setback for Samsung. It is a setback, not only because Samsung create an

overheating device that led to explosion, but it is also because of how it handled the situation

with its customers, recalling, investigating, reselling and discontinuing the Galaxy Note7.
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Problem in Terms of the Phone

Due to all the reported cases of Galaxy Note7 phones overheated and catching on fire,

Samsung was forced to investigate the core issues of the problem. Before the first recall, the

Galaxy Note7 that sold in China were reported to have no signs of overheating or catching on

fire due to a different battery supplier used in the Chinese model. This news suggested that the

cause of the explosion was directly related to the battery of the phone, and led Samsung to

conduct a study in its battery supply chain. Before the incidents, Samsung claimed to have an

excellent supply chain management. The company has about 130 suppliers worldwide and these

suppliers have undergone strict evaluations to assure they met the required certification of

quality, productivity and policies. The selection for the company’s suppliers is carried out by an

independent supplier management and evaluation team, whose members are selected from

different departments within the company such as purchasing, quality or technology departments.

Each of Samsung’s supplier will cover a portion of different categories. In this case, Samsung

SDI and Amperex Technology Ltd had been the main batteries suppliers of Samsung’s products.

According to the Reuters, Samsung SDI was the dominant batteries supplier for the Note7,

supplied about “70 percent of the batteries globally” while the Chinese batteries supplier,

Amperex Technology Ltd (ATL), provided “around a third, with a focus especially in China.”

After looking into the supply chain and detecting a possible problem in the batteries, on

September 2nd, the company stopped the sales of the phone, issued the first voluntary recall,

asserted that they conducted a detailed examination and found a battery cell issue, and

volunteered to replace the user’s current phone with a new one within a few weeks. The new

phone was reported by Reuters to have the ATL’s batteries, which were considered safe for the

Note7. When the replaced batteries continued to overheat burn or release smoke, Samsung once
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again recalled the phones to ensure the safety of its customer since the company had not found

the core issue for the phones dysfunction. Until now, Samsung has yet to provide a concrete

reason regarding what caused the phone to overheat and explode. The company issued several

apologize letters written by different Presidents and C-level executives of Samsung’s center

throughout the world, stating that “a careful Note7 investigation is underway and findings will be

shared when analysis is complete,” and the process will be performed by the best independent

technical experts in the world.

Experts have suggested the error might come from the design of the batteries. Samsung

decided to make the battery thinner by removing the thickness margins between the positive and

negative layers of the battery. Making the battery thinner increased the chance of positive and

negative elements touching, creating a spark, or making the phone overheated and explode. Not

only did the problem likely originate from the design of the battery, but experts have indicated

the design of the phone itself is also a problem. Samsung wanted to include most of the advance

features of a computer into a small phone with thinner and lighter size, so that the phone would

appear to be one of a kind among other phones coming out in the year. In order to do that,

Samsung engineers needed to carefully calculate and balance the risk of “a super aggressive

manufacturing process to maximize capacity, while attempting to protect it internally,” according

to Instrumental’s engineers. At this point, Samsung might have gone beyond its abilities to block

Apple’s sales of the new iPhone 7, and this action might have made Samsung rush a bit in the

design calculation, and also rushed suppliers to meet demands resulting in less quality assurance.

Problem in Terms of Customers

Not only did the Galaxy Note7 phones exploding phones make people angry, but

Samsung’s irresponsible handling the problem also angered many consumers. For example,
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when the first picture of an exploding surface appeared on the internet, the company did not

made any statements on its website or any other press conferences regarding the rumors around

device. This action raised a lot of concerns among the users in regards to the safety of the phone

when using and charging. The company released its explanations on the phone’s situation only

after it received a number of complaints and the exploding phones became a hot topic. In

general, from the beginning of the incidents, Samsung showed that it chose to stay silent after the

first report of the “fire maker” device.

Even when the phone was reported to be dangerous to customers, Samsung still tried to

minimize the number of claims spreading through the internet. The New York Times wrote

about how Samsung’s Uneven Handling of Galaxy Note7 Fires Angers Chinese. a user named

Zhang Sitong was using the Note7 to save his friend’s phone number when it stated to “vibrate

and smoke.” Zhang immediately told his friend to record a video as a proof of the problem with

the phone in China. The news later on reported two employees from Samsung China showed up

and “offered a new Note7 with $900 in compensation” to the victim. Zhang said the reason he

bought this phone was because the company said there was no problem with it. “This is an issue

of deception. They are cheating Chinese consumers,” he added. After received the offer, Zhang

was angry and refused to take the money.

That was not the first time when the company was put under fire for remaining silent and

attempting to cover up an incident. Michael Klering of Kentucky told a local news station –

WKYT that he woke up to a hissing sound in the bedroom and saw the room filled with smoke

from his unplugged phone on October 8th. This event made him feel sick and rush to the

Emergency Room. Klering contacted Samsung, and was compensated for the faulty device,

however, Klering then received a message that was not meant for him. The message intended for
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one of Samsung’s representatives, says “I can try and slow him down if we think it will matter, or

we just let him do what he keeps threatening to do and see if he does it.” The message was a

trigger for Klering to contact the local news station to report Samsung’s action. Klering also

stated he only had his replacement phone for a little more than a week before it caught on fire.

Not only ignoring and trying to cover up its mess, Samsung was also accused of not

initially delivering refunds to customers after the first recall. The Verge published a news citing

an email from Samsung to one user that described the refund procedure when the customers

chose to have their money back. The email said

“One of the issues happening is that customers are receiving emails with their email

address, but a different order number. If this happens, please refer to your original

confirmation order number to attempt the sign up, and this should solve that issue.

Customers were finding when they tried the original number, it matched the email and

the order would go through correctly... As this is going to another company, when these

exchanges are submitted, we cannot check the status of them for you until they submit

you an order number for the new phone or tracking information. We have limited

information on a lot of the process at this time. I hope this information is helpful and

resolves the issues soon.”

This also means that if the customers purchased the phone through a third party such as their

carriers or Amazon, they will have to deal with the third party on the recall and refund instead of

Samsung. This would make the refund process a little bit more complicated and it take a lot time

and effort in order to get the money back directly from Samsung for some customers.

After all, Samsung had to hold a second global recall of the Galaxy Note7 and provided a

better refund and exchange program to the users of the phone. The customers now can return the
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phone for a refund at the point of purchase or get $100 in bill credits if they exchange the phone

for another Samsung device, and get $25 if they exchange it for a device from another brand.

Personal Opinion on Samsung’s action

On December 9th, Samsung Electronics Co. Ltd announced the death of the Galaxy

Note7. It was a hard move for Samsung to kill its own child; however, this could be the best way

for Samsung to pull itself off the hook. Samsung emphasizes its quality through its processes

and products to ensures the best quality outcomes for customers. Throughout time, Samsung has

claimed to lead the industry in quality standards when the company received ISO 9001:9002,

ISO/TS 16949, QC 080000 and Green Partnership certification for its products. Though, none of

these certifications can help stop the company from losing money and customers with the events

around Note7. Personally, I agree with the decision to kill off the Note7 line for two reasons

regarding the phone and to the customers.

First, Samsung was at fault for putting a potentially dangerous device out in market.

Second, Samsung was completely wrong when they tried to cover up the event by staying silent

and arrange uneven payment to the customers. This caused anger in customer as the company

did not respect customer needs nor listen to their voices and complaints. The problem of the

Note7 showed a big hole in how Samsung is operating. The phone was released a year after the

successful sales of the Galaxy Note5 in order to compete with one of its biggest rivals, Apple

Inc. However, is one year enough to build a new phone that could help creating “big ideas”?

Obviously, it took Samsung a lot of time to come up with the idea of the phone and designing the

look. Yet, the longest part of the whole process is to calculate the balance between each

individual part of the phone, which Samsung failed to do so. The company could have taken its

time calculating everything carefully before releasing the phone, and the terrible events would
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never have happened. Even with the replaced version of the phone, Samsung also showed that

they had not taken the problem seriously as the replacement phone still experienced overheating

and in some cases, exploding right in front of users. At that point, the only thing Samsung could

do was recall the phone and spending a quality amount of time investigating the cause of the

overheating and explosion.

If I were part of the Samsung company, from the beginning, I would have invested more

time in looking for the problem as well as wrote an apology letter and arranged a refund program

directly to the customers who had their phone explode. When the first photo of the exploding

phone surfaced on the internet, I would immediately contact the owner of the burnt phone to see

what actually happened, release a statement regarding to the safety of the phone and an apology

is needed. If the problem kept happening, I would have halted sales of the phone, recommend

the customers to report and return the phone and provide a backup phone with a payment of a

month for their carriers and hold a press conference announcing the company’s next steps. By

halting the sales and asking for the return of the damaged Note7, I could sort out where the

phone was made, who were the suppliers of what parts of the phone, and what parts of the phone

might be causing the problem. I could also calculate how many phones had problems, then

predict how many more would experience overheating and exploding and issue a recall if

necessary. During the investigation, I would set up a hotline just for all the questions regarding

the phone, the return and refund procedures. Thus, I would have to make sure everyone working

in the company is in a same page, knows what to do and how to help the customers return the

phone and get their money back. In order to do so, organizing a special group of representatives

of the company to work with the customers through phone, email or in person, is highly

recommended. These representatives would be trained to treat the customers with respect, have
Running head: SAMSUNG GALAXY NOTE7 21

a good understanding of the situation as well as analyzing all information to report it back to the

company.

Conclusion

As many people had high hopes and expectations for the new Galaxy Note7 from

Samsung Electronics Co. Ltd. However, the long-awaited phone has backfired for the company

due to the overheating and exploding issues suffered in the palms of the customers. Reports of

Samsung’s Galaxy Note7 catching fire began to spread globally after the phone when on sales in

the beginning of August 2016. September 2nd, 2016, Samsung said in its press conference in

Seoul that it voluntarily recalled 2.5 million Galaxy Note7 devices in ten different markets,

including South Korea and the U.S. due to faulty batteries. The day of the first recall, the

company had received 92 reports of overheating batteries, 26 reports of burns and 55 reports of

property damages. September 8th, the U.S. Federal Aviation Administration told airline

passengers stop using and charging the phone while on planes. September 21st, Samsung

resumed the sales of the new phone with replacement batteries and a couple days later,

complaints started coming in after the new phone overheated and lost battery power quickly.

October 9th, Samsung said the company would discontinue the entire line of the Galaxy Note7

and issued a return refund program. In light of the first recall, Samsung stock price dropped

down 6.3% to US$1,329.73 and the total loss of its market value was US$14.3 billion. After the

second recall, the company showed a loss of US$17 billion market value with an 8% decrease in

common shares. Until now, the company has not yet discovered what caused the phones

overheat and explode, even though many experts in the field suggested that the problem came

from the design of the battery as well as the unbalance portion calculation of the phone. The

event also made a great impact on the company’s customer loyalty by the way it handled the
Running head: SAMSUNG GALAXY NOTE7 22

situation. Samsung chose to remain silent for days after the very first reports, arrange an under-

table compensation to its customers to cover up the mess, and make things more complicated to

the customers to get the refunds. One of the things that Samsung could have done was to take a

valuable time to investigate what the real cause of the problem is and to be more responsible in

the way it handled the situation with the customers.

Even though it seems like Samsung has no way to recover after the fall of its latest

smartphone, many experts said the company will slowly recover. The company’s closing stock

price on December 14ths has slightly increase 1.01% to KRW1,777,000. Samsung annual sales

of the fourth quarter will now depend on the sales of Galaxy S7 and S7 edge, which have done a

great job as it was outselling iPhone 6s in the U.S. in the first half of 2016.
Running head: SAMSUNG GALAXY NOTE7 23

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