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Analysis of Galaxy note 7 explosion and stakeholders

I. Introduction

Samsung Electronics is unquestionably one of the biggest names in the electronics

industry. Samsung has made numerous impressive advancements in the smartphone

industry through numerous development steps as well as the leadership team's research

efforts. In 2013, Samsung surpassed Apple to take the title of the most lucrative phone

manufacturer worldwide (Garside Juliette, 2013). According to Forbes magazine,

Samsung is currently ranked fourth among the top 20 technological corporations in the

world (Forbes, 2022). Samsung is a significant manufacturer of electronic parts and a

major global partner of industry behemoths like Apple, Sony, and Nokia. Since Samsung

entered the smartphone market, a number of the cutting-edge and contemporary

products have emerged. The development of Samsung is linked to well-known devices

like the Galaxy S and Galaxy Note. If not for the Galaxy Note 7 series crisis in 2016,

Samsung's reputation would undoubtedly be improving. Due to the success of the

previous models, when Samsung unveiled the Galaxy note 7, it was warmly embraced

by consumers all over the world and received twice as many pre-orders than its bigger

brother S7 resides in Korea (이지, 2016). This phone from the beginning was predicted

to become a huge hit to help Samsung maintain its position in the smartphone industry.

However, problems began to appear when the first Galaxy Note 7 recorded exploded in

its home market of South Korea and followed a series of similar explosions around the

world. Slow response and a series of things happening in a row without understanding

the cause have led to a very serious crisis affecting Samsung's reputation as well as

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revenue. The analysis of the Galaxy Note 7 problem and its effects on the relationship

between stakeholders and the corporation will be the main topic of this assignment. We

will also discover the strategies used by Samsung to resolve the issue, preserve

relationships with stakeholders, reclaim the company's position, and make a successful

comeback in the smartphone market.

II. Body

1. Issues analysis and its impact on stakeholders:

The galaxy note 7 battery exploded

On August 2, 2016, Samsung formally unveiled the Galaxy Note 7, which has

remarkable improvements to both the external and internal architecture. This is seen as

a capable rival to Apple's impending iPhone 7. Samsung released the phone on August

19, 2016, in ten nations, including China, Korea, Canada, and the USA. The long lines

of customers waiting up for items early to possess it gave the phone a warm welcome.

However, Samsung didn't rejoice for long when the first case of the Galaxy Note 7

exploded on August 24, 2016, just 5 days after it was introduced. On social media,

images of the burnt phone quickly became popular. Many similar explosions were

recorded in the days that followed. Globally, there were 35 cases of Note 7 exploding

as of September 2. Samsung was forced to announce the first recall and stop selling the

phone. Additionally, Samsung and several major US carriers have begun offering

customers product renewal and refund programs. In the initial batch, a total of 2.5

million Note7 units were recalled. The cause of this problem lies in the faulty battery

part of the product. The impact of the incident is increasing when the US Federal

Aviation Administration advised passengers not to turn on and charge the Galaxy Note

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7 on board the plane, nor to put it in checked baggage (Federal Aviation Administration,

2016). Shortly thereafter, on September 15, US safety regulators officially issued a recall

request for the Galaxy Note 7 smartphone after recording 92 reports of the batteries

overheating in the US, including 26 reports of burns and 55 of property damage (The

Guardian, 2016). It seemed that after the introduction of a new replacement, the situation

could change, however, unfortunately for Samsung, the newly replaced Note 7

continued to experience the same situation. A Note7 is believed to have caused smoke

and scorching carpets on a Southwest Airlines flight, prompting passengers to evacuate

the plane (Christine Wang, 2016). The increasingly adverse situation and unresolved

questions led Samsung to issue a second worldwide recall of all Galaxy Note 7 products

and permanently stop production export of this phone.

Issue impact on stakeholders

The Galaxy Note 7 explosion issue has had a significant impact on both Samsung and

its relationships with various stakeholder groups. Stockholders are the first group of

stakeholders impacted. Their relationship with Samsung has been affected in turn after

two related announcements about the Galaxy Note 7 caused the company's stock value

to fluctuate markedly. The company's common stock price dropped 6.3% after Samsung

announced the recall of the Galaxy Note 7 in the first batch on September 2. This was

the lowest level since the decline in July of the same year. In addition, after the US

Federal Aviation Administration announced that the Galaxy Note 7 was a fire hazard,

investors wiped more than $14.3 billion off Samsung’s market value (Se Young Lee

and Nataly Pak, 2016). Followed by a second decisive event, when Samsung

officially announced the death of this phone, the company's stock price plummeted

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by 8% and the market capitalization evaporated by $ 17 billion. In this instance,

the stakeholders were able to work together to confront and handle the problem,

preserving their relationships with the business. Samsung was able to promptly

and effectively correct the situation. Next is the group of consumers, retailers, and

distributors - this is the stakeholder group with the most affected relationships in

this event. Phone batteries failed and caused a series of explosions and caused

stakeholders to suffer related health effects, threatened lives, and destroyed

property. Distributors and retailers have been under pressure from customer

complaints that have damaged their reputations. In the early stages of the incident,

Samsung did not speak out in time, causing this group of stakeholders to feel

worried, angry, and criticized the company.

2. How the firm tackle issues and its impact.

To solve the problem and manage the relationship with stakeholders, Samsung chose

the strategy of apologizing and taking full responsibility instead of ignoring the public.

Samsung is fully aware that daily users have access to a wealth of information on social

media, and that if they don't act swiftly, a number of rumors will spread that make only

exacerbate the situation. At a press conference conducted on September 2 in Seoul,

Samsung Electronics mobile head Koh Dong-jin apologized to all parties involved and

accepted full responsibility for manufacturing errors after learning about 35 Note 7

explosion cases (Lee Ji-yoon, 2016). Samsung went out to reassure the public even

though at the time it was still unclear what had caused the mishap. Samsung has also

announced a broad recall, and customers can visit electronics shops to get their money

back or trade it in for a new Galaxy Note 7. However, soon after, the replacement

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products themselves also exploded, and Samsung realized that the cause of the explosion

was not only the structure of the batteries. Therefore, on October 10, Samsung decided

to globally recall all products for the second time. A few hours later, on October 11, the

business made another official announcement: it would no longer manufacture or market

the Galaxy Note 7 series going forward. This is undoubtedly a very difficult choice for

Samsung because it impacts both income and the company's reputation. However,

Samsung has also demonstrated through this statement that they care deeply about

customer safety, they help to calm consumer fears and partly strengthen the belief in a

large corporation. Immediately following the announcement of the recall and

discontinuation, Samsung was quick to offer financial incentives to customers in the

United States. A new Samsung Note 7 refund and exchange program was quickly

implemented. Customers have two alternatives under the program: they can replace their

Note 7 with another Samsung product and receive an extra $100 in cash. In contrast,

customers would receive $25 in cash if they choose to exchange a phone from another

manufacturer (James Vincent, 2016). With the aim of preserving consumer and brand

loyalty, Samsung is employing a really clever method. In addition, Samsung ran ads for

the official apology in the top 3 US newspapers: The Wall Street Journal, The New York

Times, and The Washington Post (The Korean Herald, 2016). This action demonstrates

how deeply concerned Samsung is with its consumers, retailers, and other stakeholders

who have been harmed by its smartphones. To find the cause and give answers to

stakeholders. Samsung has set up a laboratory where 700 researchers have tested more

than 200,000 phones and 30,000 batteries under the most extreme conditions. Samsung

has used all possible scenarios with the desire to find answers and save the company's

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reputation and relationship with its stakeholders. Finally, 3 months after issuing the

recall notice, on January 22, 2017, Samsung held a press conference in Seoul, explaining

the exact cause of the explosion to the media (Alyssa Newcomb, 2017).

Samsung has earned the hearts of the public and keeps building consumer loyalty with

its attitude of striving to improve in the future and responsible activities. After the

Galaxy Note 7 disaster, 70% of consumers reportedly decided to continue supporting

Samsung, according to research firm BayStress (Mike Dano, 2016). More than 45% of

customers still remain loyal to Samsung, according to different research (Dorottya Sári,

2016), and while they may not choose to purchase items from the Galaxy Note range in

the future, they will continue to support and purchase other Samsung products. After a

year, Samsung unveiled its successor, the S8, which was the company's first premium

smartphone since the recall of last year's models. This S8 made a significant contribution

to Samsung's record-breaking 2018 earnings (Timothy W. Martin and Eun-Young Jeong,

2017). This demonstrates that consumers still believe in and intend to use Samsung

products.

Although Samsung has done a great job in managing and maintaining trust with
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customers, they still have problems managing the crisis. The first time when it

discovered the first Galaxy Note 7 exploded, Samsung ignored the incident and even

questioned how customers used the phone. It was not until the number increased to 35

cases and a series of customer complaints that Samsung stood up to explain and issue a

recall notice. The failure to update any explanation on social media has caused Samsung

to be criticized for being slow to grasp information and met with criticism from the

public.

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III. Conclusion:

The Galaxy Note 7 incident is an unexpected thing that will happen to all phone

companies. It has greatly damaged Samsung's finances as well as its reputation. Through

this crisis, we see that Samsung is a big corporation but the crisis management still has

quite a few problems, especially with regard to the handling of public relations during

the crisis occurs. However, to correct mistakes and build trust with customers, Samsung

has done a great job. The recall of the Galaxy Note 7 will certainly be a great loss for

the corporation, but Samsung still accepts it. This shows that Samsung is interested in

and willing to take responsibility for its products. Along with actions after the recall

such as establishing a laboratory to find out the cause or offering a return program, this

proves that Samsung has handled and managed the relationship with stakeholders very

well. It is thanks to smart steps that Samsung has quickly regained the sympathy of the

public and continues to maintain its position at the top of the preferred smartphone

manufacturers.

IV. Reference

Forbes, 2022. The World’s Largest Tech Companies In 2022: Apple Still Dominates As

Brutal Market Sell off Wipes Trillions In Market Value. Retrieved from

https://www.forbes.com/sites/jonathanponciano/2022/05/12/the-worlds-largest-

technology-companies-in-2022-apple-still-dominates-as-brutal-market-selloff-wipes-

trillions-in-market-value/?sh=3bd4b3113448

Garside Juliette, 2013. Samsung Overtakes Apples As World’s Most Valuable

Profitable Phone Market. Retrieved from

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https://www.theguardian.com/technology/2013/jul/26/samsung-apple-profitable-

mobile-phone

이지, 2016. Samsung Galaxy Note 7 preorders double those of S7 in Korea. Retrieved

from

http://www.koreaherald.com/view.php?ud=20160809000267#:~:text=Samsung%20El

ectronics'%20new%20smartphone%20Galaxy,ever%20for%20a%20Galaxy%20phone

Federal Aviation Administration 2016. FAA Statement on Samsung Galaxy Note 7

Devices. Retrieved from https://www.faa.gov/newsroom/faa-statement-samsung-

galaxy-note-7-devices-0?newsId=86424

The Guardian, 2016. US regulators issue official recall of Samsung's Galaxy Note 7

phone. Retrieved from https://www.theguardian.com/technology/2016/sep/16/us-

regulators-issue-official-recall-samsung-galaxy-note-7-phone

Christine Wang, 2016. Smoke from Samsung device led to evacuation of Southwest

flight. Retrieved from https://www.cnbc.com/2016/10/05/smoke-from-samsung-

device-led-to-evacuation-of-southwest-flight-.html

Se Young Lee and Nataly Pak, 2016. Samsung Stock Plunges Amid Massive

Galaxy Note 7 Recall. Retrieved from https://time.com/4487359/samsung-galaxy-

note-7-recall-stock/

Lee Ji-yoon, 2016. Samsung issues recall of Galaxy Note 7 globally. Retrieved from

https://www.koreaherald.com/view.php?ud=20160902000797

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JAMES VINCENT, 2016. Samsung is offering Note 7 owners up to $100 credit to

return their phones. Retrieved from

https://www.theverge.com/2016/10/13/13267674/samsung-note-7-refund-exchange-

official

The Korean Herald, 2016. Samsung runs apology ad over Galaxy Note 7 recall.

Retrieved from http://www.koreaherald.com/view.php?ud=20161108000116

Alyssa Newcomb, 2017. Samsung Finally Explains the Galaxy Note 7 Exploding

Battery Mess. Retrieved from https://www.nbcnews.com/tech/tech-

news/samsung-finally-explains-galaxy-note-7-exploding-battery-mess-n710581

Mike Dano, 2016. BayStreet: 70% of Galaxy Note 7 owners will stick with Samsung.

Retrieved from https://www.fiercewireless.com/wireless/baystreet-70-galaxy-note-7-

owners-will-stick-samsung

Dorottya Sári, 2016. The change in brand loyalty towards Samsung after Note 7

explosions. Retrieved from

https://www.academia.edu/43780967/The_change_in_brand_loyalty_towards_Samsun

g_after_Note_7_explosions

Timothy W. Martin and Eun-Young Jeong, 2017. Samsung posts record profits on

back of strong Galaxy S8 sales. Retrieved from

https://www.marketwatch.com/story/samsung-posts-record-profits-on-back-of-strong-

galaxy-s8-sales-2017-07-26

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