Samsung’s momentous decision to discontinue all Galaxy Note 7 handsets because of their tendency to catch fire is going to hurt the company on many levels.
With at least 2.5 million units being recalled at a retail price of $850, we’re looking at a hit of at least $2.1 billion to start with. Damage to the brand is incalculable. Just last week, the Samsung brand was ranked as seventh-best in the world by Omnicom’s Interbrand, making it worth about $52 billion, up 14% from a year ago.
How far that value and rank falls in the next couple of surveys will be telling. When the crisis started developing, it seemed like Samsung’s response was relatively fast. It initiated a recall and started shipping a replacement that supposedly fixed the problem.
It seemed a forgivable episode. Until one of those replacements caught fire on an airplane. Over the past few years, Samsung has done a masterful job of navigating a crowded market where Apple extracts the lion’s share of profits at the top, and a slew of Chinese brands are slicing away at prices and margins at the bottom.
But charging a price premium becomes pretty untenable when your phones turn into hand grenades and you can’t explain why.