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THE NOTE 7 FIASCO: A SAGA OF ’S DISGRACE Mansi Arora Madan Assistant Professor, Jagan Institute of Management Studies, Research Scholar, Aligarh Muslim University, Aligarh

[Post Graduate in Marketing with Business management Graduation from Panjab University Chandigarh, the author has worked in the field of Public Relations and Advertising for like Reckitt Beckinser, ISB Hyderabad. After clearing UGC-NET in Management she has over 7 years of experience in teaching Marketing, Operations and HR subjects. She has taken a few management development workshops for middle level Managers in written communication, leadership skills and has also been holding the editorial Post for in house Publications at Jagan Institute of Management studies. Recently she was in the Peer Review Panel for Reviewing papers for an International Conference in Japan. With about 12 Research Papers to her credit presented at varied National and International conferences, she is now pursuing her PhD in strategic Management with Aligarh Muslim University.] Like every day morning, I got up to prepare my morning tea and went to my front balcony to pick up my morning dose of news. The morning was usual until I read “The death of Note 7”. I was thwarted as my husband had pre-booked the phone, as a gift for our 6th wedding anniversary. Although, the rumours were prevalent about the problems in Note7, but like every Indian, I had preferred to stay hopeful until last. The article in Indian Express read:

I. THE DEATH OF Samsung Galaxy Note 7, part of the company‟s flagship Note series that made big-screen phones popular, is now dead. Production for the phone, long considered one of the best Android devices in the market, has ended.When did this crisis start? Samsung Galaxy Note 7 was launched on August 2 and first went on sale in the US and South Korea in mid- August. The phone was supposed to be launched in India by the end of August, but that never happened.By September 2, Samsung recalled the phone, as reports emerged of Note 7 devices over-heating, catching fire and even exploding. Samsung promised it would fix the issue in newer versions of the phone. In the US, over 92 cases of Note 7 catching fire were reported.The replacement phones came with a green battery indicator to show they were safe. They went on sale by the end of September, but just a couple of days into October, the problems recurred. While they were being charged, Note 7 devices managed to burn down a jeep and a garage in two separate incidents in the US. The most serious case: A replacement Galaxy Note 7 caught fire inside a flight from Baltimore to Louisville, US, and passengers had to be evacuated. Since

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then, five other cases of replacement phones catching fire in the US have been reported, besides cases in South Korea as well

II. DOES SAMSUNG KNOW WHAT WENT WRONG WITH GALAXY NOTE 7? Its Note 7 appeared to have an issue with its battery. Like all premium Smartphone these days, this one also came with a non-replaceable lithium-ion battery. As has been reported recently, any fault in the manufacturing process can lead to the phone overheating, leading to fires. Samsung is also the world‟s largest manufacturer of lithium batteries. But the South-Korean firm didn‟t yet know what exactly went wrong with the phones. A report in The New York Times says Samsung engineers are still trying to figure out the problem. In the company‟s own labs they‟ve been unable to get a Galaxy Note 7 to explode. The report also says the engineers were under pressure to fix the problem. So the conclusion they hastily arrived at was that defective batteries from one particular factory caused the issue in the first case. After which, the sales resumed by theend of September, only for the problem to return.

III. HOW DOES THIS AFFECT SAMSUNG? Note 7 was its new flagship device. For Samsung, 2016 started on a great note thanks to its S7 and S7 Edge, which did very well and helped the company‟s mobile division report big profits. The Note 7 was supposed to boost all of this and Samsung was expected to sell 14 million of these devices. With reports of the fires in replacement phones and news of production coming to a halt, Samsung‟s stock has taken a beating in the market. The company has lost nearly $17 billion in market share since the replacement Galaxy Note 7s started exploding. Now Samsung has cut profit estimates for its third quarter by 2.6 trillion won or nearly $2.3 billion. So yes, for Samsung, the Note 7 was an important phone, one that would have helped it continue its profits in the crucial holiday quarter. With launching its own premium and Pixel XL and Apple‟s iPhone 7 plus now out, Samsung has lost control of the crucial premium segment of Smartphone. For now, Samsung is working with the US Consumer Product Safety Commission (CPSC), asking all customers to power down their phones and return them. Well, the consequences didn’t end here. One Man’s loss is another man’s gain- according to an IDC survey, nearly half of the Note 7 owners in the US will choose an Apple iPhone to replace their recalled device.

IV. BACKGROUND The first mobile phone which started the trend of a large screen hand held device and became widely spread as the first commercially successful “” (a word concoction between “phone” and “tablet”) was none other than 2011 Samsung Galaxy Note. An obnoxiously overspec‟d and unnecessarily large device was expected to tank during those times. However, things happened otherwise. The debutant phablet pioneered the idea of making notes on phone with the ease of writing in a notebook with the help of a stylus (S-pen) and became the most successful Smartphoneline-ups till date. Note series eventually was made skinnier than each of its successor, with better features updated specs, improved display, thus unleashing a different experience of using a Smartphoneto users. While Note2 was

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evolutionary in 2012, Note 3 was revolutionary. The phone boasted of sophisticated overhaul feel with an exceptional camera experience. The expectations from the note series were now building up, so Samsung decided to introduce Note 4 as a complete powerhouse of its time. The device was introduced in 2014 with short lived microUSB3.0 port for faster charging and data connectivity as well as a slew of new s-pen related functions. The air command view with s-pen alone managed to elevate its attractiveness to customers. Also, by 2014 Samsung‟s dominance in smart phone world was unquestionable. Their strategy became more focused by announcing its flagship phone in the Galaxy S series during the first half of the year, while reserving the second half to the new offering from their note series. To propel the consumers more Samsung, also started to offer variants to existing series with -a curvy experience. While Note followers loved the new experience, most of the consumers took it as marketing gimmick of a same product.Following the receptive responses, several new changes came along with 5th generation model in 2015. Note 5 had the most premium look and feel with glass and metal construction, more responsive fingerprint sensor, heart rate sensor and an update S-pen with auto-eject mechanism. It was blessed with rapid charging in addition to wireless charging which made the consumers enjoy the wonders brought on with Note5. Well, after the wonderful series, what do we expect it to offer? With the intentions to launch nothing less than magnificent Samsung announced to skip the next generation of the galaxy note series i.e. and will jump to Note 7 to bring it in line with Galaxy S family.

V. THE SAMSUNG SMARTPHONE STORY Post iPhone, the era of Smartphone began in 2008 and 2009. Samsung, along with many others was hopelessly amongst many Smartphone crowd brands. It relied mostly on the retailers push strategy to sell their devices and had to separate branding to their credit. By about 2009, Samsung decided to something to build its value in growing Smartphone industry. Samsung introduced a line of flagship phones designed to run android on devices with revolutionary new screen technology called Super AMOLED, that it first wanted to put in someone else‟s device. Samsung had always provided chips and displays for other manufacturers, and it wanted to license its super AMOLED tech the same way. Eventually Samsung decided to make its own hi-end Smartphone to compete with the iPhone, but didn‟t wanted to continue with “Samsung” name as it was already synonymous with cheap flip phones and really nice TVs. During those, times, Samsung was barely recognizable amongst the names like Apple, Blackberry and . So, Samsung created a luxury sub-brand for its Android smart phones called Galaxy. In March 2010, Samsung unveiled the Galaxy S, the first in what would become its successful line of Android phones and tablets. Its specifications rivalled the iPhone, for which Samsung was heavily criticised to have copied phone‟s software and physical appearance. Without being bothered by criticism, Samsung moved forward and got AT&T to agree to sell the Galaxy S, even though it was sure to be a strong rival for the iPhone.

VI.THE SMART RACE Even after the success of Galaxy S, Samsung was still behind android rivals like HTC. Both companies were making good phones, with none proving to be better. As Samsung prepared to launch the successor with the Galaxy SII, in the spring 2011, it formulated a strategy to market the device in U.S.

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In U.S., Koreans had opted to collide directly with the market leader Apple, thus surpassing HTC, Motorola and blackberry in one go. It was a gamble and “The Next Big Thing” campaign was launched. The campaign rose to success with glorious media and consumer responses for Samsung to have out witted Apple. The derogation that Samsung had once got for imitating Apple subsided when Samsung out-innovated Apple with . The Galaxy Note Series...

VII. INDIAN SMARTPHONE INDUSTRY OVERVIEW India is at the tip of digitization era driven by widespread adoption of mobility platforms and solutions. With the increasing support of Indian government, over 90% of total internet users in India have access to mobile internet. Ease of access to content and language localization has led Smartphone to outpace feature phones in India with 27.5 million devices sold in second quarter of 2016. This is observed to be 17 percent more than the previous quarter (according to IDC). Prevalence of internet-enabled services on Smartphone and immense competition leading to price reductions, India has become the second biggest Smartphone market in terms of active unique Smartphone users, crossing 220 million users, surpassing the U.S. market (report by counterpoint research). This has led experts to anticipate mobile subscriptions to hit 1.4nillion by 2021(says Ericsson Mobility report released in June 2016).

According to the Morgan Stanley Research report on global technology and telecom, the country‟s Smartphone market will grow at a compounded annual growth rate (CAGR) of 23 percent through 2018 and would account for 30 percent of the global growth during the period.

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The revolution has been evident with the way the Smartphone has changed the way we live a routine. The pace and automation it has brought to our lives is phenomenal. From information sharing to shopping to monitoring our fitness and time management, Smartphone with their applications have virtually made almost everything possible by a handheld device. While there are many national and international players in Smartphonemarket, Samsung has led the India Smartphone tally with 25 per cent share. Interestingly, Reliance Jio, which forayed into the market this quarter itself with brand „Lyf‟, cornered 7 per cent share.Others in the list included Micromax, Intex, and Karbonn. Apple recorded a stellar 62 per cent growth in the first quarter from year-ago period, though on a lower base, thus registering back-to-back sequential growth in spite of negative growth results globally for .

VIII. THE REMEDIAL ACTION To counter the effects of the damages caused by a poor product design, Samsung had issued an official statement, given below for your reference. Official Statement for Note7 Customers –Issued by Samsung As you may be aware, globally Samsung has discontinued the production and sale of Galaxy Note7. Although Galaxy Note7 was not sold in the Indian market, we still strongly urge all our Galaxy Note7 customers to immediately power down their devices and contact our Call Centre For Air Travellers’& Airport Announcement If you are a Foreign National or an International Traveller currently in India and are planning to travel, we advise you to visit the nearest Service Centre and hand over your Galaxy Note7 device to our Service Centre representative. You will receive an acknowledgement receipt, which can be used to avail of the Refund program

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available in the country where you purchased the device. You need to visit the authorized Samsung Service Centre of your country to avail the refund. Alternately, to ensure that you are not inconvenienced, we shall also be arranging a “Loaner” handset (for International Travellers, the working of these units may depend upon the Handset frequency bands available in your country). The loaner unit, along with the Acknowledgement Receipt, need to be returned in your respective country for availing the Refund. This facility of availing loaner units is available at all our service centres and select airports. To know more details please call our Call Centre We would also like to inform you that as per a DGCA advisory, carrying Galaxy Note7 aboard on aircraft is prohibited until further instructions. Although we did not sell Note7 in India, we are working with Airline Authorities in India to ensure you are not inconvenienced. Your safety is our priority and we urge you to comply with the DGCA advisory. Refund: Refund for Prebook customers: For all our Prebook customers interested in refund, we are offering a Full refund of your prebook amount. All those customers who have purchased the Galaxy Note7 from overseas markets, we are offering a full refund, equivalent to the Invoice Value. Customers not carrying the Invoice are advised to contact our Call Centre for details of the refund process. The Refund will be processed only for Customers having Indian Bank accounts and transaction will be done only in Indian currency. For Prebook Customers For all Note lovers who pre-booked the device in India and have waited patiently, we would like to extend our deepest gratitude. As a small gesture, we have made an offer on Galaxy S7 edge/ Galaxy S7 in lieu of your prebooking on Galaxy Note7. This Offer shall be valid for Eligible customers who purchase & activate Galaxy S7 or Galaxy S7 Edge from 2nd September to 7th November 2016. On purchase of edge/S7, you will get the following benefits: [1] Samsung Gear VR to you absolutely free [2] Samsung Level U - Stereo Wireless Headset absolutely free [3] To deliver the best experience on your Gear VR, we would be gifting you an VR content [4] Voucher worth INR 3,300 approx. ($50) absolutely free [5] In addition, we would also offer you One Time Screen Replacement for a period of 12 months from date of activation QUESTIONS Q.1 What were the strategies undertaken by Samsung to create and establish a new product category? Q.2 What were the challenges involved in sustaining the image of a popular brand? Q.3 What are the reasons for the stumble of Samsung as a brand in Smartphone Industry? Q.4 Critically examine the remedial strategies adopted by Samsung in the given circumstances? Q.5 Suggest an alternative course of action for Samsung to regain its lost credibility in Indian Smartphone market.

IX. TEACHING NOTES This teaching note accompanies the case study titled “The Note 7 Fiasco: A saga of Samsung‟s disgrace”.

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Overview This case study outlines the strategic, marketing and organizational issues faced by Samsung in Smartphone segment globally. Samsung in its urge to grow with dynamisms of technology has considered the development of products which encompasses many opportunities of breakthrough and disruptive innovations. These innovations are composed of capabilities and capacities which face uncertainties‟ and challenges within the firm and beyond. From a teaching stand point, the case shall allow the instructor to unleash the internal decisional and application issues responsible for the failure of a product. It may also bring out various uncertainties faced by business and methods to mitigate those qualms may also be discussed. Application The case can be used by Management faculty equipped with unbiased strategic and critical thinking approach. The faculty and students may be able to discuss the case on the courses listed below:  Strategic Management  Business Environment  Total Quality Management  Business Ethics  Brand Positioning and Repositioning Strategies. The list is although not exhaustive but only indicative in nature and may suit some subtopics while teaching various courses of management curriculum. Case Objectives The case is complex and decisive in nature and encompasses following objectives: 1. To reckon the growth of Smartphone Industry in India. 2. To study the success story of Samsung . 3. To analyse the reason behind the stumble of Samsung in India. 4. To find out the consequences imposed on the brand entity of Samsung smartphone. 5. To suggest an appropriate return strategy for Samsung in India. Case Methodology To study the case descriptive research design has been used. The data used for this study is secondary in nature. The data was searched in on line journals and websites of news channels and newspapers. Television channels debating about the issue and responses of the consumers interviewed by them have also proved helpful for this case. Suggestive Teaching Outline Teaching this case begins by asking students/ participants to individually read and think prior to the class. A 15- minute narration by the participants/instructor may be useful before beginning the case discussion. Some of the mistakes done by the Samsung implicit in the case is given below in an exhibit from a newspaper coverage. Instructor may refer to the exhibit to unveil different facets of mistakes done by Samsung during this time.

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Exhibit-1 How well did Samsung handle the replacement of the Note 7s? Not too well. Even in early September, when the first fires and explosions began to be reported, the company hesitated in issuing „an official recall‟ and was criticised by US watchdog group, Consumer Reports. Even when the replacement phones started catching fire, the company didn‟t stop sales immediately. It was only on October 10, four days after a Note 7 caught fire inside a plane, that sales and exchanges for older phones were stopped. More so, emails from consumers have shown that the replacement process was confusing. In an email to US tech website, The Verge, a customer writes how the Samsung team had very little clarity about the replacement process. The email also said the team has “limited information on a lot of process at the time”. Source: The Indian Express Instructor may also use this case as a tool to explain theoretical concepts related to repositioning strategies shown with the help of matrix below.

REFERENCES [1] Dhapola. Shruti, (October 13th 2016). “The Death of Samsung Galaxy Note 7”. Retrieved from http://indianexpress.com/article/technology/mobile-tabs/samsung-galaxy-note-7-users-gravitate-towards- apple--7-after-recall-report-3730572/ [2] IDC. Press Release, (August 19‟ 2016). “After Successive Decline For Last Two Quarters, Indian Smartphone Market Recovers With 17 Percent Growth In Q2 2016: IDC India”retrieved from https://www.idc.com/getdoc.jsp?containerId=prAP41685916 [3] K. Peter, (August 5th 2016).The evolution of Samsung‟s galaxy note line: from the first note Pioneer to the bold new Note 7 retrieved from http://www.phonearena.com/news/The-evolution-of-Samsungs-Galaxy- Note-series---from-the-first-S-Pen-knight-to-the-Edge-of-all-phablets_id61692 [4] Kovach. Steve, (February 28‟ 2015). “How Samsung won the Smartphone wars, then blew it” retrieved from http://www.businessinsider.com.au/samsung-rise-and-fall-2015-2 [5] Official Statement for note 7 customers accessed on 2nd November „2016 on http://www.samsung.com/in/note7/official-statement.html

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[6] PTI, (May 1st 2016). “India Smartphone market up 23% amid flat global growth” retrieved from http://www.thehindu.com/sci-tech/technology/india-smartphone-market-up-23-amid-flat-global- growth/article8544012.ece [7] PTI, New Delhi (April 23rd 2016). “India to become second largest Smartphone market by 2017” retrieved from http://indianexpress.com/article/technology/tech-news-technology/india-second-largest-smartphone- market-2017/ [8] Rajan. Nandagopalan, (October 10th 2016). “Samsung continues to burn its hands with Galaxy Note 7” retrieved from http://indianexpress.com/article/technology/opinion-technology/samsung-continues-to- burn-its-hands-with-the-galaxy-note-7-3075280/ [9] Taylor Harriet (September 21st 2016), “How India is shaping the Global Smartphone Market” retrieved from http://www.cnbc.com/2016/09/21/how-india-is-shaping-the-global-smartphone-market.html [10] Tech Desk. (November 1st 2016). “Samsung Galaxy Note 7 users will choose iPhone7 after recall: Report” retrieved from http://indianexpress.com/article/technology/mobile-tabs/samsung-galaxy-note-7-users- gravitate-towards-apple-iphone-7-after-recall-report-3730572/ [11] Velasco. John, (July 15‟2016). “A history of Samsung Galaxy Note Series. Big Phones, Big Business” retrieved from http://www.androidauthority.com/samsung-galaxy-note-history-702279/ [12] Whitepapers; “Smartphone Market it India” accessed on September 3rd 2016 from http://zinnov.com/india- smartphone-market-in-india/

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