Samsung's communication strategy

By John Burton

In order to win back consumer confidence after the debacle of the Galaxy Note 7, Samsung Electronics needs to improve its communications strategy.

Journalists for years have complained about the tight-lipped nature of the company’s public relations efforts. Media inquiries were often met with vague answers. Samsung executives rarely granted interviews. The company was often seen as being arrogant in its dealings with the press.

If Samsung has been more open and transparent, it would have built up a reservoir of goodwill with the media that would serve it well during the bad times. But as the company’s now faces the greatest crisis in its history, one can detect a measure of schadenfreude in the media reports of its woes.

This communications failure is also reflected in the way Samsung has handled the recall of the Note 7, which threatens to turn into a huge PR disaster. Not only is Samsung to expect to suffer losses of $5.4 billion in profits through March 2017, but it could pay a greater cost in terms of reputational damage for the brand and marketing of its products.

Samsung’s preference for secretiveness about its operations has been shown in its inability or unwillingness to respond proactively to the crisis, allowing negative press to exacerbate the issue.

Samsung, for example, has not given clear or constantly updated statements on what has caused the problems with the Note 7 more than six weeks after they were first detected. The problem was first blamed on defective lithium-ion batteries, but other components or design issues may also be at fault.

This has undermined consumer confidence on whether other Samsung products are safe. Reports of exploding Samsung washing machines in Australia and U.S. have not helped matters.

The “problems with the Note 7 have raised long-term uncertainty about [Samsung’s] handset operations as the issues with the flagship model have highlighted weaknesses both in R&D capabilities and the company’s capacity to efficiently remedy serious hardware defects,” said Fitch’s, the international credit ratings agency.

The company’s crisis measures have been seen as ineffective, creating the impression that it is not on top of the situation, after the first recall was followed by a second one that spelled the demise of the Note 7. This allowed speculation and sensationalism in the press and social media to flourish.

Moreover, Samsung’s recall program has been marked by confusion, with different refund plans being offered in different markets, undermining confidence that customers around the world are being treated equally and fairly. There seemed to be a lack of a consistent and understandable across-the-board solution to addressing the crisis.

Samsung’s stumbles will now allow rivals, such as Apple, LG, Huawei and now Google with its Pixel smartphone, to take advantage and grab market share.

“Industry experience, such as the decline of Nokia and Blackberry, shows how successful manufacturers can lose market share particularly quickly in the handset business. This is due to the fast pace of technological change and the frequency with which consumers change their handsets,” Fitch noted. The handset division accounts for half of Samsung’s sales, although 38 percent of profits.

There is a persistent belief, which Samsung denies, that the company rushed to introduce the Note 7 ahead of the latest iPhone, creating problems in supply chain and quality control management.

The Wall Street Journal, for example, reported that a Samsung affiliate tested the batteries used in the Note 7 instead of following the standard industry practice of having them certified by an independent laboratory, which suggests a potential conflict of interest.

That raises a broader issue of how Samsung is managed and whether those involved in the supply chain and quality control process might have been afraid in reporting results that threatened to delay the launch of the Note 7. Such a disclosure, if true, could be particularly damaging to Samsung’s reputation.

It would also fuel to demands by Elliott Management, the U.S. hedge fund, to make Samsung more transparent by altering its ownership structure now controlled by the family of Lee Kun-hee.

What is happening at Samsung serves as a warning to other chaebol in terms of crisis management. Nearly all the chaebol are run in an authoritarian top-down manner and are often clothed in secrecy. This creates a silo mentality among different business sections that makes it difficult to make a flexible and coordinated response and communicate effectively when a crisis hits.

John Burton, a former Korea correspondent for the Financial Times, is now a Seoul-based independent journalist and media consultant. He can be reached at johnburtonft@yahoo.com.