Has the 'exploding batteries' saga damaged Samsung's brand in LatAm?

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Monday, January 30, 2017

The fiasco of the Galaxy Note 7's "exploding batteries" – or "overheating" in the words of company executives – caused billions of dollars of losses for Samsung Electronics with a recall, suspension of global sales and halted production.

The debacle represented a major blow to the South Korean firm's brand and damaged its image, which is something much harder to quantify and restore than financial and operational losses.

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The consequences could go beyond the Note 7 itself as mistrust tends to spread to the group's other products and lines that were not directly affected by the battery problem.

Right after the suspension, DJ Koh, Samsung's mobile chief, was quoted by The Korea Herald as saying that he would "at any cost find the exact cause [of the fault] to restore the trust of consumers so that they can use Samsung products without any safety concerns."

But how much of an impact did the saga have on Latin American consumers, who have been among the most loyal to Samsung's products?

Samsung is the frontrunner in Latin America, with a market share of around 33-40%, depending on how it's measured. Its closest competitor is LG or Motorola, with Apple usually ranking fourth.

The Note 7 phablet had not been launched in Latin America when the problem occurred, and still hasn't been. But a spillover effect could have had an impact on other smartphones and devices.

According to André Varga, ‎product director at the mobile division of Samsung Brasil, the company closely monitored local sales after the battery problem and maintains no abrupt change was detected.  

"In general, sales didn't fall," Varga told BNamericas during the launch of the new Galaxy A models in São Paulo, insisting that the same is true of other Latin American markets.

The executive said Samsung is optimistic about smartphone sales this year in Brazil, but he did not elaborate. IDC predicts sales will grow 3.5% in 2017 following a drop in 2016.

Samsung doesn't publish specific figures, but Varga admits that IDC's estimates "are close to reality."

"The segment above 1,900 reais [US$605] is selling very well and this is why we bet on an increase in sales," he added.

In Brazil, the Galaxy 45 and the Galaxy A7 were launched with suggested retail prices of 2,099 and 2,299 reais, respectively.

Worldwide, Samsung reported lower mobile phone revenues in Q4 after the problems with the Galaxy Note 7, although improving on Q3 when the impact was most notable. Overall group results in Q4 grew, driven by semiconductors and displays.

Varga said brand impact exists but is relative, citing that even in markets where Note 7 was available many clients opted to keep their phones and not demand a replacement or reimbursement.

LATIN AMERICAN PLANTS

During the event, the executive said the company's two manufacturing plants in Latin America – both in Brazil – are following new safety standards established for battery production and certification, as announced during a press conference last week in South Korea that presented the results of the battery probe.

The two factories – in Manaus and Campinas – supply most Latin American markets, although some products are imported from Asia, Renato Citirini, senior product marketing manager at Samsung, told BNamericas.

FLIGHTS BAN

As the company works to improve its image, a remaining issue is the inflight ban on the Note 7.

In a statement, the US Federal Aviation Administration said announcements warning passengers not to take the smartphones on planes will no longer be legally required before boarding, but stressed that the ban remains in effect.

The end of the pre-flight warnings brings some relief to the company at this turbulent time, and Varga expects the measure to be adopted by Brazil's civil aviation authority, Anac, in the coming weeks.