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Samsung Needs to Salvage Its Brand Value

By Motley Fool Staff – Oct 22, 2016 at 9:22AM

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Having made the decision to cut the Galaxy Note 7 line Samsung needs to focus on recovering its reputation.

Samsung is trying its best to isolate the damage to its Galaxy brand, which is a challenge because the company has spent lavishly over the years to build a unified brand.

In this clip from Industry Focus: Tech, Motley Fool analysts Dylan Lewis and Evan Niu, CFA, discuss some of the steps that Samsung is taking.

A full transcript follows the video.

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This podcast was recorded on Oct. 14, 2016.

Evan Niu: I think what's even more disconcerting about this whole thing is, Samsung still doesn't know what's wrong with the phones. They cannot figure it out. As recently as last week, there was a New York Times report that their engineers are still trying to replicate the problem, and they can't. That doesn't inspire a lot of confidence. It's one thing if they do this recall, they get the phones back, and they figure it out and presumably fix it. But, if they don't even know what's wrong, that's a huge question mark. It really calls to question all these other things about their future phones. I don't think any of their phones have had this type of problem, but going forward, unless they can figure this out and definitively say, "This is what caused it, and we have a solution ... "

This is totally unrelated, but hilarious. They also had washing machines that are now blowing up. I don't know if you saw that. A couple weeks ago, there were reports -- because, Samsung makes everything, and they have these top-load washing machines, and those are now exploding. Clearly, it's a totally different thing, because those don't use lithium ion batteries like the phones do. But it's kind of like, what's going on with everything?! (laughs) Washing machines, too?

Dylan Lewis: To layer on top of that, I think there are another couple reasons why this is a little bit different than your average product recall, or even food-safety-related issues, like what we've seen with Chipotle or Jack in the Box in the '90s. You talked about how they haven't been able to diagnose the problem, which doesn't inspire a lot of confidence in the other products they have out there.

I think one of the other issues is, there's a lot of confusion in the Galaxy line. You look out at Samsung's product offering, frankly, it's really hard to keep all their phones straight. They intentionally moved the Note to be on the 7 naming convention, to keep it consistent with the other offerings. Now, I think you're seeing people that aren't 100% sure which products are safe, and which aren't. I saw news that they had to push notifications, I forget which product, but it was one of their newer and higher-priced phones, that --

Niu: It was the regular S7.

Lewis: Right. That, those were not part of the recall, and the people who held those in their hands, if they were reading this notification, didn't need to worry about that. That's fine, but when you have a super fragmented offering, and a lot of the headlines are "Galaxy 7," and they're trying to distill it down to something like that ...

Niu: Yeah. For average consumers who don't follow this stuff as closely as we do, they just see some headline about Galaxy something, 7 something. There's a Galaxy S7, there's a Galaxy S7 A, there's the Galaxy Note 7. There's so many, and they're all part of the Galaxy brand that Samsung has put so much money into building. They put tens of millions of dollars into building this brand over the past five or 10 years. And now, this one horribly botched product risks killing all that brand value. It's not uncommon for Samsung to spend more money on marketing, advertising, kickbacks, commissions to retailers and all that, than it does on R&D. It puts a ton of money into this, and now, because they're unified, they're all getting dragged down. They're trying to contain this thing, like you said, notifications saying, "Your phone is safe." It sounds exactly like the phone is not safe. But, "The phone is safe, don't worry."

Dylan Lewis owns shares of Chipotle Mexican Grill. Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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