The Impact of Faulty Galaxy Note 7 Phones on Customers' Perception of the Brand

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According to Eilert (2013), the level of customer involvement is determined by two factor; the degree of relationship marketing, and secondly the level of satisfaction a customer gets from using the product. Where a company uses high levels of relationship marketing and is in constant communication with consumers, they are more likely to have high involvement in the purchase decision of the product. Eilert (2013), further notes that where a company mainly uses transactional marketing, customers are likely to have low involvement in the purchase decision of a product and will switch brands more easily. Companies that have been able to establish better relations with their customers through relationship marketing will have highly interested customers, who will consider more when deciding on whether or not to purchase a particular product. Highly interested consumers are more likely to make a repeat purchase in future. In case of a product recall due to faults in the product, the degree of consumer involvement determines whether or not they will stick to the brand in future or switch to another brand. According to Eilert (2013), companies that have loyal customers as a result of high product quality and good relationship marketing are more likely to stick to a brand even after a recall.

Bortoli and Freund (2017), further examine the loss of trust by consumers after a product recall and conclude that its primary determinants include; integrity, competence, and benevolence. Consumers have high confidence in a brand when it has high competence, integrity, and benevolence. A competent product is one that can perform up to the expectations of a customer. Integrity relates to the fairness of a transaction, for example, a company should not overprice a product, depending on its features. Consumer trust in a particular product is therefore determined by how competent the product is and the integrity and benevolence of the party presenting the product to the consumer (Bortoli & Freund, 2017). Where the three variables are high, consumer trust will consequently be high and vice versa. The three variables are however independent and do not correlate with one another, i.e., a product may be highly competent, but the company may have low integrity and benevolence in dealing with consumers. Consequently, consumer trust will be little in a business where only one of the variables is present.

When a product recall occurs, all of three variables that determine consumer trust are diminished from the point of view of the consumer (Bortoli & Freund, 2017). Since the product will have failed in one way or another, its competence will be low. The integrity of the company manufacturing the product will also be called into question, as most consumers will believe the company was in a position to detect the fault in advance if it had tried hard enough. The benevolence of the company will also be called into question, as consumers will question its intentions and the means it is using to achieve success. As a result, the consumer trust in the affected product will diminish significantly, and their overall confidence in the company making the product will also be affected. During a recall, when the trust of consumers is greatly reduced, future versions of the concerned company’s brand will not have significant success in the market or will take a comparatively long time to do so. These studies show that in case of a recall, critical determinants of the losses suffered by a company include; its brand loyalty, the level of consumer involvement with the product and the level of trust that consumers still have on the brand or company.

Research Methodology

The research intends to determine the impact of the Galaxy Note seven recall on the overall brand image of the Samsung Corporation. A quantitative approach is selected to assess the damage done to the corporate brand image as a result of the recall. A financial based approach to measuring the brand of the company is used. A comparison is made on the value of the brand in the preceding five years, in comparison to the performance of the company in 2016 and 2017, the years immediately preceding the recall.

The financial based model of brand valuation measures the brand value of a company using the financial performance of the company, the costs incurred in a particular year and its control of the market. Regarding the financial performance of a company, the profitability of the business is used as a basis for determining its future performance and consequently how valuable the brand is. A strong brand is associated with a high profit performance in the recent past and the capacity to maintain the performance in future. The net profit after tax is used to gauge the profitability of the company for the years under analysis. Secondly, to determine the costs incurred by the company in both operations and the development of new products, the total expenses incurred by the company in each of the years under analysis is used to gauge the brand value of the company. This is important in the study each new brand introduced by the company requires research and development costs, in addition to the operating costs of manufacture and distribution of the finished product. Practically, Samsung launches a new cell phone brand each year and therefore spends significantly in research and development costs. The market share of the company will also be used to determine its brand value. The ability of a company to attract new customers and add on its market share determines the success it will have in the market and consequently its brand value. Samsung is one of the leading manufacturers of electronic goods worldwide and controls a substantial portion of the market, one of the factors that add value to its brand.

A regression model will be used to determine the impact of the Note 7 recalls on Samsung’s brand value.

A summary of the regression model is shown below

Y = α + β1X1 + β1X2 + β1X3 + ε

Y is the dependent variable in the model, which represents the overall brand value of the company as measured by the earnings per share.

α, β1, β2, β3, are constants that show the relationship between the dependent and independent variables

X1 - represents the financial performance of the company each year as measured by the net profit.

X2 - represents costs incurred by the company regarding both operation and research.

X3 - represents the market share of the company as measured