October 2016

Reputation Risk Bigger Than Cost Of Product Recall For Samsung

That was the title of a piece from credit ratings agency Fitch this week.  It is an article that will silence any doubters who may consider reputation cannot be quantified in terms of financial value.

The statement from Fitch is significant because a credit agency is talking about the cost of reputation risk being quantifiable through its effect on credit profile, a factor critical to Samsung’s survival.

Samsung already recalled 2.5 million Note 7 smartphones in September 2016 and this month decided to stop production of the Note 7 handsets, a decision estimated to cost USD2.3bn.

However, it also highlights that Samsung cannot allow itself to become too associated with such reputation risks.

The damage caused to its reputation already raises long term uncertainty about Samsung’s handsets, highlights weaknesses in its R&D capabilities and the company’s ability to remedy serious hardware defects.

In a highly competitive market, where consumers are frequently switching to the latest handsets, Fitch warns that its easy for damage to company reputation to see a rapid loss in market share.

This is a timely example of the need for organisations to manage their valuable reputation an asset.